Rental Restrictions at a COA or HOA

Does a COA (Condominium Owner Association) or HOA (Home Owner Association) have the right to restrict rental of property?

Most communities prefer resident owners over renters. Absentee owners usually don’t care as much about maintenance of their property as do resident owners. When more than 10 percent of residents are renters, prospective buyers are cautious. Some mortgage lenders refuse to make loans or charge higher interest rates when than 20 percent are renters. Complexes with rental restrictions have higher resale prices and are considered more desirable.

Renters also reduce the number of onsite owners available to contribute to the Association’s Board and other association tasks. Since most Associations face a continuing shortage of volunteers, this is an additional important consideration.

Renter levels of more than 51% can cause insurance companies to classify the entire development as an investment property, increasing the cost of the Association’s master insurance policy. Higher insurance costs result in higher assessments or fees.

The Association’s Covenants, Conditions, and Restrictions (CC&Rs), Bylaws and Governing Documents will usually spell out any rental restrictions. There could also be state laws affecting rentals. If your Association does not restrict renters, and the Board wished to amend the Governing Documents, it’s best to consult an experienced attorney as laws can be complicated to interpret.

For example, COAs (condo associations) and HOAs (single family homes) are governed by different laws with regards to leasing/renting. COAs owners live very near to each other, while most HOAs have stand-alone housing. For the most part, court cases involving HOAs have ruled the right to sell, lease (rent) or otherwise transfer property cannot be taken away without the consent of the owner.

Most COAs put a limit on the number of units that can be rented. Some small COAs (20 units or less) prohibit renting altogether. But a rigid rule that doesn’t allow renting can also hurt property values.

Here’s a common problem when an Association has rental restrictions. What happens when owners have frequent guests, sometimes when the owners aren’t even present, and it’s suspected that they’re renters? Most governing documents require that owners provide a rental lease. The association may be entitled to an advance copy of the lease before an owner presents it to a prospective renter, making sure it meets the requirements of the Governing Documents and other regulations.

If the Association suspects an owner is violating rental provisions by having too-frequent “guests” they can investigate. They can send a letter to the owner, asking for explanation and proof that they are not guests. Is the rental posted online? If all else fails, legal action may be the final answer.