It is not uncommon for homeowners to rent out their properties. But, what if that property belongs in a homeowners association? Board members must know how to deal with rental property in HOA communities.
In this article:
Rental Property in HOA Communities: Should You Allow It?
Many homeowners rent out their property to make some extra money on the side. But, when the property is part of a homeowners association, the situation gets a bit more complicated — and not just for the homeowners.
Homeowners associations are in charge of maintaining the community and preserving property values. They accomplish this by enforcing rules and collecting dues, among other things. When tenants take the place of long-term residents, though, it can disrupt the balance in the community.
Homeowners are committed to following the rules of the association because they want to protect their investment. Tenants, on the other hand, don’t have a stake in the scenario. Apart from avoiding getting kicked out, they don’t really have an incentive to adhere to all of the association’s regulations. This often results in neighbor complaints and disputes, thereby hampering the delicate harmony that board members have worked so hard to cultivate within the community.
So, the question remains, should boards allow rental property in HOA communities? The answer isn’t quite simple.
Check State and Local Laws
As a board member, you should always make it a point to check the law before coming to a decision. In some states, the law is very clear on what homeowners associations can and can’t do. For example, in Arizona, A.R.S. 33-1260.01 prevents associations from imposing a rental restriction against an owner unless the restriction already existed within the governing documents when the owner purchased the property.
Sometimes, state and local laws will already tell you whether or not you can enforce rental restrictions. This will make the decision easier for your board. Statutes can vary drastically from one state or city to another, though. As such, it is important to refer to the laws in your specific area or, when in doubt, consult an attorney. This way, you can avoid potential liability.
Check Your Governing Documents
Many homeowners associations already know whether or not rentals are allowed in their community because it is outlined within their governing documents. The same provisions may exist in yours as well.
As such, always make sure to check your governing documents to see if you have the authority to allow or prohibit rental properties in your community.
Some governing documents contain more detailed restrictions, complete with requirements and procedures. Others, though, contain more vague language, leaving the board to decipher the provision on their own. If yours is similar to the latter, it is worth consulting an attorney or revising your documents to include more specific restrictions. If your documents don’t contain any provisions at all, you should amend them to make the topic clear to everyone, including future boards.
The Pros and Cons of Rental Properties in HOA Communities
As with a lot of things, allowing rental properties in homeowners associations comes with its advantages and disadvantages. Obviously, it’s the homeowners who will benefit the most from allowing rentals in HOAs. They get the opportunity to earn extra cash to supplement their regular income. If a lot of homeowners want to rent out their property, allowing rentals will also keep them happy.
For the association, one benefit of allowing rentals is that you might turn some tenants into property owners. If tenants fall in love with the community, they might like it enough to become permanent residents.
In contrast, there are several pitfalls when you allow rental property in HOA communities. This includes but is not necessarily limited to the following:
- Noise pollution
- Greater liability for the association (and the homeowner)
- Possible negative effect on property values
- Possible illicit acts by tenants
- Greater safety and security risks
Creating a Rental Policy for Homeowners
If your association ultimately allows rentals within the community, laying down a policy for owners to follow is a must. But, what should this policy include?
1. Short- or Long-Term Rentals?
First, you must decide what type of rentals are permitted within the community. In general, there are more risks and burdens involved when you allow short-term rentals. As such, consider only letting homeowners rent out their property for longer durations. Long-term rentals typically have a minimum of one year, but you can be more specific with this in your governing documents. For short-term rentals, consider a minimum stay of 30 days instead of the 5-7 days that vacationers usually go for.
2. Develop an Application and Approval Process
Just as you have a procedure for architectural requests, it is equally essential to establish one for rentals. If an owner wishes to rent their property out, make them fill out a form. Ask for all the pertinent details, including the tenant’s name, contact information, and start and end date. This not only sets a standard for all other applicants but also helps ensure the safety and security of the community.
If your state laws and governing documents permit, consider charging a deposit or fee after approving an owner’s application to rent out their home.
3. Set a Rental Cap
If you allow rental properties with no holds barred, you risk turning your community into one mostly populated by tenants. It will be harder for your board to foster long-term community spirit when your residents keep changing. Tenants aren’t typically in it for the long haul, so this creates some hardships for the association both in terms of growth and value preservation.
To avoid this, it is wise to impose a rental cap or limit on the number of homes that can be rental properties in your association. Remember that owners are more invested in maintaining property values than tenants, so aim for a higher percentage of owner-occupied homes.
4. Ensure Tenant Compliance
A tenant may not be a homeowner, but that doesn’t mean they are exempt from following the rules. Tenants are residents of the community, too, so that means they must be bound by the same restrictions. To ensure compliance, have homeowners (the landlord) explain the rules to their tenants. Make them sign an agreement saying they will be held accountable for their tenant’s actions. This puts the burden of avoiding violations on the owner’s shoulders.
From a Landlord’s Perspective: What Homeowners Must Do
Homeowners associations can only do so much when it comes to rental properties. Some things are left in the hands of the owners themselves. To ensure a smooth rental process, encourage owners to do the following:
- Ask Tenants to Follow the Rules. Tenants might not have all the same rights as owners do (depending on the governing documents), but they must still follow all of the association’s rules. It is the owner’s job to make these rules clear to their tenant and ensure compliance at all times.
- Factor in the Fees. Living in an HOA community comes with a financial obligation — HOA dues. Owners who rent out their property must still fulfill this obligation. Remind them of this fact and advise them to work out some sort of agreement with their tenant. They can include it as part of their rent or charge the fee separately.
- Prepare for Rule Breakers. Tenants can violate the rules of the community, whether intentionally or not. As a form of protection, owners should include a clause in their lease agreement stating that non-compliance with the association’s rules is a cause for termination. It should also say that the tenant will be responsible for paying any applicable fines.
A Tricky Yet Necessary Effort
People are always looking for ways to earn extra income. And, for some homeowners, that means renting out their property to tenants. For properties in homeowners associations, though, the process is not as simple. Given the way HOAs are constructed and operated, rentals can have a significant impact on the community’s dynamics. Therefore, it is imperative for boards to regulate rental property in HOA communities.
Many HOA boards have little to no experience when it comes to handling rental properties. This is where an HOA management company like Elite Management Services comes in. Call us today at (855) 238-8488 or contact us online to learn more about how we can help you.
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