Screening Subtenants

Screening Subtenants

Can I screen new subtenants if I have no intention of adding them to the lease?

The answer is “yes,” you can.  However, this author emphatically advises that you do not screen new subtenants.

As many landlords know, the local rent law permits tenants to bring in subtenants under three circumstances.  One, a departing master tenant may be replaced with a subtenant by the remaining master tenant(s).  Two, a master tenant may move in a direct family member.  Three, a November 2015 law permits master tenants to move in additional roommates provided that the total number of additional residents does not exceed established occupancy standards (usually two persons in a studio, three persons in a one-bedroom, four persons in a two-bedroom, six persons in a three-bedroom, or eight persons in a four bedroom).  With these three rules in place, master tenants are now commonly adding new persons to your rentals.

The Rent Board enacted in its Rules and Regulations guidelines that allow a landlord to accept or reject a proposed new occupant.  In sum, a landlord may require the master tenant to provide sufficient information allowing management to conduct a typical background check.  For new subtenants that are required to pay some or all of the rent, the master tenant must, if requested to do so by the landlord, provide credit or income information.

Many legal practitioners in this industry, including this author, vehemently believe that owners who request this screening information run the serious risk of establishing a co-tenancy relationship between the landlord and the new occupant(s).  The creation of a co-tenancy may subsequently prevent the landlord from imposing an unlimited rent increase under the state law known as the Costa-Hawkins Rental Housing Act, which permits an unlimited rent increase when the last master tenant no longer permanently resides in the rental unit.  In other words, if you as the owner go down the path of screening, approving, and otherwise formally acknowledging the new additional occupant, then you may jeopardize the ability to decontrol the apartment should all master tenants vacate and leave behind any subsequent occupant(s).

Understandably, this position defies common sense.  Many owners like to know the people who live in their buildings.  Indeed, in most of the state where there are no serious rent control laws you would always screen new roommates and likewise almost always add them to the lease.  Yet here, where residents fight vigorously to maintain low rental rates, taking any unnecessary risks that potentially undermine the ability to increase a stabilized rent to market is unwise.  Besides, a careful reading of the rent regulations will reveal that a landlord has very little if no power to disapprove of a new roommate unless the defined occupancy standards are exceeded.  Therefore, good management entails a complete divorce from the subsequent occupant screening process.  To that end, let your master tenants know about the occupancy limitations, and advise them that all new roommates will be their tenants, not yours, and that rent will only be accepted from the master tenants, communications will only go between management and the master tenants, non-emergency repair requests will only be accepted from the master tenants, and the master tenants, not you as the landlord, bear full responsibility to screen and select any lawful subtenant.