Rental restrictions have always been a hot topic for community associations.   Whether associations desire to limit the number of rentals, the types of permitted rentals, or both, the question of whether associations can and should adopt leasing restrictions comes up quite often.  This article provides three important tips with respect to leasing restrictions.

1. Leasing restrictions must be contained in the declaration—not in rules or policies. 

The ability to buy, sell, and lease property is considered a fundamental legal right of property ownership, and is vigorously protected by the law.  Such rights may only be restricted through a written agreement between the owner of the property and another party.

In the case of community associations, recorded declarations are regarded as being such agreements.  Because declarations are recorded in the real estate records of the county where the communities are located, purchasers are considered to have legal notice of the restrictions contained in the declarations and to have acquiesced to comply with such restrictions.

Due to the above, limitations on an owner’s ability to lease a unit must be set forth in a declaration to be enforceable.

2. When amending the declaration to add in leasing restrictions, you may need approval from owners representing at least 67% of all the votes in the association.

Associations that do not have leasing restrictions in their declarations cannot lawfully regulate leases in their communities.  As a result, such associations (if they want to regulate leasing) must present declaration amendments to their owners for approval.

Additionally, the Colorado Common Interest Ownership Act specifically requires approval from owners representing at least 67% of the total votes in the association before any declaration amendments containing use restrictions may be adopted.

This provision is only applicable to communities created after July 1, 1992.   If your community was created prior to that date, you will need whatever approval your declaration specifies.

3. Be careful not to violate FHA guidelines.

Although FHA brought back spot approvals for individual purchasers and relieved many condominium associations from having to become FHA certified, associations must still be cognizant to not violate FHA restrictions when proposing leasing amendments or prospective purchasers may not be able to obtain financing to purchase units in the community.

Below are the three most common FHA violations we see in leasing restrictions:

(a)   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%;

(b)   Do not set a minimum lease term that is shorter than 30 days;

(c)   Do not require association approval of renters;

In any event, no declaration amendment should be undertaken without involvement of the association’s legal counsel, so make sure to reach out to the association’s attorney if you are thinking of limiting rentals in your community.

Please contact any of the Altitude attorneys at [email protected] or 303-432-9999 if you have questions concerning leasing restrictions in your community.

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