The State of Tenant Laws in the U.S.

Main Takeaway:?As we see regulatory burdens on landlords?increase, there are a number of state-level tenant protections that are worth noting including tenant screening, rent and rent increases, security deposits, and evictions. The diversity in state-by-state laws governing the tenant-landlord relationship should help inform decisions and the markets we invest in.

Story: Two weeks ago Freddie Mac?released?an inaugural comparative analysis of tenant protections at the state level. The report looks at the approaches different states take to govern the relationship between tenants and landlords.?

Some of the highlights from the findings include:

• Three states (6%) have state-wide limits on rent increases.
• Three states (6%) grant a right to counsel in an eviction proceeding.
• Seven states (13%) have laws prohibiting a landlord's use of certain information, such as a tenant's criminal history, when screening tenants.
• Forty-four states (85%) have laws prohibiting eviction or other forms of retaliation by a landlord in response to a tenant's exercise of their legal rights.
• Forty-four states (85%) require landlords to give tenants notice of rent payment defaults before the landlord can begin the eviction process.

This is a wide-ranging report, broken down into 5 key sections for multifamily investors and owners.

Tenant Screening

Seven states expressly prohibit the use of specific information when screening tenants, such as criminal records (Colorado, Connecticut, Illinois, New Jersey, New York, and the District of?

Columbia). Further, twenty-one states have laws that prohibit discrimination based on the source of income, however these a highly nuanced at the state level. For example, in Delaware and Maine, the state laws state that failure to participate in a rental assistance program, voucher, or certificate system does not constitute income discrimination.

We have seen many tenant screening tools emerge over the past few years as digital adoption is increasing in our industry. As with other aspects of our industry, law and policymakers are increasingly becoming more involved in regulating this aspect of the landlord-tenant relationship.?

For instance, the Consumer Financial Protection Bureau (CFPB)?released?a report addressing over 26,700 complaints related to tenant screening applications over a 2-year period. Most of these are related to inaccurate information, but others revolve around the use and misuse of tenant information in these reports.

Cooley?comments?on the above CFPB report:

“The reports do not announce immediate legal action or regulatory reforms, but reflect…[a] continued commitment to address inaccuracies in consumer reports, and its intent to coordinate with other federal agencies, such as the FTC, as well as state agencies, to hold participants in the consumer reporting industry accountable. Given that the CFPB’s interest in tenant protections is clearly shared by the FTC, as well as the White House, we expect that coordinated investigations and enforcement, in particular, of tenant screening companies, may be on the horizon.”

Rent

Only three states have statewide rent control measures (Oregon, California, and the District of Columbia). The reverse is true, with some states prohibiting the use of rent control measures at the municipal level. “Our research also showed how state-level approaches differ regarding regulation of local-level rent controls. Some states, like Missouri, have statutes that expressly prohibit counties and cities?from adopting rent control laws, whereas other states, like New Jersey, have numerous?municipalities with rent control ordinances.” Finally, most states require a minimum of 30 days' notice for rent increases.

Security Deposits

Twenty-nine states limit the dollar amount of security deposits a landlord can collect. This typically ranges from 1-3 months rent, with Alaska and New Mexico having no limits on security deposits as long as the lease is one year or more. The typical security deposit across the U.S. is one month’s rent.

Evictions

Failure to pay rent is the most common reason for evictions across the states examined by Freddie Mac. “We found that 44 states require landlords provide tenants with notice of failure to pay rent before beginning the eviction process. Of these 44 states, 37 provide tenants the right to cure that violation. For these 37 states, tenants can have anywhere from immediately (Missouri) to thirty days?(D.C.) from notice to cure a nonpayment of rent. A three-day notice is most common (10 states),?followed by a seven-day notice or a five-day notice (each having 7 states).”

Expert Take

“Regulation imposed by all levels of government accounts for an average of 40.6 percent of multifamily development costs, according to this research by the NMHC and the National Association of Home Builders (NAHB)...Identifying duplicative and unnecessary regulatory costs is a critical factor as we work to address the critical shortage of affordable housing facing this nation.” —?NMHC

Chart: Rent

According to?Redfin, rental price growth is slowing due to improving supply and waning demand. Median asking rents rose only 2.4% year-over-year to $1,942 in January, which is the smallest increase since May 2021.

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