Sunday, February 13, 2011

Will loosening community rental restrictions solve delinquency and foreclosure issues?

Ask some folks how to solve the foreclosure crisis plaguing so many of our community associations in Florida and they can boil it down to one issue: it is too darn hard to rent out your property in some communities. Just how much weight does this argument hold?

In most communities, the restrictions on an owner’s ability to rent out his or her property are found in the Declaration of Condominium, Declaration of Covenants and Restrictions in an HOA and, in a cooperative community, in the Bylaws. Thus, the decision to tighten or loosen those restrictions rests with the association members and not the board alone and must be accomplished via an amendment.

Some years back, Section 718.110(13) of the Condominium Act was amended to make it much more difficult to pass amendments affecting rental rights. A Maine resident had purchased a condominium unit in a Florida community that had no leasing restrictions only to find he was on the losing end of vote to implement such restrictions after his purchase. This gentleman happened to know then Senate President Jim King and the rest is history. As with most legislation, however, there were unintended consequences. At the time 718.110(13) was amended, the real estate market was booming and most people couldn’t imagine that some time down the road there would be a need or desire to loosen those same restrictions. The only concern was how to stop communities from imposing rental restrictions when none previously existed. Fast forward several years and that same language in 718.110(13), which reads that any attempt to alter the duration of the rental term or which specifies or limits the number of times an owner can rent during a specified period, only applies to current owners who approve or to new owners who take title after such amendment is recorded and it just became harder to loosen up rental restrictions.

For example, if your community’s documents currently provide that an owner can only rent for a minimum 12 month lease term and no more than once per year and your members would like to amend that to provide for smaller lease terms of three or six months and allow leasing 2 or 3 times a year, you are altering the duration of the rental term as well as specifying the number of times an owner can rent throughout the year and the requirements of 718.110(13) will kick in.

Just as the good times weren’t always going to last, neither will the bad ones. Communities could go back and forth like pendulums on tightening and loosening their rental restrictions. At the end of the day, it is a community decision whether or not leasing should be encouraged, discouraged or simply tolerated. Arguments against leasing include the fact that too many rentals render the community unattractive to certain types of financing which drives down sales and results in more foreclosures. Arguments for leasing include the fact that paying tenants allow an owner to meet his or her financial obligations to the association. This is more true than ever since associations can now collect monies directly from tenants in delinquent units.

Wherever you stand in this debate, it is interesting to note that the very legislative change that was made to discourage leasing restrictions might actually work to make it difficult for associations that have long-standing rental restrictions from loosening those same restrictions.

This work by Donna DiMaggio Berger, Esq. is licensed under a Creative Commons Attribution-NoDerivs 3.0 Generic License.

1 comment:

  1. Donna

    In Panama City Beach Some Condominium HOA’s are amending their condo docs with a 2/3 vote of owners to restrict the owner's rights to rent to anyone under 25 in an attempt to eliminate Spring Break. Then HOA's lawyers send out a letter to owners threatening fines and that their rental agents will not be allowed access to the building if there is noncompliance.

    FS 718.110(13)seems to protect owners who did not vote for the amendment but the letter states that no owner or their agents can rent to under 25 renters.

    The Florida Department of Business Regulation-Division of Florida Condominiums, Timeshares, and Mobile Homes advised me early in 2010 that HOA’s cannot make this restriction applicable for non consenting owners who owned prior to the amendment being recorded to the condo docs or who may have voted for the amendment but subsequently changed their mind and recanted their vote.

    But the HOA's are telling us that there was a loophole in FS 718.110(13) that was amended by the state legislature sometime in 2009 that allows them to do this. this link is about all that I can find on the subject. What do you say about this rental restriction due to age?