It is an all too common situation, especially in coastal communities, mountain retreats, and college towns: You bought a home in a planned community that has a homeowners’ association with thoughts of being able to enjoy a quiet, family-oriented neighborhood. Then you find that your community’s amenities are being overrun with transient tenants and their guests. These tenants and their guests do not pay assessments and, at least in your mind, do not share your vested economic, long-term interest in the community. “We must retake control of our community and our amenities,” you say. You rally the full-time owners to your side, demanding that the homeowners’ association do something about this “problem.” But will it? Or, perhaps more importantly, can it? This question is the subject of this article, which will highlight the complex legal and practical issues that arise when homeowners’ associations seek to impose restrictions on members’ rentals of their property.
The Right to Rent
There is a common and widespread misconception about a property owner’s ability to rent the owner’s property. All too often, that ability is considered a mere “privilege,” similar to the privilege of an owner to use the community pool or clubhouse, or to park a specific number of cars in a driveway. In fact, the ability of a property owner to use the owner’s property as the owner sees fit, including renting its use to someone else, is one of our nation’s most fundamental and legally protected rights, jealously guarded by the courts. This means that serious and demonstrable reasons for restricting the right must be proven by the party attempting to enforce restrictions on rentals, and that all ambiguities and questions of enforceability will be resolved by the courts in favor of the free use of the property.
Additionally, courts are very reluctant to enforce rental restrictions imposed on an owner after the owner has purchased property because such restrictions can strike at an owner’s reasonable expectations for investing in the restricted property. Understanding these basic premises allows a homeowners’ association and its members to accurately begin evaluating any proposed restriction on rentals.
It is important to identify the types of solutions that history has shown are ineffective or subject to successful legal challenge. Generally speaking, an association will not have the power to impose direct rental restrictions upon owners, and tenants may not be targeted as a class of people separate from the owners.
Typically, an association exists only to regulate and maintain the community’s common areas and to enforce the governing documents. Homeowners’ associations normally have the authority, by board vote, to adopt reasonable rules and regulations concerning the common areas and common elements in the community, but they normally do not have the authority to restrict the use of a lot or unit in the community. Therefore, a homeowners’ association does not have the ability to impose any rule or regulation which directly affects an owner’s ability to rent the owner’s property. For example, an association generally cannot adopt a rule which states that an owner cannot rent the owner’s property at all, and the same is true for a rule limiting rentals to certain times of the year.
Tenants may not be targeted by an association as a class separate from owners. Owners temporarily transfer a portion of their ownership interest in a property, specifically the right to exclusive possession, to a tenant during the term of a lease, meaning that the tenant must be treated the same as an owner. When tenants rent property, they are entitled to all of the rights and privileges that the owner otherwise possessed. Therefore, rules and regulations governing the common areas in a community such as a pool, clubhouse, parks, and streets must apply to everyone in the community, owner and tenant equally. For example, a rule providing that tenants may use the community pool only on weekdays, or a rule requiring tenants to obtain separate key cards for gate entrance, likely will not be enforceable.
Strategies for Successful Regulation
Each community is different and each community should consult with its attorney prior to adopting any measure to address rentals. However, there are some general points that are helpful to understanding the difference in measures that may be effective versus those mentioned above, which likely would not be effective or enforceable.
The threshold question to ask is whether any restrictions applying to rentals are present in the community’s Declaration of Covenants (“Declaration”). Original restrictions, commonly called “covenants,” in the original Declaration stand a much better chance of surviving a challenge than newly adopted covenants. Since Declarations are a part of the public record, an owner is charged with knowledge of, and having consented to, them, at least as they are written at the time the owner purchased property in the community. In short, an owner who “buys into” a community that already restricts rentals cannot reasonably argue that the owner had any reasonable expectation at the time of purchase that the owner could use the property for a rental. That fact alone will bolster any defense of such a covenant from legal challenge. In addition, there can be no question of targeting or intent to discriminate because the covenant was in place prior to the purchase.
Any amendment to the Declaration may be subject to legal challenge, both substantively and procedurally. Examples of amendments that may be effective include requiring that leases have minimum terms (e.g., a lease must be no shorter than a specific and reasonable term, such as one month, as opposed to one week or a shorter number of days) or requiring that certain protective language be included in a lease (e.g., requiring compliance with all community covenants, rules, and regulations). However, if it is determined that the community’s Declaration is to be amended, then it is paramount that the association consult with its attorney to ensure that the amendment is substantively viable and that the community’s amendment procedure and any governing state laws are strictly followed.
Perhaps the most effective strategy for addressing the issue is to address the offensive behavior directly. While the association has no power over the tenant individually, and associations may not evict an owner’s tenant, the association may look to the owner for any violation of the Declaration or other governing documents by the owner’s tenant. Consistency of enforcement is key.
Similarly, the association may address the bad behavior by adopting reasonable rules and regulations that apply equally to everyone in the community, not just tenants and their guests. For example, if tenants and their guests are overwhelming the community pool to the exclusion of the owners, then perhaps it is possible to adopt a rule that only certain lots may use the pool on certain days. As long as the rule is reasonable and not targeted at a class of people, it may stand, depending on the situation.
Any proposed restriction on rentals should be met with skepticism. Such restrictions are not favored in the law, notwithstanding commonly held perceptions. However, every situation is different and, with the help of legal counsel, the community should be able to formulate a strategy for addressing whatever issue may underlie the clamor for rental restrictions.
Articles have been Reprinted with permission from Ward and Smith.
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