Condo Leasing Question/Answer
Question: I recently purchased a condominium unit. After moving in, I noticed that a few units are being rented and no one seems to know much about the tenants. Is it reasonable or legal to require all adult tenants to provide proof of their identification to the homeowners’ association board or its management firm? My reasoning is that property owners have to prove who they are by providing copies of their identification and other information to lenders, so it would seem logical that the same would apply to tenants. Answer: In general, condominium and homeowners’ associations (HOAs) may enforce reasonable restrictions on leasing if such restrictions are expressly set out in the declaration of condominium or the declaration of conditions, covenants and restrictions (CCRs) for the community. HOAs may also enforce restrictions on leasing that have been established as HOA “rules and regulations” when the declaration or CCRs specifically grant the HOA the authority make rules and regulations which restrict leasing. Any such restrictions on leasing should be reasonable and objectively stated. There are, however, numerous exceptions and concerns related to restrictions on leasing in condominiums and planned communities. Some of the exceptions and concerns involve the federal Fair Housing Act (FHA). First, the restrictions on leasing should not result in discrimination against prospective tenants based on family status (the presence of children). In August 2013 the United States Department of Justice announced it had reached a $150,000 settlement with a Florida community association that allegedly maintained restrictions on leasing in violation of FHA regulations. Second, as to condominiums, restrictions on leasing could disqualify the condominium from obtaining approval for FHA-insured mortgage financing. Because so many condominiums are purchased using FHA loans today, getting a condominium development qualified for FHA financing is critical. As to qualification for FHA-insured financing, here is short list of do’s and don’ts from the FHA’s own guidelines:
- All leases must be in writing and subject to the declaration and bylaws of the condominium project.
- The condominium association may request and receive a copy of the sublease or rental agreement.
- The condominium association may request the names of all tenants, including the tenants’ family members who will occupy the unit.
- Unit owners are prohibited from leasing their units for an initial term of fewer than 30 days.
- The condominium association may establish a maximum allowable lease term, such as six months or twelve months, for example.
- The condominium association may establish a maximum number of rental units within the project. However, the percentage of rental units may not exceed the current FHA condominium project owner-occupancy requirement (currently 50%).
- The condominium association may not require that a prospective tenant be approved by the condominium association and/or its agent(s), including but not limited to meeting creditworthiness standards.
In summary, a community association should be able to require tenants to provide their identities, but only if the declaration, CCRs, or valid HOA rules and regulations grant such authority to the association. At the same time, the association should be mindful not to use the information for any improper or discriminatory purpose. Screening of prospective tenants by the community association might also be enforceable if properly empowered by the declaration or CCRs, but any such screening would disqualify a condominium community from qualifying for FHA-insured financing and could put the association at greater liability risk for discrimination claims in general.