Disparate Impact – How You Can Unintentionally Commit Housing Discrimination

Courts recognize three forms of housing discrimination.  Most landlords know that it is illegal to intentionally discriminate against tenants based upon the tenant’s protected class status.  While the education process is ongoing, more and more landlords understand that a refusal to grant disabled tenants reasonable accommodations and modifications is a second form of illegal housing discrimination.  However, most landlords are unfamiliar with the third form of housing discrimination, disparate impact housing discrimination law. While disparate impact discrimination cases are rare, HUD prohibits practices with an unjustified discriminatory effect, regardless of whether there was intent to discriminate.  Because HUD recently adopted new disparate impact rules (effective March 18, 2013), now is a good time to familiarize yourself with disparate impact housing discrimination.

“Discriminatory effect” is synonymous with the term disparate impact and adverse impact.  Normally, a landlord must intend to commit housing discrimination.  Fair housing discrimination is a conscious decision to treat a member of a protected class different than other tenants.  Similarly, failure to reasonably accommodate a disabled tenant involves the conscious decision to not grant a requested accommodation.  The key difference with disparate impact discrimination is that no intent or conscious decision is required.  Disparate impact occurs when a policy appears to be neutral (non-discriminatory), however, the result or impact of the policy disproportionately affects a protected class.

The Mountain Side Mobile Home case is an example of a fair housing disparate impact discrimination case.  The 10th Circuit Federal Court of Appeals for Colorado decided this case.  In this case, the landlord limited occupancy of mobile homes to three individuals because of limitations on the sewage system and other quality of life issues.  Fair housing laws prohibit discrimination based on familial status, i.e. you can’t discriminate against families with children.  Because many families are composed of more than three individuals, the tenants claimed the policy had a discriminatory effect (a disparate impact) on families even though the landlord didn’t have intent to commit familial status discrimination.

HUD adopted the new discriminatory effect rule to make the law of disparate impact consistent.  Almost all federal appellate courts including the United States Supreme Court agreed that housing discrimination could arise from seemingly neutral policies that disproportionately impact protected class individuals.  However, the various courts weren’t in agreement regarding legal liability criteria.  Some courts held that a discriminatory effect from a neutral policy was enough.  Some courts were requiring discriminatory intent in addition to discriminatory impact.  Upon a finding of discriminatory impact, some courts found no liability if the landlord had legitimate non-discriminatory business reasons for the policy, while other courts did not allow the business justification defense.

The bad news for landlords is that under the new HUD rule is that liability may be established under the Fair Housing Act based on a practice’s discriminatory effect even if the practice was not motivated by a discriminatory intent.  The good news is that a policy that has discriminatory impact can be defended if supported by legitimate non-discriminatory reasons, unless it can be established that the policy was adopted intentionally to cause the discriminatory effect.

A policy has a discriminatory effect when it actually or predictably results in a disparate impact on a group of persons or creates, increases, reinforces, or perpetuates segregated housing patterns.  A policy has sufficient justification when the policy is necessary to achieve one or more substantial, legitimate, nondiscriminatory interests of a landlord.  Reasons offered to justify a policy must be supported by evidence.  The supporting evidence must not be hypothetical or speculative.

Clients frequently ask can we set higher deposits, or require pre-paid rent for some tenants in some cases?  What is the reason for the policy, we ask?  We are usually told credit or risk related issues.  Examples include not being able to run an accurate credit check, poor credit, or a high default rate for a specific demographic.  Do you have verifiable historical data?  For example, data showing group X defaults more than other tenants?  Usually the answer is we haven’t reviewed the data, we just have a sense that this is happening.  We always advise clients that they need hard data and an analysis of the data to support these types of policy decisions.  Limited anecdotal evidence is “hypothetical” and “speculative”, and is not legally sufficient to support a policy that clearly will adversely impact a specific tenant demographic.

The new rule also specifies the burden of proof in disparate impact cases.  The tenant has the burden of proving that a challenged practice caused or predictably will cause a discriminatory effect.  If the tenant successfully proves that a neutral policy has a discriminatory effect, the landlord has the burden of proving that the challenged policy is necessary to achieve one or more substantial, legitimate, nondiscriminatory interests of the landlord.  If the landlord justifies the policy based on a legitimate non-discriminatory business reason, the tenant can still prevail if the tenant can demonstrate that landlord’s interest could be served by another policy that has less of a discriminatory effect.  Thus, even if a landlord can demonstrate through objective historical data the justification for a policy, the landlord will lose a disparate impact case if the same policy goal could have been achieved through less adverse means.  Accordingly, when adopting a policy, it is insufficient for a landlord to only justify the policy, the landlord must also evaluate whether the policy is the least discriminatory way to achieve the policy goal.

Tenants use statistical evidence to prove disparate impact cases.  The statistical evidence is generated from general demographic data and then compared to the data resulting from the effect of a particular policy.  The Mountain Side case is an excellent example of how statistical date is used in adverse impact fair housing cases.  Remember, the Mountain Side case involved a challenge to the eviction from a mobile home park of a family with children, based upon the park owners’ rule limiting occupancy of a mobile home to no more than three persons. HUD, on behalf of the evicted family, brought an administrative disparate impact discrimination charge alleging a violation of the Federal Fair Housing Act’s prohibition against “familial status” discrimination.

HUD used national statistics to prove disparate effect.  HUD presented national statistics showing that at least 71.2% of all U.S. households with four or more persons contain one or more children under the age of 18 years; that at least 50.5% of U.S. families with minor children have four or more individuals; and that only 11.7% of households without minor children have four or more persons.  HUD argued that these statistics showed that the landlord’s policy would almost certainly adversely impact tenants with children.  The landlord argued that is no evidence that statistics which establish the percentage of families with minor children nationwide are the same in Jefferson County, Colorado.  The court held that the appropriate comparables must focus on the local housing market and local family statistics.  The farther removed from local statistics, the weaker the evidence becomes.  While there was no question that HUD’s statistics demonstrated discriminatory effect on the national level, the 10th Circuit Court gave the national statistics little weight in their analysis because they were so far removed from the local arena (Jefferson County).

 Mountain Side justified its occupancy limits based on sewer system limitations and park quality of life, and argued that tenants had failed to demonstrate any feasible alternatives that would be less discriminatory.  Initially, Mountain Side adopted the three per home occupancy limit based on the opinions of employees and owners with twenty years of experience in developing and operating mobile home parks. However, based on counsel’s recommendation that such opinions might be insufficient alone to justify the policy, Mountain Side engaged an engineering firm to study the issue and provide recommendations. 

The study documented and evaluated two sets of concerns that affected park residents.  First, the tenant’s health and safety was evaluated based on an objective evaluation of the infrastructure of the mobile home park, including the adequacy of the water and sewage systems.  Second, the tenant’s comfort was analyzed based on the size of homes and lots, recreational facilities, and the adequacy of parking.  Overall, the study concluded from objective data that the quality of life at the mobile home park would be severely diminished with occupancy greater than three per home.  The landlord won the Mountain Side case because of the objective analysis of facts and data.  The landlord probably would have lost the case if the justifications for the policies were limited to the type of hypothetical or speculative evidence banned by the new HUD rule, i.e. the anecdotal observations of the owner or management.

Only time will tell if HUD’s adoption of the new disparate impact rule will result in more fair housing complaints.  Landlords can and should minimize the risk of tenant disparate impact claims by carefully reviewing and evaluating policies.  Any policy that disproportionately affects a specific tenant population should be heavily scrutinized.  Landlords should carefully evaluate whether such policies are supported by objective historical data or other facts, and explore whether there are alternatives to achieve the same business interest through policies with less discriminatory means.

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