Condo Leasing Question/Answer

Question:

I recently purchased a condominium unit. After moving in, I noticed that a few units are being rented and no one seems to know much about the tenants. Is it reasonable or legal to require all adult tenants to provide proof of their identification to the homeowners’ association board or its management firm? My reasoning is that property owners have to prove who they are by providing copies of their identification and other information to lenders, so it would seem logical that the same would apply to tenants.

Answer:

In general, condominium and homeowners’ associations (HOAs) may enforce reasonable restrictions on leasing if such restrictions are expressly set out in the declaration of condominium or the declaration of conditions, covenants and restrictions (CCRs) for the community. HOAs may also enforce restrictions on leasing that have been established as HOA “rules and regulations” when the declaration or CCRs specifically grant the HOA the authority make rules and regulations which restrict leasing. Any such restrictions on leasing should be reasonable and objectively stated.

There are, however, numerous exceptions and concerns related to restrictions on leasing in condominiums and planned communities. Some of the exceptions and concerns involve the federal Fair Housing Act (FHA). First, the restrictions on leasing should not result in discrimination against prospective tenants based on family status (the presence of children). In August 2013 the United States Department of Justice announced it had reached a $150,000 settlement with a Florida community association that allegedly maintained restrictions on leasing in violation of FHA regulations. Second, as to condominiums, restrictions on leasing could disqualify the condominium from obtaining approval for FHA-insured mortgage financing. Because so many condominiums are purchased using FHA loans today, getting a condominium development qualified for FHA financing is critical.

As to qualification for FHA-insured financing, here is short list of do’s and don’ts from the FHA’s own guidelines: 

  1. All leases must be in writing and subject to the declaration and bylaws of the condominium project.
  2. The condominium association may request and receive a copy of the sublease or rental agreement.
  3. The condominium association may request the names of all tenants, including the tenants’ family members who will occupy the unit.
  4. Unit owners are prohibited from leasing their units for an initial term of fewer than 30 days.
  5. The condominium association may establish a maximum allowable lease term, such as six months or twelve months, for example.
  6. The condominium association may establish a maximum number of rental units within the project. However, the percentage of rental units may not exceed the current FHA condominium project owner-occupancy requirement (currently 50%).
  7. The condominium association may not require that a prospective tenant be approved by the condominium association and/or its agent(s), including but not limited to meeting creditworthiness standards.

In summary, a community association should be able to require tenants to provide their identities, but only if the declaration, CCRs, or valid HOA rules and regulations grant such authority to the association. At the same time, the association should be mindful not to use the information for any improper or discriminatory purpose. Screening of prospective tenants by the community association might also be enforceable if properly empowered by the declaration or CCRs, but any such screening would disqualify a condominium community from qualifying for FHA-insured financing and could put the association at greater liability risk for discrimination claims in general.

2 thoughts on “Condo Leasing Question/Answer

  1. Our HOA apartment condo lawyer in NC has recently opined that any relative living in a unit, when the owner does not, is to be considered a tenant and subject to our Declaration’s rental cap. The reasoning is that the owner is receiving some kind of undefined compensation from a relative being there, even though no money or services are being paid or given to the owner and no lease or agreement exists. Is there any case law that defines this situation?
    Sorry, but I cannot find where to post my own question on this site.

    • The answer to your question depends on how a “lease” is defined in your condo’s Declaration. When we draft leasing restrictions, we define a lease as “the regular, exclusive occupancy of a Unit by any person(s), other than the Unit Owner, for which the Unit Owner receives any consideration or benefit, including but not limited to, a fee, service, property or gratuity.” This definition would probably exclude a situation where the owner is allowing a family member to live in the unit and the owner is not receiving anything of value in return (other than “love and affection”). Most of my clients are not concerned about preventing situations where a relative is living in the unit for no charge. A typical example would be a parent who buys a condo for his son or daughter to live in while attending a nearby college. Such situations generally do not lead to the problems we see with typical investor-owned units, such as leasing to problem tenants without proper pre-screening, and high turnover with frequent move-ins/move-outs, so there is less of a need to restrict them.

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