Three Keys to Adopting Rental Restrictions in Your Homeowners Associations

Rentals can be a contentious topic when you live in a homeowners association. And as with most things, there are plusses and minuses when it comes to restricting rentals in your building or community. If your association is considering adopting rental restrictions, here are three things you need to do.
  
  1. Address rental restrictions in your governing documents.
Some association boards choose to add restrictions simply by adopting a new regulation rather than by amending their governing documents. It is easier to pass because it only requires a board vote, whereas an amendment requires a vote by your association membership. In the long run, though, an amendment will put your association on firmer legal soil, as an Illinois legal ruling demonstrated.
 
In a case presented before the Appellate Court First District of Illinois in February 2016, the court ruled against a condo association’s cap on rentals. The cap had been adopted by the association’s board of directors as part of its rules and regulations. However, the court found that the regulation was unenforceable for two reasons. First, it was not compliant with the association’s governing documents, which made no mention of a rental cap in its leasing provision. Second, the governing documents did not stipulate that the provision was subject to the board’s rules and regulations, which would have allowed the regulation to supersede the provision.
 
Even if your governing documents are written in such a way as to make it feasible for your board to address rental restrictions through new rules, an amendment will leave less room for interpretation. Check with your association attorney if you are unsure how to proceed.
 
  1. Give homeowners a say in the decision.
Whose idea is it to add rental restrictions? Is your board succumbing to a loud minority, or is it really what the majority of homeowners want? Get feedback from owners by holding a meeting to discuss the pros and cons. Consider how you will handle hardship requests, enforcement, etc. An experienced property management company can help you communicate the proposed amendment to owners and facilitate a discussion. You may also want to have your association attorney present to address legal implications.
 
  1. Make sure the benefits outweigh the disadvantages.
Take a good, hard look at the facts to determine if rental restrictions make sense for your building or community. Don’t just believe hearsay, but instead, try to obtain data about the impact rental restrictions have had on similar properties in Chicagoland. Some effects to consider include:
  • The impact on buyers. When a building or community maintains a specific owner-occupancy rate, buyers can more easily qualify for lower-interest loans. In the case of condos, the building must meet certain qualifications for potential condo buyers to qualify for financing through the Federal Housing Administration (FHA). This includes maintaining a 35-percent owner-occupancy rate.
Mortgage rates from banks in other types of communities are often tied to owner-occupancy rates as well. Lenders generally want to see no more than a 20- to 25-percent rental rate in order to charge favorable interest rates for new mortgages. Lower interest rates make homes in your community or building more affordable and, therefore, more appealing to buyers.
  • The impact on owners. Owners may appreciate having limits on rentals. They may feel that renters are less inclined to abide by association rules. In addition, residents who own their homes have more of a stake in maintaining the property.
On the other hand, owners who currently rent out their homes may suddenly find that they are no longer allowed to do so. During a financial hardship or an economic downturn, owners may have limited options. Your association may suffer if multiple homeowners are unable to pay their HOA fees, or even worse, if they are forced to abandon their property because renting it out is not an option. An experienced association management company can help you determine whether your rental policy might create an undue burden on owners and potentially create more problems for your association.
  • Renters may feel alienated. HOAs generally create a sense of community for residents. However, if you adopt an overly restrictive rental policy that differentiates privileges for owners and renters, you may leave renters feeling like outsiders. You can avoid this by giving renters access to the same amenities as owners, such as pools or fitness centers. Also, include them in activities that are organized by the association so that renters and owners have opportunities to interact. Ask your property manager for other ideas to engage renters.
No doubt, having a specific rental policy can prevent problems or misunderstanding. Make sure that you apply restrictions equitably, sensibly and with the intention of welcoming the renters you do have as contributing members. This is where an experienced property management company can help you develop the right policy for your community. For more details, contact FirstService Residential, the leading property management company in Illinois.


Looking for information on short-term vacation rentals in your association? Check out our comprehensive guide, complete with the information you need to determine what actions your board needs to take regarding vacation rentals. The white paper covers everything from what you need to know to list your home to how you can prevent the entire building from engaging in short-term and vacation rentals.