Should My Condo Association Limit Renters?
A lot of factors go into this decision. If your condominium association is already made up primarily of investors who intend to be absentee landlords to the revolving door of Washington, D.C. professionals and college students, you may not want to impose any kind of cap. On the other hand, if you have a lower percentage of renters and don’t want it to increase, a cap may make sense.
Some association members feel that renters aren’t as interested in community involvement, to the detriment of the association. They want to discourage those investors we mentioned above because they don’t participate in the community or in association business.
“A lot of board members have the perception that renters do not care for the property as their own, so they need to be limited,” explains Christopher Dibble, a regional director for FirstService Residential who has more than 20 years of experience in property management. “I think that’s more a perception than reality. Issues can be avoided if the community treats renters like they are part of the community, that it is theirs, then renters treat the property better. Also, if the association maintains the grounds and building properly, renters are likely to as well.”
An appropriate rental policy finds a way to weave renters into the fabric of your association. If, for instance, your policy goes beyond mandating a 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.
If your board is considering implementing a cap, there are a few practicalities to consider. First of all, the federal government, in the form of Freddie Mac, Fannie Mae and Federal Housing Authority lending programs, has determined that they will not finance the purchase of a home in a managed community with more than 50 percent rental occupancy. If the majority of your buyers aren’t using those programs, this may not be a factor in your decision.
“One of the cons of instituting a rental cap is the process and procedure involved in maintaining and monitoring who is renting, who is on the waiting list to rent their units and in what position, if they need to pay a deposit or not, and whether or not proper paperwork has been completed,” Dibble says.
In the District of Columbia, all prospective landlords must file for a license and get a permit through the District of Columbia Regulatory Authority (DCRA). That license and permit are good for one year and must be presented to the association board before a unit can be rented.
Without a rental cap in place, the landlord just has to provide the management and board with a lease agreement, move-in/move-out fees and the DCRA license and permit, according to Dibble. If there is a cap, the landlord must also provide an internal application for their prospective tenant, and they have a limited time to get a tenant into the unit, as well as a separate deposit for the association. “Once you are notified that you’ve been approved to rent out your unit, you have 14 days to notify the board that you will have a tenant in place in whatever time frame is allowed, usually from 30 to 60 days,” Dibble says. If you don’t? You lose your spot on the list.
Another issue Dibble said he’s seen regularly is that boards don’t consider what happens when a standard lease expires. They put a cap on rentals in place and create a waiting list, but when that renter’s lease expires, there’s no procedure in place to address what happens next. Does the renter get to renew? Can they go month to month? Or do they have to move out and the landlord moves to the back of the waiting list? That needs to be addressed when a rental restriction is implemented.
Dibble said that the increased generosity of the federal guidelines has led more associations in his area to forego rental restrictions. “They don’t think they’re going to reach that, so why cap it?” he explains. “They don’t promote that there isn’t a cap, but they have looked at the situation and decided that the work involved wasn’t worth the outcome.”
Make no mistake, a rental policy is something your association should consider...but it should be done fairly, judiciously, and with the intention of welcoming renters as contributing members to the community. Oftentimes, an experienced property management company can help you develop just such a policy.