Tuesday, September 8, 2009

Does your community want to restrict tenants?

It should come as no surprise that many people are now looking to rent property after having lost their homes or having had their credit negatively impacted during this economy. Communities that might not have traditionally had many renters might now be seeing an increase.

For some communities, these renters could mean the difference between a unit owner being able to maintain control of the property and continue paying maintenance or foreclosure. Bulk investor owners may be a blessing to some failed projects. On the other hand, other associations see an influx in tenants as a headache waiting to happen.

Associations looking to restrict the number of renters in their community often take a couple of steps. If the governing documents are silent on the issue of renting, the first step is to amend the declaration (the document with the highest level of priority). Any time you seek to amend, you must determine if there are any unusual hurdles to the amendment process; i.e. super high percentage membership approval required or lender consent required. If these challenges do present themselves, your first option is to amend the amendatory threshold first and then seek substantive amendments later.

Most amendments restricting leasing include a combination of the following:

1. Prevent leasing within a certain time period after taking title to a unit. This could be either 6, 12 or 24 months. The rationale behind this kind of amendment is to discourage investors from purchasing in the community;

2. Set a minimum lease term and a maximum lease term;

3. Prevent leasing more than a certain number of times each year (usually one or two). The rationale behind this type of amendment is to encourage long-term leases as opposed to transient monthly rentals. The board should give themselves some leeway to allow hardship exceptions to this restriction in the case of a tenant dying or moving out within a short period of time after signing the lease;

4. Require a common area security deposit (cannot exceed more than one month's rent in condominiums);

5. Require a screening process. This can include the payment of a screening fee so the association can do a background check and a personal interview;

6. Add "for cause" language which would allow the association to deny potential renters for particular reasons; i.e. criminal history, history of creating a nuisance in other communities, failure to fully or accurately fill out the application, etc.;

7. Require owners wishing to lease their units to use only a board-approved lease form or lease addendum which would allow the association to collect rent directly from the tenant in the event the landlord/owner becomes delinquent and to empower the association to evict troublesome tenants;

8. Add language that would allow the association to specially assess the owner for any damage a tenant may cause to the common elements over and above the security deposit; and

9. Put a cap on the number of total rentals in the community at any one time.

Again, the issue of whether or not leasing should be discouraged is specific to the particular community involved. In a condominium, any changes affecting "rental rights" will apply only to new owners who take title after the amendments have been recorded and to existing owners who voted "yes" on the amendments. Interestingly enough, the very changes to Section 718.110(13) made at the request of groups fearing amendments restricting rentals will now work against communities attempting to loosen their rental restrictions. Since the language says amendments affecting "rental rights" that can mean language that makes renting more restrictive and it can mean language that makes renting less restrictive since both impact rental rights. Certainly that was not the intention of the groups pushing for that change initially but it is the reality in today's economy. It is for that very reason that my organization, the Community Advocacy Network (CAN) cautions legislators not to create new laws in a vacuum. Good laws must take into effect that the pendulum will only swing so far in one direction before it heads back in the other.

2 comments:

  1. I am the president of an HOA in Florida. I have read so many articles written and placed on the internet that warn HOA's NOT to fall under 51% of owner-occupancy rate because if they do; (1) HOA property values will decline (2) Banks will view our property as "Investment Property" and therefore will not give out loans, (3) Fannie Mae will reject the loan, (4) HOA Insurance will increase, causing the HOA Fees to increase and homeowners will flee due to higher HOA Fees, (5) Buyers will shy away from purchasing a home with high HOA Fees. But there are NO articles listed or posted on the internet to advise HOA's how to enforce a restriction or Cap on the number of homeowners who can rent out their townhome. Our HOA has placed a cap (10%) of the number of rentals we allow but has had to bend those restrictions due to the number of foreclosures we've experienced within our HOA. Even with a cap, how can an HOA enforce that cap? What tools do we have available at our disposal that would give us the leverage to enforce this cap? In reality and without the consent of the HOA or Property Manager, a homeowner can rent out their unit and the HOA doesn't find out about until a U-Haul drives up to the unit. Even as the HOA watches the unknown and unapproved tenants move in, how can the HOA stop it. We can't stand in front of the door to prevent the renter from moving in, we have no legal mechanism to stop them from moving in, after all, the homeowner had them sign a Lease. By HOA Florida Statutes, we are only authorized to communicate with the homeowner...not the renters. Florida HOA Statutes doesn't address how an HOA can enforce and fine the homeowner who ignores our bylaws concerning rental restrictions. So my question is then, how can the HOA enforce the cap in the number of homes that can be rented out? Realistically, any homeowner can rent out their unit without telling the HOA and I cant find a way for the HOA to stop the homeowner from renting out their property. We dont realize they rented their property out until it's too late. Whats worse, California legislators passed a bill, Sen. Bill SB 150, effective on January 1st, 2012, prohibits HOA from placing a cap on the number of rentals within an HOA community. I am afraid this might happen in Florida too. If Florida opens up the flood gates to allow any homeowner within the HOA to rent out their home, then how will HOA's survive? How can the HOA prevent this from happening without HOA Laws to protect us?

    Please note, our HOA has implemented your suggestions to reduce the number of renters within our HOA...but I am asking for advise on how we can enforce those restrictions when the homeowner ignores the bylaws; by passing all these HOA restrictions.

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  2. Interesting...so, here's another twist. If you do have Investors in your condo community, how can you protect the other homeowners if the Investors to anyone with out checking them out. Can the HOA have the Investor provide a background check? Also, can their be rules such as the Investor must check on his property quarterly? Or each time the renter changes, they are required to have the dryer vents cleaned (its a free service the HOA provides) and little things like that to keep other homeowners safe?

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