How many times have you been at an HOA board meeting and heard, “it’s the renters who don’t follow the HOA rules” or “our homeowner’s association assessments are increasing because the renters don’t care about our building and following the rules!”

While many boards which have concluded that a limit on the number of tenant-occupied residences is desirable, the same boards are often at a loss as to how to enforce such a restriction once it has been adopted. This is where Beacon’s community association management services can help.

The Impact of Too Many Rentals

A high rental percentage can have a direct, negative economic impact on a community association.

  • Prospective buyers may have difficulty acquiring a loan to purchase a unit in the association and, in some cases, liability insurance rates can be higher.
  • Other reasons for limiting the number of leased or rented dwellings include lender requirements for a minimum number of owner-occupied units in the development (especially in condominium projects)
  • Concerns about increased rule violations and maintenance issues associated with a high tenant occupancy rate, frequent move-ins and move-outs with increased noise and traffic issues relating to tenant-occupied dwellings, and the lack of “community spirit” on the part of many tenants who generally occupy the residences for a relatively short time compared to owner occupants.

Inform Potential Buyers of Lease Restrictions

If your Governing Documents contain a lease restriction provision, be sure to inform prospective purchasers that the association prohibits or restricts the rental or leasing of units or lots within the property.

In addition, a cover page could be attached to CC&Rs provided to prospective purchasers stating the same thing. For example: “This document includes restrictions on your ability to rent or lease your property; review it carefully if you intend to rent or lease the property after purchase.” This will provide additional grounds for addressing any claim by an owner that he or she was not aware of any such restriction when the owner purchased the property.

Make a List of Authorized Owners

An essential element of any community association management approach to enforcing a lease restriction is to assemble a list of those owners currently authorized to lease or rent their residence. The owners’ authorization to lease could come from written permission of the board or from being “grandfathered” under the provisions of the lease restriction itself (see discussion below relating to grandfathering).

Assembling such a list is often difficult, since, as discussed above, it is not often easy for a board to identify those residences which are being leased or rented.

One approach to assembling such a list is to require all owners to register their leased residence with the community association within a specified period of time. Those owners who do not register their residences will be deemed to have represented that they are not currently leasing or renting the residence. If it is later discovered that the residence was leased or rented, the owner can be called to a disciplinary hearing for violation of the lease restriction.

Understand Grandfathering

Grandfathering refers to an exemption from the lease restriction granted to a specified group of owners at the time the lease restriction is adopted.

For lease restrictions adopted prior to a certain date, there is usually a provision stating that owners who were leasing their residences at the time the lease restriction became effective could continue to lease their units without regard to the limit on the total number of leased residences allowed under the restriction. These owners were “grandfathered” in under the lease restriction.

When these owners sold or transferred their residences, the new owner lost the grandfather status and was required to comply with all provisions of the lease restriction and generally would have to apply to the community association management board for authorization to lease his or her unit.

In compiling a list of residences currently authorized for leasing, persons entitled to be grandfathered in will need to be identified.

Establish a Hardship Leasing Policy

Most lease restrictions provide that the board may grant a waiver of the restriction for an owner if enforcement of the restriction would result in an extreme financial or personal hardship. Such a waiver should rarely be granted. It is intended for only for those situations where unforeseen and unusual personal circumstances require an owner to temporarily lease his or her unit.

The board may want to adopt a written policy which establishes some guidelines as to when a board may consider a waiver, and when such a waiver would not be appropriate (e.g. lack of knowledge of the restriction due to failure to review the governing documents prior to purchase is not typically grounds for granting a waiver).

Also, since granting a waiver is usually within the sole discretion of the board, conditions for the waiver can be imposed. For instance, a waiver could be granted for one year on condition that the owner either sell his or her residence or move back into it at the end of the one-year period.

Use a Lease Addendum

No doubt you’ll have the association’s renters sign a lease, so consider attaching an addendum to the lease that covers the rules and regulations and require renters to adhere to the community association management rules. This is very important because it gives the association a means of enforcement. A good lease or lease addendum should support the community by:

  • Requiring the tenant to obey the bylaws, rules, and regulations of the association. (Attach copies!)
  • Requiring the tenant to pay fines for HOA rule violations.
  • Requiring the tenant to vacate if the rules and regulations are repeatedly violated

Prepare for Litigation

Unlike most enforcement actions by a board, enforcement of a lease restriction often involves significant economic factors for the owner seeking to lease. Lost revenue and/or a perceived reduction in market value of the property may encourage some owners to seek relief from the restriction through court action.

In the alternative, an owner may simply ignore the association’s demands that he or she stop the unauthorized leasing of the residence. Although it is well settled that most properly drafted lease restrictions will be upheld by a court, some owners may threaten or proceed with litigation in the hopes of getting the association of giving up on any attempt at enforcement. It is important that a community association management board be prepared to meet such a challenge or if necessary, to initiate litigation to obtain compliance.

First, of course, a board has a legal obligation to enforce all of the association’s governing documents. Secondly, once a blatant violation of a lease restriction is allowed to continue, the floodgates will be opened and additional violations will undoubtedly be the result.

Make Tenants Part of the Community

Even though tenants have no vote on homeowner’s association matters, they are an important part of the community. Make them feel welcome, provide information that will familiarize them with the association, and encourage them to participate in community activities whenever possible. Today’s renters may be tomorrow’s owners—or even HOA board members. The more we all do to promote a sense of belonging for renters, the more positive and successful the leasing experience will be for everyone.

For more information about Beacon’s community association management services, please contact us today via our online form or call us at (404) 907-2112.