Free tenant screening: Why it could sink your business

  • November 21, 2017
  • Andrew McLeod

Free tenant screening is not so free. You could be liable for claims over $1,000,000.

Credit reports have become one of the essential elements in checking the background of a potential tenant. The days of the handshake rental lease are over. Today, renting to a person without a proper tenant screening process is like playing the lottery and the odds of winning are stacked against the landlord.

One of the reasons many landlords I have spoken with don't do credit reports is because of the cost of running a credit report. What? The cost of the credit report? Well, yes. Believe it or not many people would rather spend thousands of dollars in lost rent, legal fees, renovations, and aggravation than the cost of a $15.00 credit report because they feel lucky.

Then again, there are those of us who know the risks are heavily slanted against us and will not rent without a full credit and background check on the potential tenant. We know that it is better to spend a small amount of money on the screening process so that we aren’t left thinking what if the tenant burns us down the road.

You may be thinking, “I know all of this, but the title of this article has the words “free tenant screening” and that's why I'm reading it.” Well, that's what I'm getting into.

There are 2 types of "free credit reports" for landlords to screen tenants:

  • The kind you order and have the tenants pay for
  • The kind you order and the screening company sells your tenant data

Unfortunately, the former isn’t available to us here in Canada. The landlord and tenant boards in most provinces don’t allow for an “application fee” like our neighbours to the south.

More recently, the latter has started to become popular with landlords and property managers, specifically in low vacancy markets. Here’s how it works: A tenant fills out an application, the application is sent to the landlord and the screening company sells the application to insurance companies, telecom companies and even payday lenders.

What’s wrong with that?

This business model seems like it makes a lot of sense. Tenants want a place, landlords have no vacancy, the tenants should pay in some fashion, and the screening company is just filling the need, right? Wrong. In the eyes of the Privacy Commissioner’s office, given the low vacancy rates in most major cities in Canada, forcing a tenant to give up their personal data for profit is doing so under duress (Duress: “constraint illegally exercised to force someone to perform an act.”). Basically, the privacy community believes, if you don’t tick the box, you won’t get the apartment and therefore view it as a violation.

Why am I, the landlord, at risk?

Tenant application data belongs to you, the landlord. When you partner with a tenant screening company that sells that data to third parties, YOU have breached the Privacy Act. Fines for a breach in Ontario start at $1,000 and in BC they average $5,000-$10,000 per complaint. This means, if you screen 1,000 applicants per year under this model, you could be liable for claims starting at $1,000,000.

What can you do?

  1. Ask the right questions: Is my tenant data being sold or distributed to third parties? Is my data being used for any other purpose? Why is this free? Answers like "We give it away for free so we can sell more services to small landlords" is not an acceptable answer and could be a violation of privacy.
  2. Read the terms and conditions
  3. Ask for references and call them!

Summary

Free tenant screening is not worth the potential liability and risk. At Certn, our number one concern is privacy. We never sell tenant data and are constantly working with the Privacy Commissioners’ offices to ensure we’re two steps ahead of the legislation. We always obtain permission prior to the collection of private tenant data and never try and hide behind deceitful and misleading terms and conditions. For more information about privacy law, we encourage you to contact your provincial Privacy Commissioner’s office.

Privacy resources

Ontario & Other Provinces (PIPEDA Federal)

  • PIPEDA Offence and punishment S.28
  • Privacy in the landlord and tenant relationship (PIPEDA)

Alberta (PIPA AB)

  • Privacy & Landlord - Tenant Matters
  • PIPA AB Offences and Penalties S.59(2)

British Columbia (PIPA BC)

  • Privacy guidance for landlord and tenants
  • A Guide to BC’s Personal Information Protection Act (PIPA)
  • PIPA BC Offences and Penalties

Office of Privacy

  • Office of the Privacy Commissioner of Canada: 1-(800)-282-1376
  • Office of the Information and Privacy Commissioner of Alberta - Edmonton Area: (780) 422-6860
  • Office of the Information and Privacy Commissioner of Alberta - Calgary Area: (403) 297-2728
  • Office of the Information & Privacy Commissioner for British Columbia: (250) 387-5629

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