So the board of your association has made the decision to seek an amendment to the declaration to restrict leasing of units. There are many components to a lease restriction amendment, and the board needs to address each to craft an amendment that is right for the particular association. There is no “one size fits all” approach. What works for one association might not work for another.
The board needs to decide whether to ban leasing entirely, or to limit leasing to some specified percentage of units. Total bans on leasing have fallen out of favor in the current economy. Today, it is more common for an association to limit the percentage of units that can be leased.
Opting for an amendment that permits some stated percentage of the units to be leased means the board needs to consider what percentage should be selected. Most common is either a 20 percent or 30 percent limitation. However, associations that currently have a higher percentage of units being leased may have to opt for a higher percentage. A carefully drafted amendment can start with a higher percentage of units that can be leased, and lower that percentage periodically. The board will also have to adopt appropriate “wait-list” rules to address who can lease when the cap on rentals is met.
Each lease restriction amendment should have a “grandfather” clause. A “grandfather” provision permits circumstances existing at the time of the amendment to continue. The most restrictive grandfather provision provides that all unit owners that are leasing their units (at the time of recording the amendment) can lease their units until the expiration or termination of the lease. However, upon the expiration or termination of the lease, the unit could no longer be leased by a unit owner unless the cap has not been reached. A more liberal grandfather provision may be appropriate for your association, or required, if the association is trying to restrict leasing to a percentage that is lower than the current percentage of units being leased. There may be other political considerations that the board will need to take into account when drafting a grandfather provision. Knowing your owners’ needs and thoughts on the issue is important; careful drafting is essential.
An amendment should also include a “hardship” exception to the lease restriction. When the cap on the number of units that can be leased is met, a hardship clause allows a unit owner to make application to the board for permission to lease his/her unit for a limited period of time. Some associations include a maximum percentage of units that can be leased even under the hardship clauses. This is intended to protect against secondary mortgage market owner-occupancy guideline issues; this also may or may not be something the Board wants to include.
Examples of the types of hardships, but by no means exclusive, that a board could consider are the sudden transfer of a unit owner to a new out-of-state job location; or, illness of the unit owner or a relative that would require a temporary absence; or, the deployment of a soldier on a tour of duty. The common thread here is temporary displacement with an intention to return to the unit. However, I have seen a growing number of associations grant a hardship exception in this current real estate market (when they would not have done so in the past) if the owner has purchased a new home but is having difficulty selling their unit if it is reasonably priced, or, for example, if the owner gets married, divorced, or dies.
Many associations allow unit owners to at always lease their units to certain described family members. This exception is completely discretionary and not required. Note though that these units would not technically be considered “owner-occupied” for purposes of the secondary mortgage market owner-occupancy guidelines.
An amendment should allow the board to always lease units. This is applicable if the association obtains possession of a unit in a forcible entry and detainer (eviction) action for nonpayment of assessments.
An association has a lot to think about when considering a lease restriction amendment. Each board needs to consider the circumstances of its association and its owners make the amendment acceptable to the ownership who will have to approve it. Once an amendment is adopted, the board must carefully monitor leasing to prevent violations of the amendment. Owners leasing in violation of the lease restriction can find their lease terminated, and their tenant evicted, by the association.
Originally published in the Daily Herald (June 2, 2012).
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