Voucher Rejection Is Source-of-Income Discrimination

Facts: Intending to sell its property, a Washington, D.C., owner stopped participating in the project-based Section 8 program after its HAP contract with HUD expired in 2004. Residents of the site received enhanced vouchers to remain in their units, but when they began offering these vouchers for units at the owner's site, the owner refused to accept them. The owner told residents that it would not sign the paperwork required to use the vouchers, but “provided you pay the rent charged and otherwise abide by the terms of your tenancy, you may continue to reside in the property which you currently lease until such time as [you] may be required to vacate upon appropriate notice.”

Nine residents sued the owner in U.S. District Court to force the owner to honor their enhanced vouchers. The residents claimed that the U.S. Housing Act of 1937, as amended in 1997, gives a family that receives an enhanced voucher the right to elect to remain in the same project in which it was residing when the project owner's Section 8 contract expired. The owner argued that its responsibilities ended when it decided to leave the rental business.

The court agreed with the residents, ruling that the owner was required to accept the enhanced vouchers, finding it “clear that families renting at the time of the termination of [a] project-based subsidy contract [have] the right to remain in their units, using enhanced vouchers, for so long as the tenant remains eligible for the vouchers or until the tenant is evicted.”

The residents also alleged that the owner's rejection of their enhanced vouchers was discriminatory and violated the D.C. Human Rights Act, which prohibits source-of-income discrimination. (The act specifically refers to Section 8 subsidy as a source of income.) On this claim, the lower court ruled for the owner, and the residents appealed.

Decision: The D.C. Court of Appeals ruled for the residents.

Reasoning: The owner did not dispute that it demanded that the residents pay rent from their own funds and not through the Section 8 voucher program. The owner insisted that its demand was not source-of-income discrimination, because it was not motivated by animus against vouchers or their users but by a desire to vacate the units so it could sell them. The appeals court saw the owner's motive as irrelevant because the policy was discriminatory on its face. Having a benign motive does not excuse a violation of the Human Rights Act. According to the court, the owner did not provide a convincing explanation of why it agreed to accept rent payment from the residents in cash but not in vouchers. “Permitting [the owner] to refuse to accept Section 8 vouchers on the ground that it does not wish to comply with Section 8's requirements would vitiate…the legal safeguard [the source-of-income law] was intended to provide,” said the court.

• District of Columbia Human Rights Act: D.C. Code §2-1402.21 et seq.

• Feemster v. BSA Ltd. Partnership, November 2008

• United States Housing Act of 1937: 42 USC §1437f

LESSONS LEARNED: The owner's actions in this case seem to have been based on a view that if it accepted vouchers it would still be functioning as a Section 8 rental property and thus could not sell its property, says Margaret McFarland, director of the Colvin Institute of Real Estate Development at the University of Maryland, and former General Counsel to the District of Columbia Housing Authority (DCHA). However, by accepting cash rent from other residents, the owner set itself up for a discrimination claim. The owner would have been wiser to accept the voucher payments from the D.C. Housing Authority, then go through the process of offering units to tenants through the District's right-of-first-refusal law and then convert the units to for-sale housing. Considering the best interests of both the tenant and the owner, this was a case that should never have gone to court, says McFarland.