Choosing tenants is one of the biggest decisions a landlord makes. Good screening reduces the risk of unpaid rent and property damage. But screening itself carries legal risk: fair housing laws, consumer reporting laws and local ordinances regulate what landlords can ask and how they make decisions. And once a tenant moves in, landlords face liability for injuries, habitability and other claims. This guide connects screening, leases and insurance. It's general information, not legal advice; consult a landlord-tenant attorney for your situation.
For coverage basics, see our landlord insurance guide.
Fair housing basics
The federal Fair Housing Act prohibits discrimination in housing based on race, color, national origin, religion, sex (including sexual orientation and gender identity, per HUD), familial status and disability: HUD – Fair Housing Act overview. States and cities add protected classes. California's Fair Employment and Housing Act, enforced by the Civil Rights Department, also protects categories including source of income, marital status, ancestry, age and military or veteran status: California Civil Rights Department – Housing.
Practical steps:
- Use written, consistent criteria (income, credit, rental history) and apply them to every applicant.
- Advertise carefully. Avoid statements that express preferences, such as "ideal for singles."
- Handle reasonable accommodation requests for people with disabilities, including assistance animals, according to HUD and state guidance.
- Keep records of applications and decisions.
Screening reports and the FCRA
When you use a tenant screening company or credit report, the federal Fair Credit Reporting Act (FCRA) applies. If you deny an application, require a cosigner or larger deposit, or charge higher rent based in whole or in part on a consumer report, you must give the applicant an adverse action notice that names the reporting company and explains their rights. The Federal Trade Commission explains landlords' obligations: FTC – Using consumer reports: what landlords need to know. You must also securely dispose of consumer report information.
Criminal history
HUD has issued guidance that blanket bans on applicants with any criminal record may violate the Fair Housing Act because of disparate impact. Several states and cities, including some California jurisdictions, restrict how landlords may use criminal history. If you consider criminal history, use a narrowly tailored, individualized assessment and check local law.
California-specific rules to know
- Security deposits: since July 1, 2024, California generally limits security deposits to one month's rent, with an exception for certain small landlords who may collect up to two months: California Courts – Security deposits.
- Rent caps and just cause: the Tenant Protection Act (AB 1482) limits annual rent increases and requires just cause for evictions for many properties, with exemptions. Local ordinances may be stricter.
- Application fees and screening: California limits screening fees and requires landlords to provide copies of reports on request.
- Source of income: landlords can't refuse applicants because they use housing vouchers.
Requiring renters insurance
Many landlords require tenants to carry renters insurance with liability coverage. Benefits:
- Tenants' liability coverage can respond to damage they cause, such as a kitchen fire, reducing claims against your policy.
- Tenants' belongings aren't covered by your landlord policy; renters insurance protects them and reduces disputes.
Best practices: put the requirement in the lease, specify a minimum liability limit, ask to be listed as an "interested party" so you're notified of cancellation, and check local rules, since some jurisdictions restrict requirements for certain affordable housing.
Liability risks once tenants move in
- Premises liability: injuries from trip hazards, broken stairs, poor lighting, pool accidents.
- Habitability claims: mold, pests, lack of heat or water. California's implied warranty of habitability requires rental units to be fit to live in.
- Negligent security: claims that inadequate locks, lighting or security allowed a crime.
- Dog bites and other animal-related injuries; see our pet insurance guide.
- Discrimination and wrongful eviction claims.
- Lead paint disclosures for pre-1978 housing, required by federal law: EPA – Lead disclosure rule.
What landlord insurance covers, and doesn't
- Dwelling fire / landlord policies (DP-1, DP-2, DP-3): the building, other structures, loss of rents, and premises liability (often an option).
- Loss of rent (fair rental value): after a covered loss makes the unit uninhabitable.
- Personal injury coverage may cover wrongful eviction or invasion of privacy claims on some forms; check the policy.
- Discrimination claims are often excluded or limited under standard liability. Some insurers offer landlord discrimination or fair housing endorsements, or coverage through a commercial package.
- Rent default insurance is available from some providers, separate from property policies.
- Umbrella coverage extends liability over multiple rental properties. See our umbrella guide.
Holding rentals in an LLC doesn't replace insurance; make sure the LLC is a named insured on property and liability policies.
Property managers
If you hire a property manager, confirm they carry general liability and errors and omissions coverage, that your management agreement addresses who handles screening and fair housing compliance, and whether you're added as an additional insured on their policy, or they're added to yours.
Landlord checklist
- ☐ Written screening criteria applied consistently
- ☐ FCRA adverse action notices when screening reports affect decisions
- ☐ Fair housing and reasonable accommodation procedures
- ☐ Local rules on criminal history, deposits and rent increases
- ☐ Renters insurance requirement in the lease
- ☐ Landlord policy with liability and loss of rent
- ☐ Ask about discrimination coverage
- ☐ Umbrella for multiple properties
- ☐ Regular inspections and documented repairs
Contact Alishahi Insurance or call (877) 711-4545 for a landlord coverage review.
Frequently asked questions
Do landlords have to send an adverse action notice?
Yes, under the FCRA, if a consumer report contributed to denying an application or imposing less favorable terms.
Can a landlord require renters insurance?
Generally yes, through the lease, though some local rules or housing programs may limit requirements. Check local law.
Does landlord insurance cover discrimination claims?
Often not under standard liability. Some insurers offer endorsements or commercial coverage for fair housing claims.
What is California's security deposit limit?
Since July 1, 2024, generally one month's rent, with an exception allowing certain small landlords to collect up to two months.
Does an LLC protect me instead of insurance?
No. An LLC may help limit personal exposure, but it doesn't pay claims. Insure the LLC properly.
Alishahi Insurance · 439 N Canon Dr, Penthouse, Beverly Hills, CA 90210 · (877) 711-4545 · CA License #4348151. General information only. This isn't legal, tax or financial advice or a coverage determination. Coverage depends on policy language and underwriting, and rules vary by state.