Condo Association Management Blog

So what you are saying is that you do not want the ability to rent or lease these units correct? You will need a bylaw change and that requires a considerable percentage of owners to agree. No it is not costly it just has to be done correctly...owners notified...meeting/discussion......vote........and filed correctly.

I would think that policy would by open to discrimination which is against the realestate laws.

What you have not stated is WHY you want to prevent any new investors from buying units.

As I real estate agent and a condo owner, I have seen many association by-laws documents that restrict the number of units that can be leased/rented. Personally, I think it is a smart move on the part of an association as having too many rentals can make it very difficult for an owner to sell a unit as banks generally won't finance a buyer when more than 25% of the units are not owner-occupied. It is not a discriminatory practice because there is no protected class (race, religion, handicapped, etc.) that is being excluded. A non-owner is not a protected class.

We have a 12 unit condo building. We changed the by-laws three years ago to require owner occupied units only - with the exception that an owner can rent to an immediate family member (very specified who this includes). This allows for renting in cases where there is job relocation or an older person who must be placed elsewhere for some reason in order to allow the owner to maintain ownership until they either return or sell their unit. The length of time for rental to an immediate family member is not an issue either; they can rent until the cows come home! This increases the value of the units, makes it easier to get loans if necessary, and certainly allows for FHA approval to be acquired or to continue without the need to limit rentals. Regarding loans: units rented to immediate family members are considered owner-occupied. I believe it is the same for insurance purposes. I believe the change in the bylaws required 2/3 or 3/4 vote and it wasn't very expensive at all.

In our 112 unit high-rise in Delaware, we voted to have a cap placed on the number of rentals. We held a special meeting to discuss it with the owners and it also required a majority of owners to approve it and it was. We capped our rental units at 30 (this number was difficult to agree upon with the owners). We are at cap now. Our bylaw also identifies which units are rental units at the time of passage. We also have a hardship provision for rare cases such as a member of the armed services being deployed etc. We also have established a wait list for anyone who wants to have their unit changed to a rental status. Due to today's economy, more and more people are coming to Council/management requesting we change our cap status to allow for more rentals because they can't sell. For the most part, we are against changing it at all but they are told that if they want it changed it must be done through the association and a majority must agree. Hope this helps.

Generally to draft the Amendment correctly the board should retain an attorney.  
In addition to owners' consents, each mortgage holder has to receive the draft amendment and may restrict their owner partner from voting for the amendment. When people take out a loan, there is usually language present that does not allow action by that purchaser which adversely affects the financial institution's interest in the property.  
FHA approved condos can have a higher investor ratio. 
There is value in owner occupied condos when the community sales are stable. In economically difficult times, the inability to sell leads to higher foreclosure rates.

Our 15 unit condo amended its CCR&Rs to include a rental restriction. Any new buyer must agree to live in the unit for at least two years. Owners may rent for a limit of two out of every five years. There are other kinds of limitations you can use. It is difficult to pass and takes a lot of work. But the FHA will not provide a mortgage guarantee if the condo is not at least 50% owner occupied, and the resale value is higher with higher owner occupancy.

A cap on number of rental units is advantageous to current unit owners. FHA insured mortgages will be denied in cases where the number of rental units exceeds the FHA requirement. Lack of FHA approval for a mortgage will make selling a unit much more difficult. Please refer to your state condominium Act to determine the procedure to follow to amend your by laws. I would strongly recommernd engaging a properly qualified attorney tpo assist you in this process.

I would go for it in my community as long as they cannot rent to section 8. We have that here and we have had nothing but trouble. It's no all section 8 people, but the bad outweighs the good. The owner doesn't do anything about it and he is on our board. Any suggestions?

I would strongly advise you to limit the number of non-owner occupied units you have in your Association. It makes it harder to get financing because the mortgage company always wants to know the percentage of units are non-owner occupied, and they will deny an approved mortgage if the Association has too many renters. You also risk the chance of not getting and keeping your FHA Certification.  
 
 
 
It is also harder (depending on your state) to evict the occupant when the unit owner stops paying the fees. The occupant may be totally innocent and you can't evict them for non payment because you have no lease with them.  
 
You also have no control over who the owner rents to so they may seek out Section 8 because it's guaranteed rent. We added a rental and hardship amendment to our bylaws and CCR's a few years ago.

Your condo docs will tell you how to ammend the decs. You must follow it to the letter. You are correct in limiting investors/rentals. I am in a condo that cannot qualify for FHA because more than 50% of the units are rental/investor owned. The quality of the building has suffered due to this. It might not be easy to get the neccessary votes required to ammend your decs if you cannot get the required percentage to do so. Obviously your investors are unlikely to to go along with this. Do all that you can do also in your rules and regs, to control the quality of the building.

We are also considering limiting the number of units that can be rented out in our small condo complex. This also keeps speculators and flippers from buying in. 
 
 
 
Having a large percentage of renters lowers the value of the individual properties and causes havoc when it comes to noise, follwing rules and maintenance.  
 
 
 
Renters have no investment in the property and owners often don't care what happens as long as they can collect the rent. Some don't even seem to care about fines. They consider it a cost of doing business--and that's the problem right there. The unit becomes a business and not a home. Condos are often looked upon as good rental investments because they tend to cost less than individual houses, but the rent is the same.  
 
 
 
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We have a 6 unit HOA. We recently amended the CC&Rs to preclude rentals during the first year of ownership and to limit the number of rentals to 2 at any one time.It passed lawyer purity test.We are in California.

Not sure who wrote the below opinion, but as an "investor", I take great offense at it. It is a narrow-minded statement. I own a condo and rent it out because we cannot sell it, and in fact, I am on the Board of the Association. I donate my time to help. Thanks to some of MY EFFORTS, our community is collecting some of the huge delinquencies. Yes it is an investment for me, it is a DECLINING investment, and I wish to do whatever I can, with the communities' help, to save what we can. Please do not paint every non-resident owner with that broad brush you are wielding. Remember, a home is an investment for all of us, whether we live there or not. Also, condos have never ever been looked at as "good investments". 
 
**************** 
 
"Renters have no investment in the property and owners often don't care what happens as long as they can collect the rent. Some don't even seem to care about fines. They consider it a cost of doing business--and that's the problem right there. The unit becomes a business and not a home. Condos are often looked upon as good rental investments because they tend to cost less than individual houses, but the rent is the same."

As an investor and a landlord with many years of experience, I resent owners trying to change the rules after a purchase. If investors are ept out, you lose a large number of potential buyers and values will only go down. Add to that owners who need to move and can not sell and now are not allowed to rent their units, and you set the stage for strategic default and owners walking away. 
 
Owners need to be able to afford to keep paying mortgages or they will walk. Nobody wants to be trapped into having to pay for an empty property that they can not sell and are not allowed to rent.

Jimmy D you are a rarity. You are a condo investor but help out on the board. Getting residents to help out the board (let alone running for a position) is next to impossible. The problem is that a large majority of "investors" view the board as the foe of renters and not the force that keeps the value of the community up to standards. We have 15 or more rentals in out 130 unit association and most of the renters are shocked when they find out they must abide by the CC&Rs. In fact, they are down right insulted. We must put up with renters because of the current economy and foreclosing units but we are very adament about enforcing the rules and fining the owners whenever the renter breaks them. With only 26 units in the original question, the burden must be very frustrating, especially getting help on the board. If you are stuck with renters make sure you strictly enforce the rules. If warning letters don't change the resident's behaviour then you can only assume they want to be fined. If your fines don't work then you aren't fining enough. Increase them to make a point. Also deal only with the owners. It is up to them to pay the dues and collect from the renters if they want to. 
 
 
 
Sadly, dues from rental units are better than units being foreclosed and paying no dues at all. Good luck to your board.

In our condo Declaration, the owners who have a "parking license" for a detached or indoor garage space have been expected to pay for their own garage door, pay their percentage share to replace and reseal the roofs and pay for new lighting. The garage "fee" for this parking license also is assessed at a different amount depending on whether the garage is an inside space or detached garage. Upon reading the Declaration, I learned that it says the only charge permitted in terms of a fee is the yearly garage fee and it should be the same for all garage spaces regardless of location. The garage fee is to be segregated as a limited expense. It further says that any other expense needed to maintain or repair the garages should be a common expense. It seems to me that the money in the garage fund should have been accumulating yearly to replace doors, roofs, etc. Yet it is a new fund each year with only the current fee listed in the budget. Someone, unkown to me, discontinued the fund many years ago. Thus we have no fund to repair garages. Those who own the parking licenses are expected to pay. When we bring up issues such as this -not following the Declaration- we are often told the board has limited funds and "this is the way it has always been." There is a lot of apathy and many unit owners do not seem to want to abide by the law. I can't find anything in the bylaws about the garage fee, only in the Declaration. These board actions seem illegal to me and condo attorneys are expensive, especially if only a few unit owners want the legal advice. The board does not want to seek legal advice. I am concerned about what else is being done that does not follow the Bylaws, Declaration, or even the State Condominium Act in Pennsylvania. Since there are only a few people who are willing to speak up at meetings and most of them cannot afford costly legal fees, we need advice. Are there consequences for not adhering to the Declaration and Bylaws? Also, I am told that there should also be a set of Rules and Regulations. None of us have received them. Some of us want to improve things, but we have people on the board who remain there just to exercise their vote and they think it is silly to worry about legalities. We have a situation that is unclear about responsibility for damage to a common area and the reaction by the board concerns me. They automatically assume the owner is at fault or they suggest turning damage into homewoners' insurance. They will not determine what is legal because it would cost money to do so. Two of us will be on the ballot in the November election, but the residents will probably re-elect the same board members because they do not want to spend money to address any problems. We know that we have minimal reserves and future repairs that we must face within a few years. We have a lot of "deferred maintenance." If anyone who reads this has faced similar issues and can offer suggestions, I would appreciate it.

I think that building can and should strictly enforce ratios of owners occupants to non-owner occupants. See Fanne Mae guideline for ratios. Having too many "tenants" can spell real trouble when trying to resell. Can cause a backlog of sellers, and prices in the building can drop rapidly as supply significantly outweighs demand

FYI: A new law just went into effect in CA. that an HOA cannot restrict current owners from renting their property.  
 
My HOA has wrestled with the question of rental restrictions over the past 2 years in updating our CC&R's, and it has been a real roller coaster for the entire community. In a nutshell, the prior Board drafted changes to the CC&R's among them strict rental restrictions, without allowing dissenting Board members to even present their concerns and to have them reasonably considered by the majority of that Board. when the re-drafted CC&R's were distributed to all owners for their review prior to the required full membership vote, the dissenting Board members made known their concerns to all the owners. At a subsequent "Town Hall" meeting set by the Board, nearly every owner showed up and the prior Board heard was stunned to find themselves in the very distinct minority. A new Board was later elected, involving only 2 incumbents (the 2 dissenting members of the prior Board) and including 3 non-resident owners. An eager volunteer sub-committee of nearly 60% of owners was formed to carry forward the revision of the CC&R's. We had 13 meetings (on a monthly basis) and went through every line of the CC&R'S and By-Laws. (The committee included several non-resident owners as well.) The upshot of all this has been nothing but positive for the community as a whole: people who never involved themselves before, did; everybody got to know their neighbors much better, everyone got to know the governing documents, and everyone got a sense of what it takes to run the HOA. Six out 7 people on the current Board were on the CC&R Committee, with 3 being people who had never run before. It's the best Board we've had in a long time: intelligent, engaged, and concerned about speaking for all the residents, not just themselves. Of course, the members of the old Board have yet to recover their dignity it seems but they brought their downfall upon themselves. This is democracy in action. Sometimes not so pretty, but better than any of the alternatives. It is also an arduous process demanding patience, dedication and a durable sense of humor. I encourage others to give it a go, but be ready for a long haul.

Marie: 
 
How does this new law in CA to allow rentals effect FHA certification since you have to maintain a certain percentage of owner occupied units?

Kathy: Unfortunately I can't answer your question. The law was SB (Senate Bill) 150, which our property manager summarized as follows: SB 150 – Rental Restrictions 
SB 150 adds a provision to the CA Civil Code prohibiting new rental restrictions for current owners. Any rental restrictions can be adopted for future owners only. Any restriction already in place as of January 1, 2012 is still enforceable. Owners can, however, expressly consent to restrictions. If you want more information, maybe you can track down the Bill or Civil Code section on the CA gov website. Our HOA only has 20% renters, most of whom have been long term residents and participate in neighborhood activities and are people we wish were owners. We've had no more problems with them than we do with owners. The people who own rentals are careful in what sort of tenants they rent to as well. All in all, we have a pretty good little complex that is neighborly and well run,although we've had our issues like I described. 
 
We aren't FHA or HUD certified and no one seems to want that. We were aware of their requirements however, when we chose to delete rental restrictions from our CC&R update.

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