Tenant screening is an important process for reducing the risk of rent arrears and disputes before they happen. Beyond simply checking documents, this article looks at what criteria to use and how far to go, from the landlord's perspective.
- Tenant screening looks comprehensively at identity verification, employment and income, and whether a joint guarantor or rent guarantee company is needed.
- The main purpose is reducing the risk of rent arrears, but there are limits to what can actually be verified.
- Using a rent guarantee company also gives an option to applicants who can't arrange a joint guarantor.
- Landlords can set their own screening criteria, but should avoid discriminatory treatment without a reasonable basis.
- Even when screening is outsourced to a management company, it's best to agree with the owner in advance on the criteria for the final decision.
Why Tenant Screening Matters
The main purpose of tenant screening is to confirm whether an applicant can reliably pay rent going forward, reducing the risk of arrears and neighbor disputes before they occur. Even when you want to fill a vacancy quickly, cutting corners on screening can lead to trouble down the road. This temptation is especially strong for units that have sat vacant for a long time, but lowering the quality of screening tends to create longer-term risk instead.
The Basic Items Checked
A typical tenant screening reviews identity documents, employer and employment type, the ratio of rent to annual income, and emergency contacts. Some screenings also include an employment verification call to the applicant's workplace. Because the information available is limited, the basic approach is to carefully check the consistency of the documents provided. It's common to back up the employer and income stated on the application with supporting documents such as pay slips or a withholding tax statement (gensen chōshūhyō), and spotting anything that looks inconsistent is one of the most important roles screening plays.
Choosing Between a Joint Guarantor and a Rent Guarantee Company
In addition to requiring a joint guarantor (rentai hoshōnin), more and more properties now make using a rent guarantee company (yachin hoshō gaisha) mandatory. Using a guarantee company widens the pool of applicants to include those who can't arrange a joint guarantor, but since screening criteria and coverage differ from company to company, it's worth comparing them in advance (Vol.25 covers how rent guarantee companies work in more detail). Guarantee companies also differ in whether they require proof of income and in their overall approach to screening, so having a few options on hand to suit different applicant profiles makes it easier to close a lease.
Avoiding Discriminatory Treatment
Setting screening criteria is left to the landlord's discretion, but refusing an applicant outright based solely on an attribute with no reasonable connection to the decision — nationality or disability, for example — can lead to disputes and public criticism. It's preferable to base decisions on substantive criteria such as ability to pay and whether a guarantor is available. When you do turn down an applicant, being able to explain the reason clearly makes it easier to avoid unnecessary friction.
What to Confirm When a Management Company Handles Screening
Even when screening is outsourced to a management company, it's reassuring to agree in advance on the criteria for the final decision and on the circumstances under which the owner will be consulted. It's particularly worth sharing your policy with the management company on how to handle applicants who fail a guarantee company's screening. Giving applicants advance notice of how long screening takes and what documents are needed also helps the whole process go more smoothly.
Frequently Asked Questions
How long does tenant screening take?
When it includes a guarantee company's review, results typically come back within a few days, though this can vary depending on how quickly documents are submitted and whether employment verification can be completed.
Does using a guarantee company mean screening isn't needed?
Even when a guarantee company is used, the management company or landlord still typically carries out its own basic checks. The guarantee company's screening and the landlord's own checks should be thought of as separate processes.
Can owners set screening criteria however they like?
Decisions based on substantive criteria such as ability to pay are left to the landlord's discretion, but discriminatory treatment without a reasonable basis should be avoided. If you're unsure, we recommend consulting your management company or a professional.
Summary
Tenant screening is an important process for keeping the risk of rent arrears and disputes in check. Weighing identity verification, income, and whether a joint guarantor or guarantee company is needed, and basing the decision on reasonable criteria, leads to more stable rental management. Even when screening is outsourced to a management company, agree on the decision criteria in advance.