HOA rental restrictions: Implementation, dos and don'ts, and more

What are HOA rental restrictions?

Homeowners association (HOA) rental restrictions are rules established by an HOA that limit or regulate a homeowner’s ability to rent out their property. These restrictions may include caps on the number or percentage of homes that can be leased within the community, minimum or maximum lease terms, and requirements for tenant screening or registration. The purpose of these rules is often to preserve property values, maintain community standards, and support compliance with insurance or lending requirements. Homeowners should review their community’s governing documents to understand any specific rental limitations before leasing their property.
 

Can an HOA restrict rentals?

Yes, an HOA can typically restrict rentals if the restrictions are properly adopted and included in the governing documents. Most courts uphold HOA rental restrictions that are reasonable and serve a legitimate interest, such as preserving property values or minimizing turnover. In general, these rules must be clearly documented in the declaration (also called CC&Rs) and adopted through the required process outlined in the governing documents.

Before implementing any new restriction, it’s important to consult with legal counsel. Rental restrictions that are not correctly adopted or that go beyond the HOA's legal authority may be challenged.
 

Examples of HOA rental restrictions

Some common examples of HOA rental restrictions include:

• Rental caps: Limiting the number or percentage of homes in the community that may be rented at the same time. For example, a 20% cap means that only 20% of the homes can be non-owner-occupied at once.
   
• Minimum lease terms: Requiring leases to be for a minimum length, often 6 or 12 months. This is typically used to prevent high-turnover or short-term rentals.
   
• Lease review requirements: Some HOAs require owners to submit leases for review or to include specific language in lease agreements acknowledging HOA rules.
   
• Waiting periods: Owners may be required to occupy a unit for a set time (often one year) before they can lease it.
   
• Short-term rental bans: Many associations prohibit rentals of fewer than 30 days to reduce disruptions linked to transient occupancy. For example, Jeremy DiFlaminies, general manager in our East region, mentions “My building does not allow short-term rentals or Airbnb rentals. This is stated in our governing documents.”

Not all communities will benefit from these types of restrictions, and not all will be legally viable in every jurisdiction. That's why boards should consult their legal counsel and HOA manager before proposing changes.
 

When to limit HOA rentals

HOAs may limit rentals to promote community stability, manage wear and tear on shared property, or maintain financing eligibility. In some communities, a high number of rentals can create challenges with insurance rates or make it harder for buyers to qualify for certain loans.

DiFlaminies adds:

"It’s all about the turnover. The higher the turnover, the more wear and tear on the building. It adds a level of exclusivity, as well, as rentals in my building rarely come up and tenants mostly renew."

Jeremy DiFlaminies, general manager, East region

Associations might also explore rental restrictions when:

• There's a noticeable uptick in short-term rental activity
   
• Owner complaints about noise or property misuse increase
   
• The percentage of non-owner-occupied units begins to impact FHA or other loan qualifications

Limiting rentals is a major policy decision. Boards should start by gathering input, reviewing legal precedent, and working with management and legal advisors.
 

How to enforce rental restrictions

HOAs enforce rental restrictions by incorporating them into their governing documents and applying them consistently. Most enforcement is directed at the owner, not the tenant.

To enforce HOA rental restrictions effectively:

1. Amend the declaration or CC&Rs with clear, enforceable language
    
2. Communicate the change to all homeowners with sufficient notice
    
3. Set up systems for lease tracking and rental ratio monitoring
    
4. Apply penalties or restrictions as permitted by the documents

Enforcement must follow the procedures outlined in the governing documents and applicable state law. Boards should also document violations and responses to avoid the appearance of selective enforcement.

DiFlaminies mentions:

"I'm in the process of amending the master deed in my community, via a special vote of owners (67% yes needed for approval), to restrict lease assignments. This amendment will further strengthen our position on rental restrictions. This is primarily because lease assignment is essentially a loophole. I’m sure that you have heard of subletting. Well, our governing documents state that renters cannot sublet… Lease assignments are an agreement between the owner and the tenant whereby the owner permits the tenant to assign the lease to someone else."

Jeremy DiFlaminies, general manager, East region

Can my HOA screen tenants?

Some homeowners associations might choose to evaluate potential tenants as a way to weed out undesirable renters. This typically involves homeowners submitting an application form that the association's board will assess. While awaiting the board's decision, homeowners may postpone finalizing lease agreements with potential tenants.

However, it's important to exercise caution in this regard. Not all states permit associations to implement this process. Apart from state regulations, associations also need to be mindful of federal laws. There's a risk of violating the Fair Housing Act when screening tenants, potentially leading to accusations of discrimination against the HOA. Even if the association's intent isn't discriminatory, a court could still rule a policy illegal if it has a discriminatory impact or disproportionately affects certain groups of people.

Should the association choose to screen prospective tenants, it's recommended that they speak with their legal counsel before proceeding.
 

Potential pros and cons of implementing rental restrictions

Rental restrictions offer several potential benefits, but they also come with trade-offs.
 

Pros:

• Protect property values: The main purpose behind implementing rental restrictions is to safeguard property values. Renters are more likely to violate the community’s rules because they don’t have a vested interest in the association.
   
• Lower mortgage interest rates: Many banks tie mortgage rates to the ratio of rentals to the total available units in the association. For many lenders, a rental rate of 20–25% is the maximum they’ll consider before charging higher interest rates for new residents who wish to buy a unit in that community. By keeping the ratio below this threshold, you can make it easier for new buyers to join your association.
   
• Reduce liability insurance rates: If a homeowners association permits rentals, its insurance company might increase the rates for liability insurance. Renters typically introduce additional liability to the association, prompting insurance providers to take steps to mitigate potential risks.
   
• Promote neighborhood stability: A community with a significant number of renters tends to experience reduced stability. The majority of homeowners prefer residing in a community where they have a sense of familiarity with their neighbors, as it contributes to a heightened feeling of security and connection. However, a community marked by a high turnover driven by rental units can disrupt the harmonious balance that residents seek.

Cons:

• Reduced buyer interest: Rental restrictions can limit the pool of prospective buyers, especially investors or buyers who want flexibility. This may affect resale value and lead to longer listing times, particularly in markets where rental income is a common consideration.
   
• Legal and enforcement challenges: Poorly written or improperly adopted rental restrictions can lead to legal disputes. Boards may face lawsuits from owners claiming the rules are unreasonable or improperly enforced, which can be costly, time-consuming, and divert focus from other priorities.
   
• Administrative burden: Tracking leases, exemptions, and compliance adds ongoing work for board members or management. Some communities may need to invest in software or staff time to handle the additional oversight, which increases costs and operational complexity.
   
• Inconsistent grandfathering: When rental caps are introduced, communities often “grandfather” current landlords, creating different rules for different owners. This inconsistency can lead to confusion and resentment, especially for new buyers who are subject to stricter limitations.

How to get around HOA rental restrictions

Owners who want to lease their unit despite HOA rental restrictions typically need to follow the rules or request an exception. Attempts to bypass the restriction without board approval can lead to fines or legal action. Some governing documents allow for limited exceptions, such as grandfathering existing rentals at the time a new rule is adopted or allowances for family occupancy under specific conditions. Owners should never attempt to “get around” HOA rental restrictions through informal arrangements or loopholes. Boards should be clear in how restrictions are written and enforced to avoid confusion and reduce the risk of litigation.
 

Creating an appropriate HOA rental policy

A good rental policy finds a way to weave renters into the fabric of your association. If, for instance, your policy goes beyond mandating a restrictive threshold and also requires that renters attend an orientation, then it’s a great way to include them and welcome them to the neighborhood. Many communities see renters as potential buyers. Though they may not be in the position to purchase a home at that precise moment, they may be enticed to purchase at a later date if they’re made to feel at home.

"The most successful boards are the ones that take time to educate homeowners about why restrictions are being proposed. When people understand the reasoning, compliance and cooperation tend to follow."

Jeremy DiFlaminies, general manager, East region

Upholding rental policies can be a touchy subject, but if carried out fairly, judiciously, and with the intention of welcoming renters as contributing members, it can lead to a more positive view. Oftentimes, an experienced property management company can help with this.
 

State-specific regulations affecting rental restrictions

Learn more about state-specifc information regarding rental restrictions in our local articles below.

• HOA rental restrictions in Maryland
• Rhode Island rental restrictions
• Rental restrictions in West Virginia
• Massachusetts rental restrictions

To learn more about how FirstService Residential can support your community, contact a member of our team.