Associations commonly ask if they can restrict leasing in their communities. These inquiries typically stem from perceptions that investors care less about the community than resident homeowners and that tenants are more likely to violate community rules. As a result, associations are looking for alternatives to limit the number of renters residing within the community.
A common question from the association is whether the Board can simply pass a rule or resolution imposing rental restrictions or granting the Association with the authority to evict tenants who do not comply with the association’s rules and regulations. Unfortunately, the answer to this question is typically negative. The association’s ability to regulate leasing within the community is limited to the specific authority outlined in the association’s Declaration of Covenants. If the Declaration of Covenants is silent with respect to the association’s ability to prohibit or limit leasing within the community, then the Board is not empowered to impose such regulations. This is due to the fact that courts are reluctant to allow an association to interfere with a homeowner’s fundamental property rights without clear and specific authority in the contract between that homeowner and the Association.
That is not to say that the Board cannot enforce the Association’s rules and regulations (such as parking restrictions) with respect to tenant residents. However, in such circumstances, the Association cannot regulate leasing for the sake of leasing. As an aside, many associations find it to be effective to focus enforcement efforts on the underlying problematic behavior of the residents rather than on merely the status of those residents as tenants.
In the event the Association wants to regulate leasing and the Declaration of Covenants is silent on the issue, regulation requires an amendment to the Declaration of Covenants. Courts have ruled that amendments to a Declaration of Covenants preventing or restricting an owner’s ability to rent his/her property are both valid and enforceable. However, in some cases, amending an Association’s Declaration of Covenants may be cost prohibitive due to the document’s amendment requirements. For example, some amendment provisions require an association to obtain the approval of mortgage holders. Although there are statutory procedures in place designed to assist an association with obtaining such approval, the procedural requirements can be both expensive and time consuming.
As an alternative, some associations lacking the authority to regulate leasing in their Declaration of Covenants have turned to local ordinances for assistance. Such an alternative has the advantage of not requiring the time and expense of amending the Declaration of Covenants. In addition and perhaps more importantly, enforcement of the ordinances is outside the scope of the Association’s responsibility and falls upon the city or county. For example, Fort Collins has enacted an occupancy ordinance that restricts the number of people who, by law, are permitted to occupy a residence. In addition, the law requires any person selling or leasing a home to complete an occupancy disclosure form informing the prospective purchaser or renter of the property of the occupancy limitations. Violators can be fined $1,000 per day for each day the violation continues. Alleged violations of the law are typically reported by neighbors and are investigated by the City’s Neighborhood and Building Services Department. Although the Fort Collins ordinance does not limit the number of units that can be rented in a community, it does place limits on the number of occupants which can help to reduce noise, traffic, and parking impacts on the Association which are the typical problems that associations targeting renters are attempting to address. As a result, Boards are well served to become familiar with local zoning and land use laws which in certain circumstances can be used as an effective and creative tool to serve the community.