Take a Fresh Look at Your Occupancy Standards

In this month’s lesson, Fair Housing Coach focuses on occupancy standards, an increasing concern for housing communities. Occupancy standards can be a problem because they can restrict the housing choices of families with children. As a general rule, fair housing law doesn’t prevent communities from maintaining reasonable occupancy policies, but it’s unlawful to set overly restrictive occupancy standards that have the effect of excluding families with children.

It may not be easy to assess whether your occupancy standards will pass muster under fair housing law. For one thing, federal fair housing law generally defers to reasonable state and local restrictions on occupancy, so you should be familiar with those laws before you set or enforce your occupancy standards.

Across the country, communities have come to rely on the industry standard—“two persons per bedroom”—as a reasonable occupancy standard. It comes from HUD in what’s known as the “Keating memo,” which states that the agency considers two persons per bedroom to be a reasonable standard. But, as the memo points out, that’s not a hard-and-fast rule, and the agency will consider other factors, including bedroom size and other “special considerations,” which may make the two person/bedroom standard unreasonable under the circumstances.

Over the years, there have been few cases involving occupancy standards, but lately, the two person/bedroom standard has been coming under fire. In recent months, fair housing advocates have challenged the use of the two person/bedroom standard where state or local occupancy laws may allow more people to live there based on square footage and other factors. So far, a couple of cases have settled, and it may take years to resolve any still pending.

It’s too soon to tell how it will all shake out, but for now, fair housing attorney Kathi Williams believes your company’s occupancy policy has a higher risk of being challenged by fair housing groups if you stick with a rigid one-size-fits-all two person/bedroom standard without considering local occupancy standards, unit size, and other factors, which have been in HUD’s Keating memo all along. Though only a few cases have been filed so far, Williams predicts there’s more to come—so she warns that communities should take steps now to avoid being the next test case.

In this issue, we’ll suggest six rules to help your community to avoid triggering a fair housing complaint based on your occupancy standards. Then you can take the Coach’s Quiz to see how much you’ve learned.

WHAT DOES THE LAW SAY?

The federal Fair Housing Act (FHA) prohibits discrimination in housing based on familial status, which means the presence of a child under 18 in the household. The law protects families with children, along with anyone else who has legal custody or written permission to have a minor child living with him or her. It also applies to pregnant women and anyone in the process of obtaining legal custody, such as through adoption or divorce proceedings.

There’s only one exception to the rules banning discrimination based on familial status—that is, for communities that qualify under the FHA’s strict rules as “housing for older persons.” Otherwise, it’s unlawful to exclude or otherwise discriminate against anyone because there’s a child under 18 in the household.

Fair housing law permits communities to set reasonable occupancy standards, but it’s unlawful for occupancy standards to exclude families with children or to unreasonably limit the ability of families with children to obtain housing.

The FHA itself doesn’t say much about occupancy standards, although Congress has recognized that many state and local laws limit occupancy based on number of people or square footage. Instead of adopting a national occupancy standard, the FHA defers to state and local law by providing that nothing in fair housing law “limits the applicability of any reasonable local, State, or Federal restrictions regarding the maximum number of occupants permitted to occupy a dwelling.” However, as noted by Williams, fair housing law doesn’t limit using applicable codes, nor does fair housing law require property managers to adopt the square-foot standard contained in some of these codes.

Subject to applicable state and local laws, it’s up to each community to set reasonable occupancy standards. But the question is: What’s reasonable? Since the FHA itself didn’t answer that question, it’s been up to HUD, as the government agency charged with enforcing fair housing, to come up with an answer.

Because of confusion about what occupancy restrictions were reasonable under the FHA, a HUD official in 1991 issued the “Keating memo,” which was originally intended as internal guidance to enforcement personnel reviewing discrimination claims involving occupancy standards. After some legal wrangling, Congress in 1998 ordered HUD to adopt the “specific and unmodified standards provided” in the Keating memo as the agency’s official policy.

The Keating memo provides that, as a general rule, HUD considers an occupancy policy of two people per bedroom as reasonable under the FHA. Nevertheless, the memo emphasized that the two person/bedroom standard was not intended as the only standard, and HUD wouldn’t determine that a community’s occupancy standards are reasonable based solely on the number of people permitted in each bedroom.

According to the memo, HUD may examine any nongovernment restriction on occupancy to determine whether it operates unreasonably to limit or exclude families with children. If bedrooms are unusually large, for example, then it may be reasonable for more than two people to occupy a bedroom. Also, if an apartment is unusually large or has extra rooms, such as a den, an office, or a loft, they may be treated as a bedroom for occupancy purposes. In addition, HUD will look at the age of children, configuration of the unit, and any physical limitations of the housing—such as the capacity for septic, sewer, or other building system—to determine whether an occupancy policy is too restrictive.

FOLLOW 6 RULES

FOR REVIEWING YOUR OCCUPANCY STANDARDS

Rule #1: Review Your Current Occupancy Standards

Lately, communities have been coming under fire by fair housing advocates for enforcing one-size-fits-all occupancy standards. As a rule of thumb, HUD has stated that two persons/bedroom is a reasonable occupancy standard, but it’s subject to exceptions, such as size of the bedrooms and other factors. Adopting an across-the-board standard of two persons per bedroom, without considering these other factors could lead to a fair housing complaint.

Example: In September 2015, a national property management company agreed to settle discrimination claims based on enforcement of occupancy standards at five properties in three states—one each in Connecticut and Ohio, and three in Indiana. Based on fair housing testing, fair housing advocates filed a HUD complaint, accusing the company of systemic discrimination against families with children by enforcing an occupancy policy of no more than two people per bedroom in each apartment, regardless of the unit’s square footage or whether that unit has a den, office, loft, or other feature that could provide an additional bedroom or living area for a child. HUD did not make a determination as to the validity of the allegations. The company denied the allegations and admitted no wrongdoing, but agreed to a settlement with HUD and the private fair housing groups to resolve the complaint.

Example: In July 2016, fair housing advocates filed a fair housing complaint accusing a regional property management company of applying overly restrictive occupancy standards to unlawfully deny housing to families with children at 20 properties in Michigan, Indiana, and Ohio. Based on the results of fair housing testing, the complaint alleged that the company maintained an occupancy standard of no more than two people per bedroom in each apartment or townhome, regardless of the unit’s square footage or whether that unit has a den, office, or other feature that could provide an additional bedroom or living area for a child. According to the complaint, the company enforced the policy without regard to local health and property maintenance codes that describe the minimum square footage required for each occupant.

Though only a few cases have been filed so far, Williams believes that there may be more to come. At most risk of being tested by the advocates, she believes, are communities applying an across-the-board policy based on two people/bedroom without considering the unit’s layout, size, and other factors.

In the current climate, Williams says communities should review their occupancy standards as soon as possible to avoid fair housing trouble. It may take some time to complete a full review, but in the meantime, she says that you could take an interim step—adopting what’s known as the “2+1” standard—that is, two persons per bedroom plus one person per unit. That would allow three people in a one-bedroom unit, five people in a two-bedroom unit, seven people per three-bedroom unit, and so on. It may not solve all your problems, but it may make it less likely for you to draw the attention of fair housing advocates looking for the next test case.

Coach’s Tip: Owners of federally assisted housing must comply with federal law and regulations related to setting and maintaining occupancy standards. Before bumping up your occupancy standards to address fair housing concerns, owners of subsidized housing should first check whether it might push you over limits designed to ease overcrowding. You could run into trouble, for example, if your contract administrator objects that a family would be underhoused if you apply the 2+1 standard.

Rule #2: Be Aware of Applicable State and Local Codes

Find out about applicable state and local codes, since some codes include an occupancy provision, says Williams. Depending on where you’re located, state or local occupancy standards may be based on a minimum square footage per person or minimum square footage per bedroom per person. Federal fair housing law generally defers to reasonable state and local restrictions on occupancy, so if your occupancy policy conforms to the codes, it will be difficult for your policy to be challenged.

In the Keating memo, state and local law is listed among the factors that HUD will consider to determine whether a community’s occupancy standards are reasonable. The memo provides that a community is not immune to a fair housing complaint just because its occupancy standards are based on state or local requirements. However, the memo states that HUD will consider such government requirements as “a special circumstance tending to indicate that the housing provider’s occupancy policies are reasonable.”

It may take some legwork to determine just what state or local occupancy codes apply to your community, says Williams. Any given property may be subject to one or more different codes that have something to say on occupancy, including fire codes, building codes, zoning codes, and property maintenance codes, to name a few. If it’s based on a national standard, you’ll also have to find out which version of the code has been adopted in your state or local area, since it may not reflect updates to the code since then. Because of differences in state and local laws, it may be necessary to consult an attorney familiar with the laws where your community is located for help in reviewing your occupancy standards.

The confusion over the applicable codes and the relationship between these codes and a reasonable occupancy standard under the Fair Housing Act will be the subject of current and future litigation on this topic. The fair housing advocates view the square-foot standards used in the codes as the only legitimate method of developing a reasonable occupancy standard. Williams strongly disagrees with this view. She notes the safety codes were developed for very different reasons than the legitimate interests of property management to establish occupancy standards to avoid overcrowding in units and properties. Therefore, while it’s a good idea to review applicable codes, she does not believe the FHA requires property management to adopt the square-foot standards included in safety codes. 

Coach’s Tip: If you operate communities in more than one state, or in several locations within a state, it’s advisable to review all the applicable state or local laws that may apply to each community. It may be difficult to come up with a standard policy for all your communities, but to avoid fair housing problems, it may make sense to start with the least restrictive one—and then make adjustments, where necessary, based on size or layout for particular units or floor plans.

Rule #3: Be Prepared to Show Your Occupancy Policies Are Reasonable

The point of reviewing your occupancy standards is to ensure that they don’t have an unreasonable discriminatory effect on families with children. Whether it’s based on HUD’s two person/bedroom rule, or some other criteria, you should be prepared to show that you have substantial, legitimate, nondiscriminatory business reasons for your occupancy policy.

Unless supplanted by other state or local laws, HUD has said that two persons/bedroom is considered a reasonable occupancy standard. Williams suggests reviewing your floor plans and the configurations of the units. These are among the factors listed in the Keating memo as important to determine whether the general two person/bedroom standard would be reasonable under the circumstances.

Size of bedrooms and unit. According to the Keating memo, the size of the bedroom could make it reasonable to allow more or fewer than two people per bedroom. The memo offered two examples involving a family of five who wanted to rent a two-bedroom unit. In the first case, the community could face a discrimination charge if it refused to allow the family to live in an apartment with two large bedrooms and a spacious living area, but not if the family wanted to rent a small two-bedroom mobile home.

The size of the bedrooms could also be a factor in determining whether it’s reasonable to allow fewer than two people per bedroom. If, for example, a mobile home was advertised as a two-bedroom unit, but one bedroom is extremely small, depending on all the facts, the memo stated that it may be reasonable to limit occupancy of the home to two people.

Configuration of unit. Under some circumstances, fair housing law may require a community to allow more than two people per bedroom based on the configuration of a unit. To illustrate, the Keating memo offered two situations where a family of five, consisting of two adults and three children, wanted to live in a two-bedroom unit. In the first example, the community could face a discrimination claim if it applied a two person/bedroom standard to a unit that had two bedrooms plus a den or study. In the second, a discrimination claim might not be justified, depending on other factors, if the family was turned away from a two-bedroom unit that didn’t have a study or a den.

Based on these examples, it’s important to look at your floor plans to determine whether there’s another room or area not designated as a bedroom—such as an office, den, alcove, or loft—that may be counted as a sleeping area. Depending on its size or shape, Williams says, it’s a good idea to adjust your occupancy standards to add one or more people allowed to live in the unit to avoid accusations that your occupancy standards are too restrictive.

Rule #4: Factor in Age of Child in Occupancy Calculation

Be careful about how you apply your occupancy standards when dealing with families with babies and other very young children. HUD’s Keating memo says that the age of the children involved in a particular case may make it unreasonable for a community to limit occupancy based on the two people/bedroom standard. As an example, the memo states that it may be reasonable to deny a one-bedroom unit to an adult couple with teenager, but not to a couple with an infant who want to occupy a one-bedroom unit when both the bedroom and unit are large.

When it’s a current resident who adds a baby to the household, communities often give the family a certain period of time—such as the end of the lease term—to move to a larger unit. Williams urges caution, however, recommending that communities hold off for at least a year—regardless of when the lease term ends—when a child under the age of 1 (or even 2) joins the family, whether through birth, adoption, or some other means. Often the triggering event in discrimination claims occurs when the family’s happy news of having a baby is greeted with an eviction notice because the baby pushed the family over the occupancy limit for their current unit.

Coach’s Tip: Even if you don’t think it’s appropriate, you may not require male and female children, regardless of their age, to have separate bedrooms. Similarly, you may not require adults and children of either gender to have separate bedrooms.

Rule #5: Factor in Physical Limitations of Building Systems

When reviewing your occupancy policies, the physical limitations of the building itself may provide a substantial, legitimate, nondiscriminatory reason for keeping a lid on the number of people allowed to live in the building.

In addition to the size of the bedrooms and overall size and configuration of the unit, the Keating memo states that HUD may examine other limiting factors identified by the community, such as the capacity of the septic, sewer, or other building systems. That means that HUD will consider the age or capacity of the building and other physical limitations, along with the size of the bedrooms and overall size and configuration of the unit, to determine whether the community’s occupancy standards are reasonable.

Consider the age and condition of the building, along with the age and condition of building systems, including water and sewage capacity, power supply, heating and cooling systems, and the like. Determine the original capacity of these systems and whether there’s been any change since then, either an upgrade to increase capacity, or deterioration that would decrease capacity.

Rule #6: Limit the Number of People Allowed—Not the Number of Children

Occupancy standards can come under fire when they’re used to intentionally discriminate against families with children. That can happen when the occupancy standards specifically restrict the number of children—as opposed to the number of people—who may live in units of certain sizes. According to the Keating memo, “an occupancy policy which limits the number of children per unit is less likely to be reasonable than one which limits the number of people per unit.” Telling people that children aren’t allowed in one-bedroom units, for example, could lead to a discrimination claim based on familial status.

Example: In September 2016, a Pennsylvania landlord agreed to pay $30,000 to resolve allegations that he discriminated against families with children by prohibiting them from renting one- and two-bedroom units. The Justice Department filed the complaint based on evidence collected though the department’s fair housing testing program. According to the complaint, the landlord allegedly told testers that children were not allowed in one-bedroom units; he also allegedly refused to inform testers about available two-bedroom units until they assured him that no children would live there.

Example: In August 2016, the owners and operators of seven Michigan communities agreed to pay $25,000 to settle allegations of discrimination against families with children by prohibiting them from renting one-bedroom units. The Justice Department filed the complaint based on evidence gathered by a fair housing advocacy group, which sent testers posing as prospective residents to ask about renting one-bedroom apartments. Allegedly, the testers who said that they wanted to rent an apartment with their child were told that children were not allowed in one-bedroom units.

“Housing provides a critical foundation for economic security and opportunity,” Principal Deputy Assistant Attorney General Vanita Gupta, head of the Justice Department’s Civil Rights Division, said in a statement. “Families with children deserve access to housing that meets their needs without facing unlawful discrimination. The Justice Department will continue to enforce the Fair Housing Act to ensure that families with children have the same rights to housing within their price range as people without children.”

Even when applying a neutral occupancy policy, such as HUD’s two person/bedroom standard, it’s important to avoid any suggestion that you’re using your occupancy standards as an excuse to cover up illegal discrimination against families with children. Here are some red flags, identified in the Keating memo, that could be used against you:

• Making discriminatory statements;
• Adopting discriminatory rules governing common areas;
• Taking other steps to discourage children from living there;
• Enforcing the occupancy policy only against families with children; and
• Having a history of marketing community as “adults only.”

Another red flag: Limiting the total number of units that the community is willing to rent to families with children. In a community with all two-bedroom units, the memo states that it may be reasonable to adopt a policy allowing four people per unit, but the community could face a fair housing claim if the landlord refused to rent to a family of four—consisting of two adults and two children—because 20 of its 30 units are currently occupied by families with children.

• Fair Housing Act: 42 USC §3601 et seq.

COACH Source

Kathelene Williams, Esq.: The Law Firm of Williams & Edelstein, P.C., 7742 Spalding Drive, Ste. 476, Norcross, GA 30092; (770) 840-8483; kathi@fairhouse.net.