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Took an Application & fee...need advice on denial letter

Just looking for thoughts/advice: I took an application & fee for credit/background check from a couple that seemed qualified after speaking with them & showing the property.  Unfortunately, I received back the current landlord's reference in writing stating that the tenant "pays late most months, but pays within the month."  When I inquired further on the phone, the landlord stated that the tenant "used to pay on time, but has been paying later & later since March (of THIS year)."  They went on to say that the tenant paid on the 13th of March, the 9th of April, the 20th of May, and June was more than 10 days late also.   The current LL also stated that they have not received any notice from the tenant on terminating their tenancy.   SOOOO...I am not feeling that this is going to be any good.   1)  The rent we are charging is $300 more per month than they are currently paying. 2)  Repeated late payments after the 5th of the month...and recently to boot. 3)  This applicant wants to move in Aug 1, but has not yet (June 20th+/-) advised current LL of intention to move I did request employment verification on his back, he just started a new job 5/1 and her employer charges a fee of $35 to verify her employment & income info.   I got his verification back, but did not pay for hers.  I have NOT run their credit/background checks yet. My thoughts are to send a denial letter stating that their landlord/rental reference was not acceptable and that we have to deny their rental application at this time.  With that letter, I am planning to refund them (via USPS money order) the fee that I collected with the application because I did not run any of the credit/background checks. So, am I okay legally to reject them based on just the bad rental/LL reference?  I think it stands to reason that if they cannot pay a lesser rent on time to their current LL, that they will have less of a chance of paying my higher rent on time.  Appreciate any thoughts...thanks!

Yes this is a non discriminatory denial. you can absolutely refuse to accept them as new tenants.  Simply if they do not qualify they do not, and chances are if they pay late they always will or they will not pay at all.
Thank you for the reply, Patty H!   Do you have a recommendation on how to word it in a letter?  I was going to use something like this (thoughts?):  Dear XXX,  Thank you for your recent rental application for the house located at XXX.  Unfortunately, you do not qualify to rent the property due to late/delinquent payment history with a current or previous landlord.   As a credit/background check was not performed, I am enclosing a refund of the $35.00 fee you paid with your application.    Again, thank you for your interest and best wishes.  Sincerely, XXX
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