Can HOAs limit the number of rentals allowed?

Q:  Would you speak to the wisdom (or lack thereof) of my homeowners’ association amending its restrictive covenants to add a provision limiting the number of homes that can be owned by one individual or one entity? What are the legal issues in doing this other than following the method outlined in the covenants for amending the CCRs?

A: In our homeowners’ association (HOA) law practice, we are seeing an increasing number of communities where the declaration of covenants, conditions and restrictions (CCRs) either limits the number of homes that can be leased at one time, or limits the number of homes that can be owned by one individual or entity or related entities. The rationale for these limitations is that a high number of rental properties may decrease home values for the entire community. While there is probably some truth to that, the flip side is that by limiting the number of homes that can be rented, you are also discouraging purchases of homes by investor-landlords, thus reducing the pool of potential purchasers when an owner wants to sell.

From a legal standpoint, there is no law I am aware of that limits an HOA’s right to adopt such regulations through a properly drafted and approved amendment to the CCRs. But the restriction must be applied consistently and uniformly if the HOA wishes to avoid claims or lawsuits of discriminatory or arbitrary and capricious enforcement of the restriction. For condominiums, restrictions on the leasing of units or ownership of multiple units by a single owner may prevent the condominium from qualifying for HUD approval for FHA-backed mortgage loans, which can significantly reduce the pool of potential purchasers since so many homes are purchased using these federally backed loans.

This column was originally published in the Charlotte Observer on January 8, 2016. © All rights reserved.

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