Why association rental restrictions are controversial but necessary—and how to implement them

Robin Young
Robin Young | 3 min. read
Get the latest industry insights.

Published on June 22, 2018

Why are association rental restrictions such a hot button issue? Frankly, it’s because owners and community associations both have a lot at stake—and their interests are in direct opposition to one another.

Why do associations restrict rentals? If a community’s percentage of owner-occupied homes gets too high, their insurance rates may spike, and future residents may have trouble getting loans. Many also fear that renters have less of an incentive to take care of the home than owners would.

On the other hand, circumstances do arise where homeowners have no choice but to rent out their homes—and allowing renters is preferable to homes being foreclosed upon. It may also be harder to sell homes in the community if renting is off the table.

Here’s our advice for working with association boards to strike a rental restrictions agreement that works for everyone.

#1: Choose a Rental Cap

Rather than prohibiting rentals outright, explain to homeowners why the association needs to set a limit on the number of homes being rented out. In addition, it might help to involve them in the process of choosing where the cap should be based on current owner occupancy guidelines from lenders like Fannie Mae and the FHA.

#2: Set Time Limits

Require all homes to be owner-occupied for a set amount of time before they can be rented—for example, two years. All new owners should be notified of the association rental restrictions during the purchasing process to avoid any issues down the road.

#3: Leave Room for Exceptions

Though exceptions should be very rare, some states require that associations bend the rules for “hardships,” which might include homeowners who are deployed by the military or required to move for work. Knowing who your current and prospective residents are is imperative to understanding which exceptions make the most sense.

#4: Let Owners Take Charge

Owners should retain the ability to choose renters and enforce most rules. The homeowner should provide the board with the renter’s lease and contact information. The landlord has to provide renters with your CC&Rs, and specify to all involved parties who will be responsible for fulfilling any obligations—for example, paying fees and mowing the lawn.

#5: Welcome Renters into the Community

Treat renters as potential homeowners—they just might become the most dedicated members of your community when they’re ready to buy a house.

#6: Include a Grandfather Clause

If you do decide to ban rentals, include a grandfather clause for current owners. Some homeowners may rely on rental income to survive. Requiring them to eject renters on short notice could result in foreclosures or vacant properties—which means that no dues are being collected, and the value of nearby homes could be lessened.

#7: Consider Sunsetting Rentals

Consider “sunsetting” rentals rather than banning them immediately. Set a reasonable deadline (such as two years) by which all homes need to be owner-occupied.

It often seems as though controversy is inevitable whenever community associations limit the ways in which owners can utilize their homes. However, by setting and enforcing rules in a transparent and fair way, association boards increase the likelihood that homeowners will understand that association rental restrictions are in their best interest to keep property values moving up and to the right—while being realistic about the nuances of the market.

Read more on Scaling
Robin Young

As Buildium’s Senior Researcher, Robin leverages her background in social science research and interest in real estate economics to identify trends in the rental market. She combines intensive market research with insights gleaned from surveys of property managers, renters, and rental owners to examine topics like shifting renter demographics, the housing affordability crisis, and the transformation of property management during COVID-19. She's best known as the author of the annual State of the Property Management Industry Report.

Trending Stories For You
Scaling 11 property management KPIs you should be tracking
The property management industry is highly fragmented. Some companies have only a few employees, some operate independently, and others have massive portfolios. No matter your…
Amanda Maher
| 9 min. read
Associations 6 steps to airtight tracking for HOA violations
When a resident moves into an HOA or community association, they agree to follow a certain set of rules created by the board of directors.…
Laurie Mega
| 6 min. read
Maintenance & Improvements 15 HOA landscape maintenance tips to enhance your community’s curb appeal
Prospective buyers love walking into a beautifully renovated home—but it’s tough to get people in the door to see stunning interior improvements if they’re turned…
Amanda Maher
| 8 min. read

Be a more productive
property manager