The Department of Housing and Urban Development (HUD) recently issued a Final Rule to formalize a national standard for determining whether a housing practice violates the Fair Housing Act as a result of the discriminatory effect. The rule goes into effect on March 18.

By HUD's analysis, this Final Rule codifies the long-standing process authorities have used to analyze liability under the Fair Housing Act arising from facially neutral practices, having a discriminatory impact. Under this test, the party claiming housing discrimination has the initial burden of proving that a practice "results in, or would predictably result in" illegal discrimination. Once that burden is met, the accused may refute the charges by proving that the "challenged practice is necessary to achieve one or more of its substantial, legitimate, non-discriminatory" business interests. If successful, the complaining party can still succeed if they prove that the "substantial, legitimate, non-discriminatory interest could be served by a practice that has a less discriminatory effect."

The phrase "discriminatory effect" has a specific meaning. "Discriminatory effect" results in a disparate impact on one or more people that "creates, increases, reinforces, or perpetuates segregated housing patterns" on people who belong to a protected class. An individual accused of Fair Housing violations may successfully defend against such claims if they have a "legally sufficient justification" for the discriminatory practice. The concept of a "legally sufficient justification" arises when a practice does have a discriminatory effect on a protected class but (1) it is necessary to achieve one or more substantial, legitimate, non-discriminatory interests; and (2) those interests could not be served by another practice that has a less discriminatory effect.

Defending against allegations of discrimination by asserting a "legally sufficient justification" is not a safe harbor. Such claims must be supported by evidence and not by hypothetical situations or broad speculation. In other words, a landlord or property manager who wants to deny a prospective tenant an apartment because that tenant has a criminal or arrest record should be prepared to offer an explanation, supported by facts, why the denial is necessary to achieve the landlord's legitimate business needs and that there is not another practice that can achieve the same legitimate needs, but that has a less discriminatory effect.

During the public comment period, HUD was specifically asked to provide that denying housing to individuals with arrest or criminal records was not a Fair Housing violation under the disparate impact analysis. HUD noted this concern, in part, as follows, "Whether any discriminatory effect resulting from housing provider's or operator's use of criminal arrest or conviction records to exclude persons from housing supported by a legally sufficient justification depends on the facts of the situation. HUD believes it may be appropriate to explore the issue more fully and will consider issuing guidance for housing providers and operators.

It is truly unlikely that we will have more definitive guidance from HUD on this topic before March 18. Unfortunately, landlords and property managers (actually, anyone who is conveying an interest in residential or commercial housing) should begin to compile records to support why they enforce a policy of denying housing based on a criminal or arrest record.

On the positive side, we now have official backing from HUD that the correct answer to the question of whether or not tenancy can be denied based upon a criminal record is "it depends."

Caldwell & Kearns and serves as associate general counsel to PAR. A substantial portion of his practice is dedicated to providing advice and counsel to real estate licensees and representing and defending real estate salespersons and brokers in civil lawsuits and licensing claims across the Commonwealth. He routinely counsels employers on employee relations issues as one of the voices of the PAR Legal Hotline. He may be reached at