Rental Restrictions – A Potential Pitfall for Condominium Communities

Download pdf

By Karyn A. Larko, Esq.

It is common for associations to amend the rental provisions in their CC&Rs in an effort to address the issues associated with tenants.  However, when an association is a condominium community, there is an important consideration that is frequently overlooked during this process – the FHA.

With few exceptions, FHA insured mortgages and reverse mortgages on units within a condominium community are only available if the community is FHA certified.

The FHA will only certify associations that meet all of the certification requirements, including those pertaining to rental restrictions.  The rental restrictions the FHA allows are limited to the following:

  1. A requirement that all leases must be in writing.
  2. A requirement that that leases comply with the association’s governing documents.
  3. A requirement that owners provide the association with a copy of their lease or sub-lease.
  4. A requirement that owners provide the association with the names of all tenants and any family members of the tenants who will occupy their unit.
  5. A prohibition on leasing for an initial term of not less than 30 days.
  6. A maximum allowed length of lease.
  7. A restriction on the number or percentage of units that may be concurrently rented within the community, provided this percentage does not exceed 50%.
  8. Language allowing the Board to grant hardship exceptions to the rental cap.
  9. A requirement that owners check the Registered Sex Offenders list prior to renting.
  10. A requirement that rent be assigned to the association if a unit owner is delinquent in the payment of assessments.
  11. A requirement that the Board review leases (but not that the Board approve leases).
  12. A requirement that a specific form be used for leases.
  13. Corporate leasing restrictions.

Complete prohibitions on renting, prohibitions on new owners renting their units, stated minimum lease periods greater than 30 days, requirements that leases and/or tenants be vetted and approved by the Board, and requirements that owners perform a background check on potential tenants (other than a check of the Registered Sex Offenders list) are a few examples of rental provisions that will disqualify an association for FHA certification.

Stated minimum lease periods of less than 30 days will also generally disqualify an association for FHA certification.  However, it may be possible to overcome such a provision with a declaration signed by a Board member or manager attesting to the fact that, to the best of his/her knowledge, no units are being leased for a period of less than 30 days or for hotel or transient purposes.

For more information on FHA certification requirements, please see HR 3700: Requirements for Qualifying and Applying for FHA Certification.

Please contact me for assistance with FHA (or VA) certification.  I am here to help.