Should Community Associations Prohibit Rentals?

Published on: June 22, 2004

Landlord-tenant relationships have never been held up as models of harmony. Insert them in a condominium community, and an already unstable mix becomes potentially combustible.

In almost any homeowners’ association, the subject of rentals will divide owners between those who rent their units or might want to, and those who don’t rent their units and don’t think anyone else should be allowed to either. The nay-sayers cite a host of arguments to support their view that rentals should be restricted or prohibited entirely. The primary ones:

  • Mortgage financing could be costly. Secondary mortgage market rules limit the percentage of investor-owned units in properties classified a “residential.” The ratios are flexible, but the general rule of thumb holds that at least 60 percent of the units in existing developments should be owner-occupied. Above that limit, buyer purchasing units or owners refinancing existing mortgages will have to pay higher rates on their loans.
  • Owners are preferable. Because tenants do not own the units, they will be less conscientious about taking care of them, more likely to violate the rules, and less concerned about caring for the common areas as well. Frequent tenant turnover will also detract from the sense of community owners want to maintain.
  • Absentee owners care less. Investors will be less involved in its management, less likely to respond quickly to problems, and less concerned about maintenance, rules enforcement, and other quality-of-life issues important to the owners who live there.
  • Owners who want to block rentals usually feel strongly about some or all of these issues. But rental restrictions or bans can create other problems, not the least of them, alienating owners who bought their units anticipating the ability to rent them, and who will be annoyed in the extreme if they are unable to do so. While many prospective buyers will be attracted to a community in which rentals are prohibited, others will be discouraged from buying for precisely that reason. In some developments, in some markets, rental restrictions could affect the marketability and value of the property as a whole.

No Right to Rent

While there are reasonable arguments against restricting condominium rentals, there is no question that communities have the right to adopt those policies if owners support them. Some owners will undoubtedly argue that rental restrictions reduce the value of their units and interfere illegally with their right to sell them, but courts across the country have consistently rejected that view. Most have used reasoning similar to that of a Washington, D.C. appellate court, in a decision refusing to overturn a rental ban. “Potential purchasers of condominium units should realize that the regime in existence at the time of purchase may not continue indefinitely and that changes in the declaration may take the form of restrictions on the unit owner’s use of his property,” the court explained.

Underlying many of these decisions is a bias in favor of ownership over rentals in a community association setting. That bias is reflected clearly in a 1983 decision of the Massachusetts Supreme Judicial Court (Franklin v. Spadafora), upholding an association’s right to limit the number of units owned by an individual. The SJC in this case endorsed a lower court’s finding that “a desire to impart a degree of continuity of residence, inhibit transience, and safeguard the value of the investment [is a reasonable goal]. Those who live in condominiums must be willing to give up a certain degree of personal choice in order to promote the welfare of the majority of the owners,” the court added.

If, after weighing the pros and cons, a board decides to limit rentals, it should do so by amending the condominium’s master deed, which will typically require the approval of at least 75 percent of the unit owners. As anyone familiar with community associations will attest, persuading owners in large numbers to agree on even the most innocuous issue is all but impossible, and owners are unlikely to perceive a proposal to limit or ban rentals as innocuous, to say the least.

State the Case

As with any policy change, owner education will be essential. The board should distribute information outlining clearly the arguments for and against the plan, giving owners plenty of time to consider the policy and ample opportunity to express their views on it. The association will almost certainly have to include a grandfather provision exempting existing units (or at least exempting the units owned and rented currently by investors), in order to win the votes required to approve the resolution. Some associations address the owner-investor conflict by allowing owners currently renting their units to continue doing so but barring rentals by future owners, essentially requiring that investors who sell their units sell them only to owner-occupants.

One key question the board will have to address is whether to prohibit rentals entirely, or simply to cap the rentals allowed at a specified percentage of the total – presumably, below the 40 percent secondary market guideline. While a rental cap will likely prove less controversial in a community that includes investor-owners, it will also be more difficult to administer, requiring a waiting list and a monitoring mechanism, of some kind. By far the cleanest route for associations concerned about rentals is to simply prohibit them, with a reasonable grandfather provision for existing investor owners, and the goal of eventually eliminating all rentals over time.

Reasonable Policies Required

If the association is going to allow rentals, it should have reasonable policies for dealing with both owner-landlords and their tenants — a sound practice even for associations that hope to eliminate rentals over time. The goals are to minimize conflicts and to have procedures in place for dealing with those that do arise. No policies will eliminate all problems, but the following measures should help to reduce them:

  • Require that landlord-owners make adherence to the condominium rules and regulations a requirement of the tenant’s lease. That way, violations of the rules will provide grounds for the owner to evict a problem tenant.
  • Require owners to give their tenants a copy of the association’s rules and regulations. Some associations require owners to provide proof, in the form of a signed acknowledgment from tenants verifying that they have received the rules and understand them. That’s no guarantee tenants will actually read the rules (how many owners do that?) but it will at least make it harder for them to argue ignorance if they are cited for violations in the future.
  • Require landlords to give the board copies of the tenant’s lease, along with relevant tenant identification and contact information (name, phone number, driver’s license and license plate numbers, and emergency contact names and phone numbers).
  • Ask landlord-owners also to give their tenants relevant contact information, and to explain clearly when tenants should contact the owner about a problem (almost always) and when they should contact the manager, maintenance personnel, or the board (only in emergencies).
  • Encourage owners to be responsible landlords. It is in the association’s interests, as well as the investor owners’, for owners to select good tenants who will be good residents. Toward that end, provide owners with summaries of landlord-tenant laws and descriptions of the landlord’s responsibilities and urge them to screen their tenants carefully. At a minimum, owners should verify the employment and income of prospective tenants and obtain references from their previous landlords.

While associations should encourage due diligence by owners, they should not become involved directly in the tenant selection process. Boards should neither select tenants nor demand the right to approve the owners’ choices. The lease is between the owner and the tenant; there is no valid reason for associations to reject a tenant, and they incur substantial potential liability (for discrimination complaints, among others) if they do so.

Dealing with Problem Tenants

Even if a unit is rented, the association will continue to deal primarily with the owner, who remains a member of the community, with all the rights and responsibilities that implies. However, some tenants may create problems that the management, the board, or both, will have to address.

If the complaints are substantive (and they aren’t always), the first, obvious step, should be a polite conversation with the tenants informing them that they are violating the rules. If that doesn’t work, the board should send a letter to the owner explaining the problem and asking the owner to deal with it. That letter should also note that the owner is responsible for the tenant’s infractions and will be fined accordingly if the violations continue.

If the owner doesn’t respond, or if the response isn’t effective, the board should begin fining the owner and should send a second letter, this one from the association’s attorney, threatening court action if the owner does not deal with the problem tenant and pointing out that, under the Massachusetts condominium statute, the owner will be responsible for the association’s courts costs and fees if legal action is required. That is usually enough of a hammer to persuade most owners to act.

If not, the association can seek a court order requiring the owner to evict the tenant. In extremely serious situations, involving the health or safety of other residents, the association may ask the court directly to order the tenant’s removal. One association we represented followed that route when a tenant, angry at a neighbor who had filed a complaint against him, expressed his displeasure by firing several bullets into the neighbor’s unit.

Fortunately such incidents are rare, and it is extremely important for associations to distinguish between substantive problems, requiring action by the landlord, intervention by the courts, or both, and complaints based more on the existence of tenants than on their behavior. Some owners simply do not like tenants, don’t want them in the community, and will complain about every breath they take. Associations should avoid the knee-jerk temptation to take every complaint against a tenant to court. Not only won’t win the relief they are seeking, there’s a good chance the court won’t allow them to recover their legal costs and fees from the owner, either.

Every minor tenant infraction does not represent a capital offense and should not be treated as one. On the other hand, associations should document all complaints and keep a record of them. Two small complaints over a three year period won’t amount to much, but three or four complaints every month for six months could add up to grounds for insisting on the tenant’s eviction.

Special Fees

Because they anticipate that tenants will create headaches, legal and otherwise, some associations think they should impose a separate administrative fee on investor-owners. Although that idea has a superficial logic, it contradicts the statutory requirement that the fees paid by owners should be based on their proportionate ownership interest in the community. Courts in many other jurisdictions have rejected investor fees for that reason. Although Massachusetts courts haven’t addressed the question, it is likely that they would agree. In addition to their statutory concerns, courts don’t much like the appearance that boards are using investor fees as an indirect way of discouraging rentals instead of addressing the issue directly, as they should, by winning owner approval to amend the association’s documents.

That doesn’t mean associations can’t impose fees on one group of owners, but it does mean that those fees must be based on clear and quantifiable expenses for which only those owners are responsible. For example, you might charge a separate fee for the cost of copying or reviewing documents related only to tenancies, but the courts probably would not accept “tenants are a pain in the neck” as a justification for requiring landlord-owners to pay an extra fee. Courts would likely take the same dim view of the “move-in-move-out” fees some associations want to assess the owners of rental units. Unless you can demonstrate that tenant furniture is more likely to damage common areas than the furniture of owner-occupants, you should either assess that fee across-the-board or not at all.

Targeting Tenants Only

The general requirement for even-handed treatment of unit owners does not apply to the treatment of tenants, however. Discrimination against minorities, religious groups, children, the disabled, and other “protected classes” is illegal, but tenants are not a protected class. That means associations may adopt special rules for tenants that don’t apply to owners, and many have done so. The most common of these restrictions prevent tenants from owning pets, even if owner-occupants are allowed to own them. The logic is that tenants may not be as conscientious about pet care as owners who have a financial interest in their units and in the common areas.

A similar argument might justify restricting tenant access to common area facilities, but such restrictions could prove awkward to say the least. Imagine a tenant’s child who is barred from the pool, sitting outside the fence watching the children of owners swim. While “no tenants allowed” policies may be enforceable, with the exception of restrictions on the ownership of pets, it is not clear that they are particularly desirable. If one of the primary objections to tenants is that they won’t behave as responsible as owners, treating them like second-class citizens is hardly the best way to address that concern. Measures aimed at including tenants rather than excluding them make more sense. The more you treat tenants like valuable, responsible members of the community, the more likely they are to behave that way. Toward that end:

  • Greet new tenants, as you should greet new owners, with a welcome packet that includes the rules and regulations, contact information, and information about the community and its facilities.
  • A personal greeting from the manager, members of the board, or both, is a nice touch. It also provides an opportunity to verify that tenants have received copies of the rules and regulations and understand them.
  • Send tenants copies of all notices and the association’s newsletter; encourage them to participate in association activities and to get to know their neighbors.
  • Try to convey a positive message. Indicate by your actions and your policies that you are happy to have tenants in the community, and not that you wish they were living elsewhere.