Landlord’s Right to Ask for Financial Records
In certain contexts, a landlord is well within its rights to seek specific financial documentation from a prospective tenant. As with most landlord-tenant relationships, a landlord’s right to request disclosure is governed by the terms of the lease between the parties. A landlord may be within its rights to demand an otherwise-nonpublic document such as bank statements if the lease so allows, but the landlord’s ability to do so is also subject to state-specific statutes. For example, some states require that any written lease contain a provision mandating disclosure of a tenant’s social security number.
On the other hand, a prospective tenant may not be obligated to provide bank statements or other financial information in situations where the lease agreement does not require such disclosure, and/or where the requested information is not sufficiently relevant for a legitimate business purpose, or where the request is otherwise unduly intrusive or offensive. Even when requesting relevant financial information or documents, landlords must exercise caution . The bar is fairly high to justify intrusive requests for information that could be considered an invasion of a prospective tenant’s privacy rights, or that could be used for illicit purposes. Similarly, landlords may be required by certain statutes to justify their request (and the need for a particular document, such as bank statements) before requiring their production.
The bottom line is that your lease terms are critical to whether you can demand disclosure of a prospective tenant’s bank statements. In a regular apartment scenario where the prospective tenant is employed, has good credit, and has lived in the same city for the previous five years, that lease agreement will likely not contain a provision requiring bank statements. However, if you are renting space to a small start-up business, and you demand bank statements, the tenant’s expectation of privacy of its bank account at least arguably gives way to business realities that would warrant such disclosure.
Common Reasons Why Landlords Seek Bank Records
A bank statement will show a history of income and whether the tenant has a steady job, it shows rent paid and whether the tenant is having difficulty managing their finances. Understanding a tenant’s financial stability is key to a landlord’s rental decision. A steady job means someone can pay their rent on time. A bank statement is not open ended, a bank statement won’t show what the tenant has saved in real estate investments or stock investments, so the landlord can be assured that the income shown is liquid and available to cover the rent.
However asking for too many recent bank statements may show a landlord is more interested in the tenant’s private life – do they have a gambling problem, drug problem or an alcohol problem? If the tenant has a drug problem or gambling problem the cost of those addictions may cause them to fall behind on paying the rent. For the most part, one bank statement will usually suffice in determining whether the tenant can afford the rent, just send one monthly statement. The first statement you want from a tenant will be their most recent monthly statement, you will need confirmation that the money in the bank is their money for them to qualify to rent a home. If they have an employment income in Canada, you can usually confirm funds are their money. Investments are more challenging to validate, plus investments require more days notice, so a landlord will usually not get sufficient information to make a proper decision.
Tenant Rights and Confidentiality Issues
As businesses have become more data driven and protective of personal information, privacy concerns are heating up. It’s not uncommon for tenants to be leery about whether they even want to show a prospective landlord their financial records, such as bank statements. Some businesses deal in huge amounts of personal information and take extraordinary precautions to protect customer privacy on electronic and sensitive paper documents, while others are less rigorous about dealing with your private information. A rule of thumb is that the more visible evidence of a lack of discretion or control over your personal information, the more likely the information may be mishandled. To be sure, tenant screening companies exist to help landlords gather the information they need about their applicants, so landlords may not need them at all. When a landlord suggests that you provide sensitive financial information directly, such as providing copies of your bank statement, the caution lights should begin to flash.
The landlord should have enough information about the tenant so that they need not ask for bank statements. Is the landlord asking for bank statements because the applicant does not have a good credit score, or is credit score not even considered by that landlord? What kind of landlord doesn’t already have access to credit scores, criminal records and the like? Why bank statements, and why now? If a bank statement is requested, the tenant has a right to question the purpose and use once the bank statement is provided. Landlords must keep all bank statements in a safe place and may only use the information in connection with the application and lease; they may not copy and retain the bank statement.
Alternatives to Sharing Bank Records
If you feel uncomfortable providing bank statements – or if your funds are not always in your account for the full month, causing your bank statements to reflect a negative balance – there are alternatives that may assist you in proving to your landlord that you could afford the rent.
Your pay stubs, for example, typically indicate your gross income as well as your net income. They state when you have been employed, and for how long. If you are a full-time employee (as opposed to self-employed) you do not typically have a negative balance in your bank account due to the timing gap between when your employer issues its paychecks to you and when you spend your income. Many landlords will accept copies of your pay stubs – and/or letter from your employer confirming the same – in lieu of bank statements.
While applying for credit, you likely received a credit report from the credit agency that issued a card in your name or a loan to you . Credit reports contain your name, address, date of birth, Social Security number, employment history, several years’ worth of limited financial data, including your banking and investment history. Landlords sometimes accept a credit report as proof of your income.
Proof of income at this stage is not the end of the story, though. You may have provided proof of funds today, but tomorrow you have an unexpected medical bill that causes your balance to dip below the amount of rent due. Many landlords conduct a credit check as part of the application process, and may only proceed with the lease once that credit check has been obtained. If it is your intention to pay by debit card, rather than through a bank account, and if in fact your balance sometimes dips below the rent, a landlord may cancel the lease if you provide funds on the first; are not able to provide funds on the fifteenth (perhaps due to medical bills, an emergency car repair, or some other issue); and are not able to provide proof that you were credit-worthy at the time the lease was signed.
Rental Application Agreements and Considerations
With rental applications, landlords sometimes include a "Rental Application Agreement," which details what information a prospective tenant consents to provide to a landlord. To the extent the Agreement also reserves the right of the landlord "to check credit and income to verify other information provided in the application," the proposed tenant is generally asked to consent to that information being requested from third parties (generally, former landlords or mortgage holders and financial institutions). These Rental Application Agreements have a mix of boilerplate language and landlord-tailored terms. We always encourage our clients to carefully read and critique each part of the form, because we do find several sections that should be reviewed and considered separately from the rest of the form. We look closely at the wording of the credit provision. Section 15 of the rental application form we use reads: 15. RENTAL APPLICATION AGREEMENT. In consideration of the effort of the Landlord to process this rental application, the undersigned applicant agrees: (k) that Landlord may check credit and income, to verify other information provided in this application; and (l) to allow Landlord to verify any other area judged to relate to the application by Landlord. Different versions of this language might have a few words swapped out, but when we dissect each different variation for our clients we generally walk through the following: The credit check is relatively common, with most tenant applicants expecting it to be run in some form or another. Item (l) can be overly broad. Point (l) gives the landlord "carte blanche" to check whatever it wants. We also advise our clients to consider if they should limit it to a rental property references and the current and past mortgage holders. We have also seen landlord form language that negates the right of the tenant to review the information gathered about him/her. Language such as "to provide Tenant with all required record as contemplated by the statutory provisions of the District of Columbia" or "to maintain and preserve for a period of five years records of all applications" or "Tenant hereby waives[] and releases the Landlord . . . from any and all claims, demands, actions, causes of actions, liabilities, loss, costs, expense and damages including without limitation attorneys’ fees, resulting from or arising out of any necessary investigation of Tenant." We believe it is unreasonable to limit a tenant’s access to records (we think the District of Columbia’s Tenant Opportunity to Purchase Act (TOPA) provides otherwise) and we applaud those landlords who, while not required, also brief their tenants on relevant laws that grant additional rights or explain what information the landlords seek and why. Just because a landlord wishes to gather certain information up front, however, does not mean that it acts in good faith and/or that those tenants who question the validity of the request, or refuse to provide specific information requested should necessarily be penalized. We feel the same way about landlords who review past landlord references. Even if a tenant has paid his rent late a few times, if he had explained mitigating circumstances for doing so, we think the first question should be "is there any pattern to the late payments" before a landlord questions the reliability of a tenant. Landlords should expect to answer why they are seeking specific information. We recommend giving reasonable explanations about the extent of the information sought and being open to alternative solutions from the tenant. For example, if the landlord wants six months of bank statements, and the tenant explains that would be a hardship for her, we recommend the landlord consider either offering alternatives to the six-month requirement, or to lowering the amount of the requested statements to three months. Section 15(k) also raises some concerns. The concern is that many investment portfolios are held by limited liability companies (LLCs) and are not always held by individuals. It would be unusual for rental applicants to know the name of every LLC that holds investment properties owned by the landlord. We think that if there are 10 properties, it would be more reasonable to ask that those application questions be limited to five of the rental units then to monitor the five chosen over the course of the lease term. This should give the landlord accurate information on whether the tenant pays rent timely and in full and can be counted on to continue to do so. Section 15(l) should also be limited from the perspective of the tenant, and should not be so broad as to allow the landlord to check anything it wants. Just because the language says "any area judged to relate to the application by the Landlord" does not mean it should. That language is far too broad and allows for continued harassment of tenants. If the tenant says social media harassment, we believe the landlord should look up the tenant in a Google search. Landlords should always review the goods and bads of boilerplate language in any rental application form. This is particularly true of the Rental Application Agreement, which attempts lot to require the tenants to consent to any request that the landlord makes. Tenants who think they have a duty to comply with every request should not just say yes to the Rental Application Agreement form, but should question the landlord’s reasons for obtaining all of the items. The primary concern remains whether the request is for an item that allows for the tenant to have greater privacy rights, or whether it simply allows for a landlord to continue to collect more information on a tenant than is necessary for screening and underwriting purposes. For example, a tenant’s banks accounts are private and they have very little to do with whether the tenant will pay rent. Most tenants are able to borrow cash from family, or program payment amounts from their bank account to pay less than the amount due each month. They should be judged on historical rent payments, not the presence of cash in savings accounts.
Staying Legal: Location-Dependent Laws
The rules surrounding the disclosure of bank account statements, tax returns, and other tax documents vary depending on where you are in the United States. Landlords and tenants should review their respective state and local laws for compliance.
While there are some general landlord requirements for the disclosure of financial documents in the landlord-tenant laws in tenant-friendly locations such as California, they do not specifically include bank account statements of a tenant. As with other states, there may be local ordinances that impose such a requirement, but they do not appear to be common.
Landlord-tenant laws vary in locations where tenant requirements for the disclosure of financial documents are more stringent. For example, in Tony Tanno Apartments v. Wiggins , a tenant sued her landlord in Ohio alleging that it violated Ohio Revised Code Section 5321.05(G) by not disclosing her banking information. Tenant also alleged that the landlord did not provide copies of all the checks she tendered as rent and showed that not all items that had been cashed. The case went back and forth over jurisdictional issues, with the issue of whether the cause of action was in real property or contract, requiring a potential 60-day stay before eventually being settled in favor of the landlord.
In jurisdictions more favorable to landlords, like Florida, tenant requirements for the disclosure of financial documents are not required. In a Florida case, a landlord sued a tenant for rent due and owing. While the tenant was unable to prove that he paid the rent in full, he was nevertheless able to show that two payments were made and the checks cleared through his bank account, thereby satisfying the landlord’s obligations to provide proof of payment.