Renting Units in an Homeowner Association: Problems that Arise and How to Navigate Them (Oregon Law)

May 16, 2011 | By: Michael D. Montag

To some homeowners, the ability to rent out their house or condominium unit is a fundamental right of ownership. To others, living in a community full of renters deprives them of their right to live in a stable community of upstanding, responsible homeowners like themselves. No matter which side of the fence you’re on, if you’re a part of an HOA board, then chances are you’ve heard plenty from both sides of the issue. Chances are even better that you haven’t heard the last from either camp… Rentals within your community association is always going to be a hot-button issue, so it’s beneficial to take a step back and review the information and the handful of issues that could perpetually arise.

There are two categories of rental issues in HOAs: First, whether and how the association will regulate rentals. Second, assuming rentals are allowed, what rights and responsibilities does the association have vis-à-vis the renter?

In general, unless your association’s declaration says otherwise, owners have the right to rent their home. Many owners, however, feel that having too many renters within their community has a negative impact on both livability and property values. Many financial institutions agree, and will not sell or insure mortgages for a house or condominium unit in an HOA that is 75 or 80 percent owner occupied. To comply with those limits, an association can impose a “rental cap;” that is, the association can establish the maximum percentage of owners allowed to rent their home. Because a rental cap infringes on owners’ fundamental property rights, it can only be instituted by amending the association’s declaration. Likewise, any future change to the cap requires an additional declaration amendment.

Once your association has decided to limit rentals, you will need to hammer out the details. If existing rentals already exceed the new cap, the rental restriction amendment will need to include a “grandfather” clause that allows existing rentals to continue. If owner demand for rentals remains higher than the cap, you will need to establish a waiting list procedure for determining which owners are allowed to rent. This is typically combined with a rental application procedure, which provides for the manner in which an owner seeks and receives approval to begin renting their home. It is also wise to include a hardship exception to the rental cap, which permits the board to allow an owner to rent in violation of the cap in order to prevent undue hardship. This situation often arises when an owner is required to relocate for employment, but hasn’t been able to sell their home. Such procedural matters do not substantially affect owners’ property rights, and therefore do not need to be established through declaration amendment. Instead, the board may adopt procedures related to rental by resolution, or include rental guidelines in the association’s rules and regulations.

Another issue for a board to consider is whether it wants to regulate rentals beyond merely the percentage of owners allowed to rent. Most associations choose to require written lease agreements, that those leases last for a minimum of six months or a year, and that owners provide tenants with all association governing documents. Others, however, take this type of regulation to a higher level. These associations require tenant background checks and credit checks, seek to exclude certain “undesirable” tenants (such as sex offenders), or reserve for themselves the right to evict an owner’s tenant (or to force the owner to do so). While many such regulations may be permissible, they also call into play sets of laws that many HOA boards are not familiar with. Boards should be wary of fair housing and landlord/tenant laws when imposing any sort of tenant screening policies, and should seek legal advice when implementing any such rules or policies.

These issues blend into the second category of problems association boards face when dealing with rentals – what can the association do about so-called problem renters? The answer to this question always comes back to the fundamental rule that the owner is always responsible for what his or her renters do. If a renter incurs a fine for violating an association rule, the owner must pay the fine. If an owner has included as part of the lease that the renter is responsible for paying assessments and the renter fails to pay, the owner is still liable to the association. A good solution is to require owners to provide all association documents to their renters, and to go one step further by including a provision in the lease that requires the renter to abide by all association rules and regulations. That way the owner has some recourse if their renter causes problems. Most owners want to protect their investment, and—when they start receiving bills for fines caused by their renter’s misdeeds—will spring into action. If the owner is reticent and fails to pay the fines, the association can collect them in the same manner as any other assessment, and ultimately may be able to garnish the rent the owner collects.

An article detailing the unique issues surrounding rentals within HOAs could go on for pages and pages. A basic understanding of those issues, however, can help a board know what to look out for, and when to ask an expert for guidance to avoid a serious problem.