A landlord owns thirty two-bedroom units. His occupancy policy allows four people per unit, which is reasonable. A family of two adults and two children applies. They fit the policy. He turns them down, because twenty of his thirty units already house families with children.

That example is HUD's own, and HUD's conclusion is that a reasonable cause recommendation would be warranted. The policy was fine. The refusal was not. It appears in the document everyone in this industry cites and almost nobody has read.

What The Memo Actually Says

The document everyone calls the Keating Memo is a memorandum of 20 March 1991 from HUD's General Counsel, Frank Keating, to all Regional Counsel, titled Fair Housing Enforcement Policy: Occupancy Cases.

Congress required its publication. Section 589 of the Quality Housing and Work Responsibility Act of 1998 directed that "the specific and unmodified standards" in the March 1991 memorandum "shall be the policy" of HUD for familial status complaints involving an occupancy standard set by a housing provider. HUD published it as 63 FR 70256, effective 18 December 1998.

Read what Keating says about his own document.

It was internal guidance for Regional Counsel reviewing cases. "It was not intended to create a definitive test for whether a landlord or manager would be liable in a particular case, nor was it intended to establish occupancy policies or requirements for any particular type of housing."

He wrote it because an earlier February 1991 memorandum had caused what he calls "a significant misunderstanding," with many people mistakenly reading it as establishing an occupancy policy HUD would consider reasonable in any case, rather than guidance on evaluating evidence.

Thirty-five years later, the same misunderstanding is written into most occupancy policies in the industry.

The Standard, And Its Limit, In One Paragraph

Here is the sentence everyone quotes:

"the Department believes that an occupancy policy of two persons in a bedroom, as a general rule, is reasonable under the Fair Housing Act."

Here is the sentence that follows it:

"However, the reasonableness of any occupancy policy is rebuttable, and neither the February 21 memorandum nor this memorandum implies that the Department will determine compliance with the Fair Housing Act based solely on the number of people permitted in each bedroom."

The memo also quotes HUD's position from the 1988 final rule: there is nothing in the legislative history indicating any Congressional intent to provide for a national occupancy code, and equally no basis to conclude Congress intended owners to be unable to restrict occupancy at all.

So the memo sets out a starting point and then tells its readers not to stop there.

The Factors, With HUD's Own Examples

The memo works through five categories, each with worked hypotheticals. These are the examples HUD gave its own investigators.

• Size of bedrooms and unit:
  A family of five refused a two-bedroom. In the first case the apartment has two large bedrooms and spacious living areas. In the second it is a small two-bedroom mobile home. A charge might be warranted in the first situation and not the second. The memo adds that where a home is advertised as two-bedroom but one bedroom is extremely small, it could be reasonable to limit occupancy to two people.

• Age of children:
  Two adults and an infant refused a large one-bedroom, versus two adults and a teenager refused a one-bedroom. A charge might be warranted in the first and not the second.

• Configuration of unit:
  Two condominium associations reject a family of two adults and three children under a two-per-bedroom rule. The first building's unit is two bedrooms plus a den or study. The second has no den. A charge might be warranted in the first and not the second.

• Other physical limitations:
  The memo says HUD will consider limiting factors identified by housing providers, giving the capacity of the septic, sewer or other building systems as the example.

• State and local law:
  Where a dwelling is governed by state or local occupancy requirements and the provider's policy reflects them, HUD would consider that a special circumstance tending to indicate the policy is reasonable.

Note the direction of each example. In every pair, the larger or better-configured unit is the one where refusing the family is more likely to produce a charge. The factors do not generally justify tightening the standard. They mostly justify loosening it.

The Four Pretext Factors

Separately from whether the number is reasonable, the memo lists evidence supporting a conclusion that an occupancy policy is pretextual. Evidence that the provider has:

Made discriminatory statements.

Adopted discriminatory rules governing the use of common facilities.

Taken other steps to discourage families with children from living in its housing.

Or enforced its occupancy policies only against families with children.

The memo singles out one fact pattern: a development previously marketed as "adults only" would militate in favour of issuing a charge, and is "an especially strong factor" where other evidence suggests pretext.

And it gives a principle worth writing down. An occupancy policy which limits the number of children per unit is less likely to be reasonable than one which limits the number of people per unit.

Back To The Thirty Units

The example at the top of this post is the memo's own, and it is the one almost never quoted in industry summaries.

A landlord owns a building of two-bedroom units where a policy of four people per unit is reasonable. He adopts that policy. He then refuses to rent to a family of two adults and two children because twenty of the thirty units are already occupied by families with children.

The memo says a reasonable cause recommendation would be warranted.

The occupancy policy was reasonable. The family fitted within it. The refusal was based on the number of families with children already in the building, and that is the violation.

If any part of your operation thinks about balance, mix, or how many units already have children in them, that is the paragraph to read.

What This Means For Your Policy

Six things, drawn from what the memo actually says.

1. Two per bedroom is a defensible starting point. HUD says so. The error is treating it as the finish.

2. The factors mostly cut toward permitting more people, not fewer. Large bedrooms, spacious units, a den or study, an infant rather than a teenager. A policy that never flexes upward for those has not applied the memo.

3. Building systems are a legitimate basis for a tighter standard. The memo names septic, sewer and other building systems specifically. If you rely on that, document it.

4. Local occupancy requirements help you. Where your policy reflects them, HUD treats that as a special circumstance tending to indicate reasonableness. That is a stronger position than most operators realise — though it is one factor, not a conclusion.

5. Count people, not children. The memo states plainly that a policy limiting children per unit is less likely to be reasonable than one limiting people per unit.

6. And never count how many families with children you already have. The quota example is the clearest violation the memo describes.

What To Audit

Your policy, against the unit. Does it distinguish a two-bedroom with a den from a two-bedroom without one? The memo's own example turns on exactly that difference.

Your exceptions. Who has been allowed more than the standard, and who has not. Enforcing only against families with children is one of the four pretext factors.

Your marketing history. Any "adults only" positioning, current or historical, is described by the memo as an especially strong factor.

Your common facility rules. Pool hours, gym age limits, laundry rules. Discriminatory rules governing common facilities is a named pretext factor in its own right.

And any conversation about mix. If occupancy decisions have ever been influenced by how many units already house families, that needs to stop and be recorded as having stopped.

For a portfolio with varied unit types, the practical fix is to hold the occupancy standard against the unit type rather than in a company-wide policy document, with the reasoning recorded once per configuration.

The Thing To Stop Saying

"HUD says two people per bedroom."

HUD says two people per bedroom is reasonable as a general rule, that the reasonableness of any occupancy policy is rebuttable, and that it will not determine compliance based solely on the number of people permitted in each bedroom.

Keating wrote the second half specifically because people were only reading the first. He said so in the memo, in 1991, and published it again in 1998 for the same reason.

FAQ

1. Is two people per bedroom a federal rule?
No. It is HUD's enforcement policy, adopted from a 1991 internal memorandum and published at 63 FR 70256. HUD states that an occupancy policy of two persons per bedroom is, as a general rule, reasonable, and that the reasonableness of any occupancy policy is rebuttable.

2. What factors does HUD consider?
The size of the bedrooms and the unit, the ages of the children, the configuration of the unit including whether it has a den or study, other physical limitations such as the capacity of septic, sewer or other building systems, and state or local occupancy requirements.

3. Does my local occupancy ordinance help me?
Yes, as a factor. Where a dwelling is governed by state or local occupancy requirements and the provider's policy reflects them, HUD would consider that a special circumstance tending to indicate the policy is reasonable.

4. Can I limit the number of children?
The memo states that a policy limiting the number of children per unit is less likely to be reasonable than one limiting the number of people per unit.

5. Can I limit how many units house families with children?
The memo gives an example where a landlord applied a reasonable four-person policy but refused a qualifying family because twenty of thirty units were already occupied by families with children, and states a reasonable cause recommendation would be warranted.

Sources: Fair Housing Enforcement — Occupancy Standards Notice of Statement of Policy, 63 FR 70256, Docket No. FR-4405-N-01, effective 18 December 1998, including at Appendix A the Memorandum of General Counsel Frank Keating to all Regional Counsel dated 20 March 1991, from which the quoted passages, factors, hypothetical examples and pretext factors above are taken; Section 589 of the Quality Housing and Work Responsibility Act of 1998, Pub. L. 105-276; and the Fair Housing Act, 42 U.S.C. §§ 3601–3619, including the provision that nothing in the Act limits the applicability of reasonable local, state or federal restrictions regarding the maximum number of occupants permitted to occupy a dwelling. State and local occupancy ordinances vary. This article describes general concepts and is not legal advice. Confirm your position with counsel before setting or applying an occupancy standard.