Restricting Rentals in a Community Association

The decision whether to ban or restrict rentals in an existing private subdivision or condominium association is one fraught with peril.

     So why consider doing it at all?

     There seems to be an emerging consensus nationally that rental properties in private subdivisions tend to decrease property values in those subdivisions. Several studies have linked tenancies with decreased property values because of an increase in crime. Tenants are less likely to maintain the property as well as the owners do. Owners are more likely both to respect the subdivision’s other restrictions and covenants and to engage in community activities. Mortgage lenders tend to shy away from lending in private neighborhoods in which there is a high ratio of rentals. Alternatively, occupancy versus vacancy, tenancy versus short sales may modulate against the outright bar to rental properties in subdivisions.

     Relying on such data, courts are inclined to validate rental restrictions contained in an association’s Declaration. Such restrictions are upheld for the same reasons as other restrictive covenants generally: the original parties agreed contractually to the restrictions.

     Because there is nothing inherently illegal about restricting rentals, inserting restrictions, even an outright ban, in a new subdivision’s Declaration is not a problem.

     The thornier question arises when an existing subdivision or condominium association wants to “shut the gate after the cows have already left the barn;” that is, ban or restrict rentals despite the fact that the Declaration did not expressly authorize either. In contrast to the situation where the Declaration expressly contemplates restricting rentals, courts are reluctant to enforce “second thought” restrictions when they are embodied in a mere “rule” or “regulation” passed by an association’s executive board pursuant to a “general grant of authority” to adopt rules and regulations.

     That said, and depending on the precise wording of a given Declaration, rule or regulation, it is possible to “regulate” – if not outright ban – rentals even where an express grant of authority is not present in the Declaration. Something more is required.

     Real estate developers in particular would do well to consider to what extent the community association will be empowered to restrict or outright ban rentals in the subdivision or condominium. At a minimum, a Declaration can be written in such a way as to empower the association to adopt rules regarding rental restrictions sometime in the future rather than at the actual formation of the subdivision.