Campaign To Add Bylaw Limiting Leased Condo Units

Our condo has no bylaw to limit the number of units that can be leased. To change this, we will need to have the owners vote to put a limit on leased units. There are a lot of owners leasing. If they all vote against adding the new bylaw, which I guess they likely will, we will lose the vote.

I’m trying to compile arguments for limiting leased units to present to owners. So far I have these:

If over 50% of units are leased out, buyers cannot get a loan through Fannie Mae.

If an owner lives in their condo they are more likely to take pride in the ownership of their place and will be more prone to keep it nice looking. This can help our property values.

How are those arguments? Any suggestions?

Do you have rent control or other tenants' rights in your area? In CA, it can cost $20,000. or more to evict a tenant. It can take six months. In some places, the landlord has to pay moving costs of evicted tenant. All this makes it more difficult for a homeowner to maintain a property and to pay assessments. We have a few renters in our development and they keep the properties nicer than some homeowners do.

I know that some condominium associations refer to the covenants as bylaws (typically, because they are written together).

However, rental restrictions should be within the covenants.
Covenants, typically take 2/3 or more percentage of units to amend.

If a rental restriction is within the bylaws, it might be considered invalid if challenged through the courts.

I see Tim & I posted simultaneously

We are dealing with the same issue right now. We tried to tighten up our rental restriction several years (in the CC&Rs) when I was on the board. The proposed amendment was approved by a majority of owners but not a super-majority of 75% (which is what we needed to amend the restriction.)

So now the current board is going to try again. Here is what I asked our board president.

* What incentive will you offer the current landlords that will convince them to give up the current income they're receiving from their unit?

* What incentive will you offer them that will convince them to sell their units? (Our board wants to prevent all rentals.)

* What incentive will you offer current owner-occupants that will convince them to forego the right to rent out their units in the future?

I was very clear with the president that there is no chance that a complete rental ban will be approved. Our rental numbers are still (as far as I know) within FHA limits. But even ignoring the landlords, convincing all of the owner-occupants to go along with this almost certainly won't happen.

**You're asking people to vote against their own financial interests.** No association has the tools to make this happen unless something very unusual is going on. I'm sorry to be so pessimistic about this, because I understand the risks of having too many landlords and the end game can be condo deconversion. But this is what we're up against.

What Members Of Every HOA Should Know About Condo Deconversions (This may be behind a paywall.)

Our document says the rights of the lessee or sub-lessee are bound by the covenants, conditions and restrictions... and the initial lease must be at least one year. Those are about the only restriction I see.

Do your CC&Rs already state that Owners are responsible for the conduct of their lessees, guests, contractors, etc?

Here's a tiny piece in our covenant's lengthy Article on Rentals. "The failure of a residential tenant, or that tenant’s Invitee, to comply with any provision of the Governing Documents shall constitute a violation of the Governing Documents by the Owner lessor of that tenant. An Owner lessor must take all available action to correct such violation or to prevent the same from being repeated or continued. Such action shall include, if requested by the Association, taking prompt legal action to evict such tenant from the Owner’s Unit."

I think you can tell, Phil, by reading your Bylaws, that what owners do with/in their units is not in them. If such material is, it's there in error. Google "Purpose of Bylaws in HOAs" to see several article about the intent of bylaws.

Are you on the Board?

Our document says the rights of the lessee or sub-lessee are bound by the covenants, conditions and restrictions... Yes. I'm on the board.

Phil, I see your quote: "Our document says the rights of the lessee or sub-lessee are bound by the covenants, conditions and restrictions [CC&Rs]..."

And your quote: "Our rules and regulations say: "The Pennsylvania Uniform Condominium Act 3302 provides the Executive Board power to levy fines for violations of the declaration, bylaw and rules and regulations of the association.'"

So....your Board can fine for violations. But WHO can it fine? So..... lessees must abide by the CC&Rs. What happens if they do not??? I'm trying to point out that so far I see nothing that shows WHO can be fined. In general, an HOA's governing documents say WHO can be fined and, in general, it's the Owner. So, I'm going to assume you've missed the verbiage somewhere in your CC&Rs or in your Rules & Regs.

I'll return to my advice and that of others. Set up a strict fining schedule and fine the hell outta owners whose tenants violate your CC&Rs or Rules. To agree with Cathy, some owners get very tired of constant complaints, letters, notifications of hearings, board decisions of fines.

Definitely enforce the CC&R that says a unit can't be rented out for a year.

We have about 25% tenants and some desperate owners rented to creepy-jerks during the Great Recession. In one case 3 young single men who held loud parties. Their owner--back east--probably got sick of the fines and blasts, etc. form the Prop. Mgr. and I'm sure complained to the guys to stop breaking the noise nuisance rule and threatened to hold back deposits (which in my condo 'hood are usually very large).It doesn't take long for $100 doubled to $200, doubled to $400 to hit $1,600, and on behalf of his roommates, a tenant wrote to the PM that they'd given notice to the owner they were moving. He very sweetly apologized and wrote that they should live in a more isolated setting.

Another duo was even worse, but after constant call to hearings, including for damage to our common area, the owners evicted them and they actually left in a timely way. The owner did sell even though the market was lousy.

As a board member, this is a good time for you to become much more familiar with the governing document that you and/or fellow board members were elected to enforce.

#1-this forum does not allow the posting of company names.
#2-this law firm is biased against homeowners and does not give an accurate assessment
#3-that list was written to give license to California boards to ban all kinds of rentals without proof of the claims

Thanks for the detail, Phil. So we now know for certain that your Board can discipline owners when their tenants break the rules. So, as in above, come down hard & fast & repeatedly if necessary on owners who put bad tenants into your community. If there are particular behaviors that tenants seem to engage in about which there is no rule, make a new rule.

Jeff's list would be perfect IF you had the votes to amend your CC&Rs, but you've written that you do not have the votes.

The Davis-stirling.com site, compiled by CA HOA attorneys has been cited for years on this forum. While for Cali. HOAs, there are many items in it that are generalizable all over the US. Jeff's list is a good example.

IMO, as a former very long-time very active board member in a complicated high rise HOA in CA, who's looked up the attorneys' opinions and, more important, the exact statutes that the authors always cite, I see no bias against owners. Terri, if you think there is such bias, start a new thread and specify these alleged biases.

Terri's #3. Pointing out the drawbacks of rentals in HOA communities as davis-stirling.com does is not saying that all HOAs should try to ban all rentals.

None of your 3 address Phil's topics so please don't start a fight, Terri.

In order to amend your declaration to restrict rentals, you need to:

1. do an education campaign about the problems with rentals, the extra costs of rentals to all owners, and the need to protect your community and property values. Landlords will not vote to restrict their own rentals, but may vote to reduce condo fees and keep resale values high.

2. talk to owners and do survey(s) before the final vote to ascertain the support for various parts of the amendment (or separate amendments). Use the survey(s) to adjust your education campaign and to decide on the parts to include (or not include) in the amendment.

3. The amendment should focus on future rentals and allow existing rentals to continue.

Perhaps the easiest amendment is to not allow renting in the first two years of ownership. This does not affect current rentals, but does discourage future investment buyers. It should prevent an increase in the number of rentals and gradually reduce the number of rentals in the long run. Your education campaign must convince owners that their property values will increase not decrease with such an amendment.

If you think you can get away with it, also go for a percentage rental cap and other provisions.

Include a clause to allow new rentals for existing owners for reasons of hardship.

Kerry, please don't cast aspersions.
The attys are biased in favor of boards because they are paid to win and they're not going to offer advantages to non-directors.

I'm not sure why you think having buyers getting a loan through Fannie Mae is a good thing. As condos continue to have more and more deferred maintenance you really want the most well-capitalized people buying your condos. In my complex, which does not allow renting (except grandfathered-in owners from early 200so), units have 30% less value than other condos that allow renting in the area. Owners are having a tough time selling their places at all, even though we are two blocks away from a booming quaint downtown in one of the fastest-growing cities in America. The pool of buyers is slim. If we allowed renting they would all just get snapped up (well above asking prices) and rented out because the math makes it work based on what they need to borrow, maintenance, taxes less the amount they bring in from rent.

Our renters don't give us a hard time, our long-time owners are the ones who cause us trouble. We are in a tourist area, where the people who rent tend more affluent, health-oriented people. Instead, we are stuck with curmudgeon long-term owners who can't really afford to live here anymore but they don't realize it yet. Life has gotten too expensive and they simply don't make enough. The area is on the verge of gentrification FWIW. End result is they can't afford the maintenance to fix the place up, people who buy here who have money leave because they realize the property is a lost cause. We just had someone who bought in the last 18 months put their place up for sale and they told me it was the worst investment they made in their entire career. Really sharp older lady in RE who bought the place for her daughter. Losing her is a loss to the community.

Meanwhile, current owners who are grand-fathered in collect banger rents. And since they are grandfathered in they also don't want more rentals. They are happy to fix up their own places, internally and externally, as long as it adds to their rent, but good luck getting them to spend money on something that doesn't improve their rents. They fight that stuff tooth and nail. These landlords + older-time residents here are dragging the property down into an abyss where likely the community just gets bought out by a developer at some point and they either knock it down or just fix the place up and convert it to all rentals.

Personally, I have no interest in being a landlord ever, but the reality is having the flexibility to rent out your place opens up a whole new set of potential buyers. Buyers that may be looking for a temporary place with a longer-term plan to buy a house and rent it out if the market is cold. Or maybe like the buyer above, put their kids in it for a few years and rent it out as a backup plan.

The idea that condo owners take better care of their units is mostly false. As I wrote in my last post about Cape Cod siding. People really need to let go of their agenda and subjective bias. There is in fact research that shows the exact opposite to be the case. Why? Well because most landlords aren't slumlords. If their tenant has a problem with something they often fix something that is for instance an HOA/COA responsibility on their own. They fix it quicker too. Why because they have their own responsibilities due to tenant rights. In the case of section 8 landlords, they can lose their status, if they don't handle things appropriately.

Landlords also look at things as more of a math equation. If they can get an extra $100 per month for quartz countertops they do it. They are constantly improving their units. They are often also painting the exterior, and tidying up the landscape in a tenant changeover. These are things are regular owners don't do partially because it is the COAs responsibility, but partially because the average condo owner is pretty lazy. That is why they live in a condo after all.

I don't want to paint with a super broad brush, but the reality is how renters will affect a community is really based on the community. I could see a really homogenous condo that didn't allow any rentals and kept the property in sort of a perfect state (think trains always run on time, Mussolini sort of thing) where you could pull it off. But I could see so many other communities where it just doesn't do anything and makes it worse.

One example of making it worse is regarding to enforcing the regulations. When you criminalize behavior you don't stop the behavior you just move it underground. You might have landlords that find all kinds of loopholes, even going as far as not having a lease which turns into a weird sort of squatting fiasco. There is another community right by us and they banned rentals and this is exactly what it has turned into. Granted it is a large townhome community, but nobody knows what is going on then. People rent out their units all the time because the rules become impossible to enforce. Are you going to stake out the place? Great, just wait until one of the female tenants calls the police on a "creepy president male stalker".

The other issue is that you can't really enforce a rental ban legally to my understanding. All current owners need to be grandfathered like our community was back in the early 2000s. The reason for this is because all current owners bought their places understanding they could rent it out. Based on some legalese you are depriving the owner of some basic right that they have and are entitled to. This creates an even worse situation where you end up with 3 classes of people in the community. (1) GRANDFATHERED OWNERS WHO CAN RENT (2) RENTERS (3) OWNERS WHO CAN'T RENT. This breeds all sorts of animosity.

Someone could probably put together an input sheet where you put in some basic details and whether it makes any sense to ban rentals. As I indicated above it starts with price. Condos need to be selling for well in excess of what the condo is worth mathematically to a landlord. If a condo for instance is only worth $150,000, but can be rented for say $2,500 a month, I can almost assure you that it is better to not ban rentals. On the flip side if condos are selling for $800,000 and you can only get $1,500 a month for rent, then I feel like you have a good shot at banning rentals making sense.

In California, money is taken from landlords' pockets and given to renters. Statewide rent control, max 10% annually. Plus cities and towns can have stricter limits. Only basis for eviction is not paying rent. Eviction costs about $20,000. Some places make landlord pay tenant's moving expenses. Now they want to force landlords to accept pets.

When I rented it was not really for profit. It was to cover my mortgage payments and build in dues/maintenance. Having 2 houses is not necessarily a profit making business. Unless it is your business you are in.

here was a poster on here that said adding restrictions to the covenants (it was about rentals) could not be done unless all parties agreed to it ala a contract and all parties must agree. Does anyone recall this and/or care to comment on it?

My take is when one agreed to the covenants they also agreed to the method to change them so the above argument is not valid but that is just me.

In my experience, this is true only with certain types of restrictions which happen to have been added via the amendment process.The courts do not take a black-and-white view of amendment clauses. I would dare to generalize and say that most of the time, the courts will leave properly passed amendments alone. But now and then an amendment that is patently unfair to a minority is passed, and a court will throw out the amendment.

Extreme example: A HOA has 100 lots and 100 owners. The Declaration says each lot gets one vote. The owners conduct a vote that is procedurally correct. Ninety-seven owners vote to require that three owners (Jones, Gallegos and Chang) pay all the expenses of the HOA. The Declaration says only 75% must vote in the affirmative for the amendment to pass. Is the amendment lawful? If not, why not?

I would expect that any law addressing evictions in HOAs would have to comply with the state's landlord-tenant laws, since those are higher in the legal hierarchy. Then you'd have to look at how those laws and the HOA restrictions are written: are they permissive or are they restrictive? HOAs can have CC&Rs that are more restrictive than the law as long as they don't violate the law.

Caveat: I know better than to opine about CA laws. But.... it would surprise me that a state that seems to be landlord friendly (ie. HOA restrictions that are prohibited in CA are permissible in other states) would turn around and tie landlords' hands about removing undesirable tenants. A holdover from the covid lockdown times? Who knows.

At any rate, as I've said before, owning investment property is a business. If the state makes laws that prevent business owners from taking steps to address issues with their businesses will encourage those business owners (landlords) to find another line of work. How does that serve the interests of the customers (tenants) if the goal is to expand affordable housing opportunities?

CA is decidedly anti-landlord. It is the tenant's advocate. Continuing its redistribution of wealth.

Failing to seek expert advice does not, by itself, remove the protections of the BJ rule.

There is no requirement/law that directors seek an HOA attorney's advice in order to be protected by the Business Judgment Rule.

Being entitled to consult counsel is not the same as being required to consult counsel. Nowhere is a board required to consult for the business judgment rule to protect it.

To repeat "(c) A person who performs the duties of a director in accordance with subdivisions (a) and (b) shall have no liability based upon any alleged failure to discharge the person's obligations as a director…”

To be exact, "Not having sought expert advice removes the Board from the protections offered by the Business Judgement [sic] Rule..." is a false statement.