Three Keys to Adopting Rental Restrictions in Your Homeowners Associations
- Address rental restrictions in your governing documents.
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.
- Give homeowners a say in the decision.
- Make sure the benefits outweigh the disadvantages.
- 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.
- 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.
- 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.
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.