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The dos and don’ts of tenant screening and conducting background checks

By : 2020-01-14
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There are rules and regulations all landlords should be aware of when conducting tenant screenings and background checks, particularly around the type of information you can ask for and when. 

 

Can you request a potential tenant’s bank statements (KFC test)?

While asking to see a potential tenant’s bank statement seems like a reasonable request, doing so reveals their spending habits, which violates that person’s privacy. Worse still, it can cause you to form unethical judgements and prejudices about that person—which in turn leads to discrimination.

Requesting bank statements from tenants is also known as the KFC test, a term that came into use after a property manager said on record that she regularly asks for bank statements to examine their spending habits and determine whether a prospective tenant is capable of paying the rent.

"I don't just want to put a tenant into a property and no sooner have they been put in they can't afford the rent. They're paying somebody's mortgage and I see a lot of people who are low socio-economic and their bank statements literally will read, 'KFC, McDonald’s, the dairy, KFC, McDonald’s, court fine', trucks that they buy, goods that they can't afford. You know, I see a lot of mismanagement of money."1

We should be clear: this is an invasion of privacy and, if acted upon, grounds for discrimination. This is illegal under the Privacy Act and the Residential Tenancies Act.

Following this incident, the Privacy Commissioner released new guidelines for landlords and property managers that outlines what is and isn’t acceptable to request from tenants.

 

You might be interested in our guide: Rental property management: what new landlords need to know

 

What information are landlords legally allowed to request from their tenants? 

Below is the following information you may ask for as part of your tenant screening and background check process. Important! Certain information should only be requested after the initial vetting phase.

  • Name and contact details.
  • Whether the tenant is 18 years or older.
  • Pet ownership status.
  • Whether they are a smoker.
  • Contact details for character references.
  • How many people will be renting with them.
  • How long they expect to stay as a tenant at the property.
  • Credit report* (the tenant must give permission first before you run this check).
  • Criminal record check* (the tenant must give permission first before you run this check).
  • Date of birth*/Proof of age*.
  • Name and contact details of an emergency contact*.
  • A Tenancy Tribunal search*.
  • Proof of identity*.
  • Proof of employment/income*.

* You should only request this information from your preferred tenant, not at the start of the application stage. This minimises the amount of personal information you collect on prospective tenants.

You cannot ask for information regarding their:

  • Nationality, ethnicity, origin or citizenship.
  • Physical or mental disability or illness.
  • Personal beliefs or opinions.
  • Marital and family status.
  • Gender and sexual orientation.
  • Rent paid previously.
  • Current expenses.
  • Proof of insurance.
  • Employment history.

You cannot collect information about your tenant from other sources (e.g. social media) even if consent is given.

Read the full document here.

 

Consequences of discrimination and breaching privacy

Discrimination during the tenancy process can come at a cost too—up to $4,000, as one landlord found out after treating a blind woman’s tenancy application differently.

If you are basing your tenant selection on criteria such as age, nationality, employment status,  gender or sexual orientation—or shopping habits—then this is grounds for discrimination. 

As for breaching privacy, from a legal standpoint, landlords can collect personal information:

  • that is necessary and relevant to the tenancy,
  • to verify your identity, and,
  • to make an assessment about what kind of tenant you might make. 

“Landlords should only collect the minimum amount of personal information necessary to make a decision on the tenancy application,” states the Office of the Privacy Commissioner website.

“While it might be lawful for a landlord to collect information such as wage slips and credit reports to assess a tenant's ability to rent, collecting bank statements to see how money was spent is unfair or unreasonably intrusive.”

 

What’s the fine for breaching privacy?

While no landlord has been prosecuted (yet), if a breach of privacy is prosecuted by the Human Rights Review Tribunal, it could mean a potential fine upwards of $5,000.

 

Learning to manage a rental property can be a steep learning curve, but with the right guidance—or a professional property manager—you can make the curve smoother and less stressful. With our guide, you can learn the essential need-to-knows of renting out property.

Download the Rental Property Management guide

1. Newshub, 2019.