Over the last year, rental restrictions have ramped up and become an important, and sometimes controversial, topic in community associations. Whether associations desire to limit the number of rentals, the types of permitted rentals, or both, the question of how associations can adopt leasing restrictions comes up quite often. Below are three important things to consider when considering implementation of leasing restrictions in your community.
1. Leasing restrictions must be contained in the declaration, they cannot be adopted through policies or rules.
Property ownership bestows certain fundamental rights on owners, including the ability to buy, sell, and lease property, and those rights are vigorously protected by the law. The only way to restrict such rights is by a written agreement between the owner of the property and another party.
When it comes to community associations, recorded declarations are regarded as such written agreements. Because declarations are recorded in the real estate records of the county where the communities are located, any purchaser of property within the association is considered to 1) have legal notice of the restrictions contained in the declarations and 2) have agreed to comply with such restrictions, regardless of whether the purchaser reads or reviews same.
Additionally, leasing restrictions constitute “use restrictions”; Colorado law makes it very clear that directors do not have a unilateral right to adopt or change use restrictions without owner approval. Thus, adoption of rules and policies governing such use (which does not require owner approval) is also in violation of Colorado law.
Due to the above, limitations on an owner’s ability to lease his/her residence, whether it be a lot, a unit, or a portion of same, must be set forth in a declaration to be enforceable.
2. If you want to add leasing restrictions in the community, the declaration must be amended with appropriate owner approval obtained.
As noted above, if an association’s declarations do not contain leasing restrictions, the association cannot lawfully regulate leases in the community. As a result, if a community was to adopt leasing restrictions, the board must present a declaration amendment to its owners for approval.
Additionally, the Colorado Common Interest Ownership Act (“CCIOA”) specifically requires approval from owners representing at least 67% of the total votes in the association for any declaration amendments adding use restrictions, such as leasing. If your community’s covenants require a higher percentage, you will be required to comply with such requirement.
Please note, however, the 67% minimum approval requirement is only applicable to communities created on or after July 1, 1992.
3. Consider keeping within FHA guidelines.
Although the FHA relieved many condominium associations from having to become FHA certified and brought back spot approvals for individual purchasers, associations should still be aware that leasing restrictions may violate the FHA.
Below are the three most common FHA violations related to leasing restrictions:
- Leasing caps: if adopting a leasing cap, set it below 45% of the total units as FHA caps leasing at 50% and VA caps leasing at 45%;
- Minimum lease terms: do not set minimum lease terms of less than 30 days; and
- Stay away from provisions authorizing associations to approve renters.
Should your association wish to proceed with instituting leasing restrictions, it is important to note that no declaration amendment should be undertaken without involvement of the association’s attorney given the highly legal nature of this work.
Please contact any Altitude attorney at [email protected] or 303-432-9999 if you have questions concerning leasing restrictions in your community.