Restricting the number of rental homes

We have a rental restriction. It keeps Airbnb and others of that ilk out, but it will not stop corporate buyers who do typical leases.

* Problem #1: many small investors own their properties through LLCs which are corporations. I don't believe it's legal to discriminate on the basis of who the buyers are (or if it is, the big corporate owners have the dollars to fight an HOA into bankruptcy - it's not a level playing field). So there is that.

* Some HOAs/COAs have a restriction that prohibits renting for the first 6 months or 1 year of ownership. This will keep a lot of corporate owners out, at least for now while there are plenty of other vulnerable associations out there. When the supply becomes limited, the corporations have the deep pockets to wait out the 6 months or whatever. So this won't keep them out indefinitely.

* Some HOAs/COAs actually limit the number of rentals in the community. This approach has some issues, one of which is difficulty in enforcing it. Our lawyer also told us not to do this based on his review of case law - he found instances of courts ruling that the limit is arbitrary. My personal opinion is that it is arbitrary and also discriminatory: it allows some owners to do something that others are prohibiting from doing. (Comment: you'll find folks on this website who disagree with my views on this.)

* To tie this to another thread currently being discussed, I believe that co-ops have more options for keeping corporate buyers out since current owners can approve or disapprove new buyers.

When we tried to tighten up our rental restriction, homeowners were overall in favor but we didn't get the 75% we needed to amend our CC&Rs. If I end up back on the board, I think we should try again, and this time I will lobby in favor of the amendment. (I didn't the first time because I didn't want to be accused of unfairly influencing the vote. But at this point, I believe it needs to be influenced. Most people are completely unaware of what's going on with condo deconversions or what happens when too many units are rented and what this means for them personally. They need to have it spelled out.)

GeorgeB11, is this a condominium association?

This topic is discussed a great deal here. I think HOATalk members overwhelmingly favor rental restrictions. They are not fans of landlords owning homes in their communities.

From discussion here, the following is my take on the best options for one's governing documents to deter investor-landlords:

-- Amend the governing documents to limit rentals to 25% of all homes/units. This will require: grandfathering owners who are currently exercising their right to rent and having a waiting list policy. It's all do-able.

-- Equally effective and attractive is prohibiting new owners from renting for a one-year period after purchase. This seems to discourage investors.

-- I agree with everything, or darn near everything, CathyA3 says on this topic.

-- Here's a recent thread that has a link to a Washington Post article: https://www.washingtonpost.com/business/2022/03/31/charlotte-rental-homes-landlords/ . I think the thread and article are both worth reading.

Oops; the thread is here:
https://www.hoatalk.com/Forum/tabid/55/forumid/1/postid/323845/view/topic/Default.aspx

The short answer is that you can only restrict rentals if it is in your CC&Rs, but it can be more complicated. Most states probably have court precedents that have to be considered.

I continue to wonder if your COA's attorney looked at trial court decisions in Ohio. Plus I have yet to find a web site that says HOAs/COAs are taking a risk if they amend their governing documents to apply a rental cap. I find just the opposite: Many sites give advice on how to proceed to amend the governing documents so the HOA/COA has a rental cap.

I've also been looking and I'm not finding.

I think the whole topic of rental restrictions and the growing push by corporate landlords to buy up HOA/COA property would be an excellent item for one of our attorneys' training sessions. I may suggest it...

Pretty interesting. Here's a summary quoting the 2011 Virginia Attorney General's opinion itself:

Issue Presented
You ask whether a homeowners' association, by duly recorded covenant, may limit the number of housing units within the association that may be offered for rent by the owner to tenants.

Response
It is my opinion that if properly written, adopted and enforced, and authorized as to purpose and not in conflict with an association's declarations, bylaws or rules and regulations, a homeowners' association may covenant to limit the number of housing units within the association that may be offered for rent by the owner to tenants.

The two-page opinion goes on discuss the law supporting this position.

For the full opinion, see the attachment.

Thank you, JohnT38.

I am in the process of establishing a set of rental restrictions for our board to consider. That is an excellent addition, thanks.

I wonder if the lease could include a clause that the HOA could evict a tenant if they violate HOA rules.

Are these already in the Declaration? If not, then IMO these conflict with the Declaration and cannot be added unless the HOA amends the Declaration to add this cap and use restriction.Why is it you think a rule making the lease term more restrictive is not a conflict with the Declaration? Again, I do not think this is allowed unless the owners amend the Declaration.Your HOA is already subject to the Fair Housing Act's prohibition on discriminating against the disabled. The latter is as strict as ADA law. IMO you're way off-base on this one.Again, this would require an amendment. No. Find out what limits your city places on occupancy; remind people that they are subject to the city code's limits on occupancy; and the HOA will report violations to the city as appropriate.

You should consult with the HOA attorney, although coming up with a wish list or best practices list is fine. The lawyer is going to have to write the amendment in any case.

Laws governing rental restrictions vary by state, and are also limited by what's already in your CC&Rs, so that's where you need to start.

Someone mentioned tenants' rights in another thread, but by and large the HOA/COA does not have a legal relationship with the tenant, only with the owner of the unit. It's up the unit owner to make sure his lease complies with that state's landlord-tenant laws. It's *not* up to the association to make sure tenants get a fair shake. There are a few exceptions where the HOA/COA can get involved in rentals, but it's not common. There are also some states where boards risk getting sued if they interfere at all in the landlord-tenant relationship (to the point where board members don't talk to tenants at all for liability reasons).

Requiring that leases contain an article stating that the tenant must obey the community's CC&Rs and other rules is generally fine. Requiring that the landlord provide a copy of the lease is generally fine. Requiring that the landlord provide contact info for the tenant is often fine, but that may be more appropriate for condos because units are attached.

Consider whether or not you also need to amend your rules about fines (if your governing docs allow such).

Something that I spotted in another community's declaration that's related to this: This declaration required 100% approval from the membership in order to dissolve the condo association. This would make a condo community a less attractive target for corporate owners who want to de-convert, and it would prevent the last remaining owners from getting low-ball offers or being evicted (which has happened in communities where the percentage needed to approve is lower). So this may be a good idea, although I suspect it has some unintended consequences as well. Examples of unintended consequences: one or two holdouts vote No just to be difficult, or some owners don't vote at all). Hmmmm... I thought this was a great idea, but I've talked myself out of it. :-)

Capping the number of tenants based on home size may be difficult, but your local municipality may already limit the number of unrelated adults that may live in a home. So check those. If your local zoning regulations can do the heavy lifting, you're better off.

Re: the short term leases, in addition to requiring a minimum lease term of 6 months, our declaration says no corporate or hotel style rentals. You don't want even longer-term airbnb's (I assume). The legal relationship between a unit owner and a bona fide tenant with a lease is different from that between the owner and an airbnb customer. This *may* have insurance implications, especially if the customers use your amenities. And the unit owner has less leverage with customers as far as controlling bad behavior. For one thing, the owner may or may not be able to put behavior requirements into airbnb's documents.

Keep 'em out!

It sounds to me like to you'd be able to do things such as fining the unit owner for CC&R violations by the tenant (a *very* common thing) and requiring the unit owner to put something in the lease document stating that the tenant is obligated to abide by the community's rules (also very common).

No, you can't stop corporations from buying homes to rent out unless your CC&Rs plain, flat out prohibit all rentals. Assuming you can't amend your CC&Rs to say that, then a rental restriction like the ones we've been talking about can get you part way by prohibiting any renting during the first so many months of ownership and/or by having a rental cap.

The trick is to pass a robust rental restriction amendment before you have too many landlords, and to enforce all of your restrictions. Investor owners have to be cash-flow positive in order for renting to make financial sense, and if a tenant is misbehaving and racking up fines for the owner, that's money flowing out of the investor's pockets. Something like this can discourage casual or newbie investors.

Cathy

I believe there was an IL court ruling that unless otherwise stated in one's Covenants that 80% (maybe 90%) of the owners could dissolve the corporation as in sell the association to an investor/convert to rental units.

According to our Declaration it's 75%, same as for most other amendments. There are just a few things need 100% approval, and they involve changing the par value of the units, structural changes affecting common elements vs. units, changing how assessments are calculated, and the like. (We're condos.)

I just hadn't thought of the 100% approval in conjunction with making the property unattractive to corporate investors. After thinking about it, I decided that would be like using a sledgehammer as a flyswatter.

I think you will find that many (even those who never intend to be landlords) will be reluctant to vote away that option for themselves.

cause if they sell their home they might get $13,000 less for it when there is a rental cap
https://www.washingtonpost.com/business/2022/03/31/charlotte-rental-homes-landlords/

article above , thats exactly what happened

I've seen just the opposite.

Too many rentals mean that buyers won't be able to obtain financing, which will limit the potential pool of buyers. That's fact. The community's insurance profile will also change, leading to higher premiums and making the community less affordable - this also discourages buyers. Having too many renters also is correlated with increased CC&R violations and the community becoming run down.

I've said here many times that for an owner-occupant, having too many renters is the worst of both worlds: the disadvantages that go with rental communities plus the responsibilities of home ownership. If I'm going to live around a bunch of transients, I want the benefits of being a transient myself.

your logic doesnt' make any sense at all. with the hot market rental corporations can pay TOP DOLLAR for homes . this is shown in the news all the time, big corp out bids small family to get homes.

if your hoa has a full rental cap, then big corp cant' offer top dollar that simple.

your logic doesnt' make any sense at all. with the hot market rental corporations can pay TOP DOLLAR for homes . this is shown in the news all the time, big corp out bids small family to get homes.

if your hoa has a full rental cap, then big corp cant' offer top dollar that simple.

your logic doesnt' make any sense at all. with the hot market rental corporations can pay TOP DOLLAR for homes . this is shown in the news all the time, big corp out bids small family to get homes.

if your hoa has a full rental cap, then big corp cant' offer top dollar that simple.

Link between rentals and crime:
https://vig.coopercenter.org/sites/vig/files/crime_paper.pdf

"For three types of incidents (disturbances, assaults, and drugs), landlord remoteness from properties is positively associated with reported criminal activity. This association may be caused by management quality deterioration due to the increased costs of conducting business from a distance or a remote landlord’s ability to ignore some of the external costs imposed by tenant misbehavior on neighbors. Nonresident landlords may be less selective in choice of tenants, more accommodating of behavior and lifestyles that they would not accept if located ‘next door’ to their own residence,and less likely to employ effective surveillance and security measures."

Someone who has her/his home on the market, or plans to put her/his home on the market, might vote down rental caps, but this is only sellers.

If you have proof that owner-residents in HOAs/COAs tend to vote against rental caps, do present it.



Fact: The more rentals a community has, the less likely the FHA will approve a loan, and the lower the pool of buyers becomes. Why? Because the FHA says more rentals = bigger risk of deteriorating property values = bigger risk to lenders.

I believe that most will agree that in an HOA, renters are a larger part/cause of problems then owners are. For this reason alone I would limit them. Few renters have "Pride of Ownership".

I agree 100% The actions of several of our renters is what motivated us to add the rental restriction in our new docs.