With the current state of the economy, I have been hearing more and more often that my boards are interested in rental restrictions, which usually means limiting the number of homes that can be rented out within the HOA. There is a feeling, true or not, that renters do not take as much pride in the community they live in as an owner would. Of course this has always been the perception of renters (at least as long as I’ve been in this industry), but with the economy being slow, there is also the added burden of lenders not wanting to approve mortgages in associations that have a lot of rental properties. This basically means that an owner may find it hard to refinance in a community with many renters or a prospective owner may not qualify for a mortgage within that renter-filled association.
So how should a board determine if it’s worthwhile to pursue rental restrictions?
One thing boards often underestimate with rental restrictions is the time, effort and cost involved in adopting rental restrictions, which always* requires an amendment to the governing documents of the community. Before a board begins the expensive and lengthy process of an amendment, it is prudent to determine if sufficient interest exists in the community:
Discuss the proposed rental restriction at a board meeting. While owners generally do not participate at a board meeting, the president has the right to allow any owner to participate during the board meeting. The best and easiest way to do this is for the board to discuss it’s proposal and then take a straw poll of the owners present to see if they would approve such an amendment. Depending on the number of owners present at the meeting, this may not be 100% conclusive of how a vote would go, but at least this gives the board a reality check from those present.
Send out a postcard/flyer advertising a town-hall meeting to discuss the amendment or to solicit comments/concerns. Sometimes owners who don’t normally attend board meetings (too busy, don’t prioritize them, don’t care) will attend a meeting if it will directly impact them and those that do not may be willing to send in a e-mail with their thoughts. This also can give the board a better idea if the amendment has support or not. If the HOA has a website or a social media site, information about the meeting and the proposed amendment should also be provided there.
Check your figures. Boards sometimes overlook the obvious, especially when it comes to rental restrictions or caps. If the community already has 40% of its homes rented, it is unlikely those owners will vote in favor of a rental restriction, and as such the amendment has little chance of passing. Just to be very clear, let’s say there are 100 homes in the community. Of these, 40 are rented. Assuming the other 60 are owner-occupied and would vote in favor of such a restriction, that only provides 60% of the needed approval for an amendment to pass. It is unlikely that from those 40 rented home the board will get an additional 15 homes (or more, as your governing documents may require) to vote in favor of the rental cap, especially if it means those owners may not continue to rent their homes out.
The amendment process is a lengthy and expensive one and should not be undertaken without significant interest in and support from the owners.
(For more about the amendment process itself, please take a look at my posting on December 1, 2011, called “Amending Governing Documents”).
All of the documents that I’ve come across over the years have always required an amendment to put in a rental cap, but boards should check with their attorneys to confirm before pursuing this matter further.