Condo rental cap selection process

Good luck on that. Your HOA most likely can't really enforce it. You can write as many caps as you want but doesn't mean you have any actions to punish/enforce. Is there a fine schedule in place?

Plus need to check into STATE law. That overrides your HOA's rules. Many states don't necessarily allow rental limits.

That should have been part of the process when this policy was established (whoops!) This is also one of the unintended consequences of rental caps no one thinks about. There's no mandatory selection process or criteria, so your board will have to do the work and figure out what works best for your community.

This would also be an interesting topic for a special homeowners meeting where people can debate and offer suggestions, so you may want to start there (yes, it will get heated, so be careful and set some behavior standards before you start). And check with your association attorney to see what you can and can't do.

Generally, I'd say owners will have to claim hardship - explain why you should be allowed to rent and provide written verifiable documentation. For example, did you accept a job out of town and need the income to cover housing expenses until this one is sold? That would go further with me than someone who simply wants to make money - I live in a townhouse community and that's what happened here.

Jeff's idea is an interesing one. I might add something to my documents stating people cannot rent at all for, say two years, after the house is transferred or sold. I've heard of some communities who've put that in their CCRs to reduce the number of investors.

My only concern with registrations is that people lie a lot, and who's to say you don't go to a house that you know is being rented, but the tenant says something like "oh, this is my uncle's house and he's letting me live here for free - I just pay utilities and what not." How you prove or disprove that? And what happens when you start seeing a series of nephews, nieces, grandchildren, in-laws and other folks moving in and out of the community?

We failed at getting a rental cap in our community and I never did find out for certain if the number of rentals depressed property values. Personally, I think there was some impact, but all the delinquencies we wrestled with while I was on the board likely had a larger impact. Nowadays, I think rules enforcement is the key. Be fair and consistent with everyone, because you shouldn't be able to tell if a house is being rented or owner-occupied because everyone's in compliance. That may also help keep out the slumlords.

What did your attorney draft? That would be very interesting to hear.

Jeff,
We had language already done for waiting period and I believe notification process and hardship. When we are totally done with this I will share all I can to the group.

I hope the discussion here on rental caps is not being conflated with discussion of short term rentals. I think the legal aspects of each are quite different.

In two states where condominiums are common, I am finding that condo rental caps are not flat-out illegal:

-- In California, Beginning January 1, 2021, rent caps more restrictive than 25% are unenforceable and all associations with rent caps were required to amend their governing documents to conform to 25%. (Civ. Code §4741(b).). There is more to this. See https://www.davis-stirling.com/HOME/Rental-Restrictions

-- In Florida, if the original covenants have rental caps, then whatever the caps are, they are legal. "[I]f the condominium documents do not contain rental restrictions, there are limitations on the ability of the association to adopt new rental restrictions. Section 718.110(13) of the Act states, “[a]n amendment prohibiting unit owners from renting their units or altering the duration of the rental term or specifying or limiting the number of times unit owners are entitled to rent their units during a specified period applies only to unit owners who consent to the amendment and unit owners who acquire title to their units after the effective date of that amendment.” " More at https://www.floridacondohoalawblog.com/2020/10/12/limits-on-amending-rental-rights/

-- I have yet to see an appeals court precedent or discussion of same where a state's appeals court has prohibited rental caps. Quite the opposite: A number of appeals courts have upheld the caps.

-- One of the veteran posters here recently cited a 2006 Indiana appeals court case, Villas West II of Willowridge Homeowners Ass’n, Inc. v. McGlothin, that said a rental prohibition violated the Fair Housing Act, since for the particular community, the party who brought the case showed, with extensive evidence, that the prohibition effectively discriminated against racial minorities. Yet in 2008, a federal trial court decision ruled otherwise, though importantly, the facts differed from the McGlothin opinion.

-- Curiously to me, and like CathyA3 pointed out, the Federal Housing Administration continues to make it harder to get an FHA loan when the rental percentage of a HOA/condo is higher. On the one side is HUD wielding its Fair Housing Act tools to keep HOAs, condos, apartment complexes, and home sales in general from discriminating against racial minorities among others. On the other hand, the Federal Housing Administration clearly views a high percentage of rentals as having an adverse impact on property values. I wonder if the Federal Housing Administration has ever been accused of unlawful discrimination on these particular grounds (making getting a loan harder when a HOA/condo has a high percentage of rentals).

AugustinD,
Thanks - I have seen some of these rulings but thanks for sharing and providing links.
Our current rental is 31% (in a 127 unit condominium) and I plan to actually increase it to 33% or 34%. So back to the point if it is "reasonable" the courts will uphold.

Like JeffT2 - keep the ideas coming.

The Holy Grail would be someone who has a innovative policy with lessons learn experience.

CathyA3,
Great feedback.
We will exempt Family AND Roommate. Many of our owners are elderly and have a friend living with them.
Leases minimum 12 months and we want a formal lease request policy but have not worked out details.

Your comment about up to two years to a single tenant. This is even if the CAP is reached? But once the two years are up you must follow the normal rent policy, i.e. first come first serve based on availability? And it is a one time exemption? Interesting idea if I got it right.

This might overcome the bias Grandfather option and create some "fairness" opportunity for owners.

As for your vote, I have been harping with my team it does not matter if you think it is a good idea if we do not go out and sell, sell, sell it to residents and they do not understand what they are voting for they will vote NO.

As for the one offs who are negative for their own reasons we have to lobby and win them over. Sounds like government doesn't it ha, ha

Hi All,
Any other ideas? Thank you again Cathy. Grandfather protects the current landlords but what the owners, what's a fair deal for them?

Yes, our intent is to keep it simple - too many clauses and lack of clarity people will naturally vote NO. We have 31% landlords and 69% owners so owners do have a 2/3 voting block. Our proposal would be to increase the CAP to 33%, thereby creating some 2 or 3 slots for owners. On the surface this would seem to be easy but to get 100% of the owners to vote and vote Yes will be a challenge so I will need some votes from the landlords. Grandfather should allow me to get some landlord votes BUT I've got to throw the owners something in return (above and beyond adding 2 or 3 slots), otherwise they may vote No just because they feel the Grandfather clause is not fair. Cathy had a good idea by providing all owners a one time exemption to rent. Might there be others? Or has someone tried using some type of lottery system when tenants move out of a unit.

Adding to all of the things people have mentioned, I think an important first step will be an education effort and getting a good sense for the community's opinion on this. We paid around $1000 for the legal work involved in drafting the amendment and preparing the legal papers to notify the homeowners (including text of the amendment, "plain English" version, and ballot/return envelope for voting). You don't want to go through the expense of doing this if there is reasonable doubt that the amendment will pass.

Altogether, it took us about a year from the date we asked our attorneys do prepare the amendment up until the voting was completed and the amendment recorded with the county, so factor that into your planning.

If I had it to do over again, I would spend more time educating myself and the rest of the board on what other communities and states have done, including the unpleasant consequences of not having a robust rental restriction. I would also spend time educating the community and campaigning before and during the voting process, since I believe strongly in the importance of keeping a condo community primarily owner-occupied.

Did your rental restriction amendment pass? I thought two posts of yours above said it did not.

You can pass all the rental caps and restrictions you want. Doesn't make it enforceable. Like my lawyer told us. The HOA does NOT own your home. It owns the common areas around your home or shared amenities. It can tell you what to do on the front exterior of the homes to make them in sellable condition. Like no bright colors, this type of siding/windows, or no dark shades in windows. It can tell you NOT to use it as a business like an auto shop etc... A business that would attract parking and traffic issues.

Rental property isn't about aesthetics only. It is more than that. They amount of rentals effect loan packages and refinance rates. The banks look at the PUD form of which this information is reported. They see a high rate of over 50% they tend to bulk a bit. Your more worried about what it "looks like" can be controlled by the HOA by holding the owner's feet to the ground. People needing/wanting to use their property rental is more in the bank's privy.

My recommendation is always this: Make sure if there is going to be rental that ALL owners have their tenant sign an addendum in the lease to agree to follow the HOA's rules. This protects the owner and the HOA. It allows the owner to remove a tenant violating the HOA rules for a lease violation. Otherwise, the owner's hands are tied because it's NOT a lease violation. If they are not violating their lease, then they can't evict legally.

Tenant's have rights too. So you can't violate those. That is the other side of this coin the HOA has to look at. I can't randomly kick out a drug dealer whom is renting as the HOA. The owner can't either because that person would have to be in violation of lease agreement which may mean being convicted of a crime while living in the home. Something that has to have the person arrested, convicted, and proven. This takes months. Plus eviction process takes around a month to 6 weeks. It's NOT an overnight thing.

I am in the middle of a mess about this myself, Phil.

I live in a 24 unit condo building in Illinois - started out all owners. I became an accidental landlord because when I got married and moved for more space, it was in the winter at a bad time to sell, and I failed to sell so I started renting. Turned out, finding good responsible tenants wasn't all that hard for my area, so I've been renting 5 years now.

My board's HOA is now pushing for a very conservative cap of just 5 units.

They're trying to find a "fair" waitlist, and their suggestion is absolutely HORRIBLE in my opinion. Here's the problem...

You have to decide what you're looking for:

1) You do still want some owners to be able to rent out their units (but have a cap)

2) You simply want all renters out, even if that means "voting out" owners

There's really no in between here in terms of fairness. Here's why...

My HOA is proposing a revolving door waitlist -- every time a tenant decides not to renew a lease, the owner goes to the bottom of the wait list. They've convinced people (we need 2/3rds to add this to our declarations) that this is "more fair" because "Everyone will get a chance to rent out" -- but practically speaking, this means that if we're at the cap, you could rent 1 year, then your tenant decides to move for more space or whatever, and you're stuck either not renting for a few months (while you wait on an arbitrarily long waitlist), or having to move back in. Are you really gonna rent your place for ONE year, then potentially have to move back in? Suddenly what's "more fair for everyone" turns out to be really freakin' impractical.

The middle ground I've seen suggested is "limit renting to X consecutive years" - like 3 or 5. Renting, though, generally comes up in either a distress scenario (like you failed to sell your place), or an investment scenario. If you rent your place for 3 years or 5 years, then hit that cap -- are you really gonna move back in? Doubtful. So again, this whole idea of "rotating around" who gets to rent isn't all that practical.

So, as far as I've been able to surmise, the only fair way to accomplish #1 up there (allow some folks to rent their units) is basically that whoever's currently renting gets to keep renting, and any new folks (after the cap) wanting to rent have to get on a waitlist. Their turn comes when a unit is sold or an owner chooses to stop renting. Yes, this means other members could be waiting ages to get to rent -- but having owners who rent their place out for several years in a row is what keeps them owners.

My board president is desperately trying to cling to this revolving door idea, and I'm desperately trying to defeat it, because while it seems "more fair for everyone" it's really good for NOBODY -- unless "good for us all" is voting the 5 current owners who are renting their units out of the building altogether and forcing us to sell. If the revolving door passes and there's a waitlist, I cannot afford 2-3 months (or more) of continuing to pay my mortgage, but with no rental income.

It's 2/3rds, and they're trying to push through the votes. I do think they'll vote for it because only 5 are owners who rent out their places - leaving 19 who aren't really thinking about the logistics of what it means to have a waitlist like this, they're probably just like "that sounds fair to me!" or "I never intend to rent anyway, and a cap seems like it'll protect my home values!"

The board already tried and failed to get 2/3rds to vote, but they're trying again next week via proxy votes and they seem to think they have the votes. I'm trying desperately to stop it. I'm not against a cap, but I'm 100% against the way they're trying to implement it. It screws me and 4 other very long time owners pretty badly.

First of all I would like to thank everyone who has spent the time to respond - seems I have touched a nerve - Rental Caps
Yes out of control rentals will impact ability for potential buyers to get loans, property value could suffer, etc. but a key reason I am driving this is I want our building to have a "residential" atmosphere, were we know and greet our neighbors and has a sense of community. Just because it is a "building" does not mean it isn't Home for many of us. This does not mean I am naïve when it comes to rentals. I am OK with the ability to rent (I might want to some day) but it should be controlled IF you want the reputation of your building in the marketplace to be a "Luxury Condominium" vs "Apartment Complex".
After reading all the good input the number one message I am getting - develop a "simple" plan which will pass - this means there has to be something for current owners who rent and owners who occupy as we will need votes from both groups. Once this is formulated, it must pass the legal test and finally back to Cathy's comment - educate, communicate and sell, sell, sell the plan before a vote.
I took a look at the history of the current rentals with regards when they were bought and 25% were bought when the building open (investors) and nearly 40% after the second year AND in the pass two years we've had no new rentals - interesting!!
I am leaning towards a plan which includes;
1) Grandfather existing renters, with no restrictions or time limits
2) Add 2 - 4 rental slots to the current rental units and it becomes the CAP
3) Give each owner a one time exemption to rent for up to two years. Once two years are up they must abide by the rental cap policy. If a slot is open they can continue to rent, if not they get put on a list til someone stops renting - this was an idea from Cathy - thank you

Interested in comments.

AugustinD,
We will amend our bylaws which will require a 2/3 vote to approve. Hence the comment why we need a plan which we are confident will win coupled with a major effort behind education and communication. We need to count votes before we have the vote.

Thank you for legal comment

Why? The HOA does NOT own the residence. So why would they be having a "wait list" for anyone's property? It's a personal or financial choice of the owner not of the HOA.

We had a "wait list" for people interesting in purchasing in our HOA. It wasn't a formal thing. Just if I got wind of a house coming up for sale someone left their number. It's really up to local Realtors to sale and list property. It's just our houses sold so fast people wanted a heads up so they could contact their realtor in time. We've had houses sell in 6 hours. Right now in our area homes are selling almost the same day they go up. So having an inside track to a desirable area just helps beat the competition.

I just tried to buy a house few months ago. They wouldn't take less than the asking price and sold within a few days. Since then have missed out on several houses as they are listed as "coming soon" and day of listing they are pounced on.

Assuming a wait list is put in place that puts Owners who want to rent in order of the date they make the request, I do not think there is a "best practice." It's clear to me that a cap results in periods where an investor-landlord-owner will not be able to rent and will be on the wait list. This results in a non-profitable business in my opinion. And it's completely lawful. The landlord-owner either knew in advance of the cap, or that the HOA's/condo's governing documents could be amended to impose a cap. In other words, a cap or the possibility of one was in the contract from the get-go. Just like a lease has terms, so do covenants. Tough luck for the investor-landlord-owner.

You can read https://www.hoatalk.com/Forum/tabid/55/forumid/1/postid/294689/view/topic/Default.aspx and see some reasons why a rental cap won't work for an investor-landlord-Owner.

AugustinD - could not open the link you sent.

Totally agree.

Whenever you make changes like this, it's a good idea to analyze *all* of the consequences of the decision and decide whether the benefit justifies the costs. Even without a rental cap, our PM and board spent time chasing down copies of leases, keeping track of who's renting and who isn't, who's listing a home on Airbnb, and keeping track of our percentage of rentals (which has to be reported when homes are sold and when we apply for FHA re-certification). And without a cap, we didn't have to worry about wait lists or who was lying, figuring out what to do about it, and fighting the resulting battles. All of these things are significant time sinks for people whose time is already stretched. (And money sinks too if somebody decides to sue, which is why our attorney recommended against the cap.)

I believe that an association can achieve a good part of the benefit of a rental restriction simply by strictly enforcing the CC&Rs (which the board should be doing anyway). This can also help discourage casual landlords who haven't thought things through, and who find themselves cash-flow negative when they start getting hit by fines or other expenses as a result of their tenants violating the CC&Rs.

The one thing you can't achieve without a properly worded and enforced rental restriction is keeping investors from taking over the community. This is a significant benefit. Depending on how vulnerable your community is, it may justify the costs of capping rentals.

Hi Everyone - it has been a while since I have participated. My interest then and still today is about Rental Policy, specifically a CAP, for a condo complex of 120 units in MA. A lot has been discussed with my team but the current sticking point is finding the right process to manage the CAP. Particularly, a waiting list process when the CAP is reach. How is the list formed, how is it determined who's 1st, 2nd, 3rd on the list. When a rental slot becomes available, what is the communication process with the people on the list, etc. Does anyone have a documented process they are willing t share??

You received a number of suggestions when you started this conversation two years ago - did you try any of them? If so, what did you learn? I realize COVID threw everyone's plans out the window, but I think you should begin by getting a sense of where you stand right now and what the residents think about all this. You may already have some new homeowners who are interested in renting out their units of are already doing it, so they may or may not be excited about anything that could limit their ability, especially if that's the reason they bought the unit in the first place.

Once you do the work to see what you have, you can consider what the primary issues are and the best way to address them. That will give you more data to evaluate what other communities have done and whether it can be adapted to your community.

While you're doing that, you may want to read some recent conversations o this website about investors who are buying more and more single family homes and renting them out - off that hasn't already come to your community, it may be on the way and you may have to consider how to slow it down.

I am wondering how it is discriminatory if you are trying to comply with lending guidelines that restrict lending possibilities if the rental number is too high, and second, how would it be discriminatory if it can be proven that rentals and their tenant do not have the same duty of care that a owner generally will have?