One of the issues that many HOAs grapple with is renters. Some ban them outright, others limit their number. Most live and let live. Interestingly, the HOA has no direct legal authority over renters, only its homeowners. This disconnect creates some practical problems for the board or Manager in communicating with tenants since there is always a middle person to deal with. So how does this all play out?
Rules Enforcement. The HOA has the right to expect all residents, whether owner or renter, to play by the rules. But with renters, it’s up to the landlord to enforce them, not the HOA. So, the board should adopt a policy that requires all landlords to provide a set of the governing documents and all rules that have been adopted that affect the renter. The board can also require that all rental agreements specifically make reference to and be subject to those documents. If a tenant violates a rule, the landlord should be informed of it immediately along with the expectation of enforcement. If there is a fine or penalty, the landlord should be levied for it as if he did the dirty deed himself. It’s up to the landlord to get reimbursement from the tenant.
There are several exceptions to the landlord middle man enforcement process. If a tenant parks illegally in a fire lane, the HOA has the authority to have the car towed and the tenant will, naturally, pay to retrieve the car. There are some things the HOA should not interfere or get involved with. When a renter crosses the line between HOA rule and civil law infraction, the HOA has the right to call in proper authorities. Those authorities include the police, fire safety, FBI and drug enforcement.
Short vs. Long Term Rentals. Most HOAs deal with renters who have entered into long term rental agreements (30 days or more). Most governing documents, in fact, require that the rental agreement be long term to avoid what would be a hotel operation. In resort areas (mountains, beach, etc.), the HOA may have been expressly built and sold allowing owners to rent their homes short term. (These homes or units are owned outright and are not timeshares with professional site management). However, unless virtually every owner has that in mind, there will be an ongoing clash between permanent residents and short term renters. Short termers have no allegiance to the community, don’t know the neighbors and frequently are in party mode.
These factors point to ongoing problems with the locals. If this is a reality, it’s important for the board to press for consensus among the owners. If the majority want the flexibility to short term rent, it makes sense to have an onsite manager to control these issues and others like key exchange and housekeeping. The manager could be funded partly by the HOA to handle regular maintenance and partly by landlords to care for rentals. It’s a Win/Win.
Controlling Tenants. Renters generally are no better or worse than owner residents. Ongoing problems result from lack of landlord standards (or enforcement of those standards) by the HOA. Here are Landlord Standards which all HOAs should adopt:
- Landlords must provide a set of governing documents (CC&Rs) and rules to renters before move in.
- CC&Rs and rules must be a condition of all rental agreements.
- Landlords are held accountable for renter infractions.
- Renters must communicate requests to the HOA through the landlord.
- Board may demand termination of a tenant with multiple rule violations.
- Landlord must provide a copy of each rental agreement to ensure compliance with the HOA’s Landlord Standards and for emergency contact purposes.
Renter Surcharges & Fees. Some HOAs impose a Move In/Move Out or Renter Fee on landlords. Unless this fee is imposed on all residents, owner or renter, it is discriminatory. If a particular renter causes damage to the common area moving in or out, the landlord should be charged for it. Never surcharge classes of residents.
Communicating with Landlords. All tenant violations should be directed to the landlord in writing along with specifics, date and time. The communication should be clear what the landlord’s course of action should be and remind it’s up to the landlord, not the HOA, to deal with a renter.
Limiting Rentals. At one time or another, someone presses to limit rentals. There are right reasons for doing so but avoid the wrong one: the belief that renters are undesirable. While some tenants may be problems, so are some owners. Each must be dealt with as individuals, not a class. The only valid reason for limiting rentals is to protect financing and market values. Many lenders view HOAs with a high number of rentals as investment property. Investor loans are more expensive and in a tight market, loans may be hard to get. Since availability of cheap money drives market values, it’s important to avoid lender restrictions. Although there is no hard and fast guideline, maintaining at least two thirds owner occupancy seems to pass muster with most lenders. Falling below that level cause closer scrutiny by some lenders. When lenders scrutinize, it usually means the interest rate or fees go up. Restricted financing options cause market values to fall.
Limiting rentals to protect financing is a worthy rationale for doing so. However, placing a system in place that allows some owners to rent and others not has many problems. The board must oversee the rental restriction policy and establish guidelines for who gets to rent and when. Also, there will be hardship cases (disability, job loss, down real estate market, etc.) that will press the board to bend the policy.
And consider if a landlord simply ignores the restriction and rents his unit. The HOA has control over the owner but not tenants who are protected by Landlord-Tenant laws. For a variety of reasons, if limiting rentals is desirable, it should apply to all owners 100%. A total ban on rentals doesn’t totally eliminate the board’s oversight, but it at least makes it fair to all owners. (For a sample Rental Restriction Policy, see Regenesis.net)
Renters Have Rights. After considering the various issues, it’s important to remember that renters have rights that must be respected. Besides the state Landlord-Tenant laws, the Fair Housing Act speaks to unreasonable rental restrictions. Never impose restrictions based on sex, faith, culture or race. When it comes to HOA tenant tenets, don’t be tentative.
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