There are few things more frustrating than getting saddled with bad tenants because their previous landlord wanted them out. It would be easier to screen tenants who look great on paper but end up being nightmares if landlords could inform each other of bad tenants. The primary cause of landlords being unwilling to provide information on bad tenants is due to the legal risk. In the U.S., lawsuits can be brought to court for essentially any reason, even if the grounds for the suit are frivolous and won't go beyond the first hearing. That's still time and money spent dealing with bad tenants instead of focusing on your property management business.
Libel and Slander
The primary legal concern when you share tenant information is libel and slander. Libel is written defamation of someone, slander is spoken and both refer to telling another person or company false information for the intent of causing harm to the person's reputation. The type of harm a tenant may typically claim includes:
Inability to receive approval for a rental
While it's unlikely a bad tenant will win a lawsuit if you're providing factual negative information to prospective landlords, being tied up in court takes energy away from more important aspects of your business. There are a few ways of minimizing the likelihood of opening yourself up to legal liability from a bad tenant.
How to Approach Tenant Reference Checks
You don't want a fellow landlord to suffer from allowing a bad tenant to rent their property, especially if the tenant had to be forcibly evicted from your property, caused problems in the neighborhood or with other tenants, or damaged your rental. The best way to protect yourself is by providing limited information about the tenant, as you can't be accused of libel or slander if you don't share anything beyond bare basic information. This is similar to how some companies handle employee references; only confirming the employee worked at the business and whether they are eligible for rehire.
However, this doesn't provide much in the way of useful information for another landlord. The best way to protect yourself if you go beyond the basics and share additional information is by confirming you have documentation to back up everything you say about the tenant. If the tenant caused damage and you needed to take them to court to recover the costs, have the court documentation and a copy of the judgment readily available. If the tenant missed rental payments, have a document detailing their payment history.
Having this documentation available can also be advantageous is if the tenant decides to sue you over a negative reference. The libel or slander suit won't hold up when the information you provide is true and documented, as that fails to meet the test for defamation.
Helping your fellow landlords out could come with legal costs, so it's important to know what a bad tenant could potentially do over a negative reference, and how to proactively protect yourself from the legal liability.
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