Should You Limit Leasing at Your Community?

Should You Limit Leasing at Your Community?



Community associations generally prefer that members occupy their own units, rather than lease them to others. But why is it a good idea to limit the leasing of units? Limiting your members’ ability to lease units can keep your community easier for you and your staff to manage on a day-to-day basis and can have significant financial benefits. For example, owner-occupants tend to take better care of their units and the common areas than renters do. They’re also more likely to follow community rules than renters are. And owner-occupants are more likely to pay their monthly assessments on time than are members who rent their units.

You should be aware that lenders are sometimes hesitant to offer mortgages to new buyers buying in a community with a high rental rate. Or, if they do offer loans to them--or to existing owners looking to refinance--they often do so at higher interest rates than they offer to people in communities with fewer renters. If buyers face financial hurdles when trying to move into your community, you could have units sitting empty, which creates safety, security, and maintenance issues, as well possibly giving your community a bad reputation.

You should determine whether to suggest to the association that it bans leasing altogether. But is a ban wise? Some attorneys warn against setting a total ban on leasing, saying that courts might consider that too severe a restriction on members’ rights over their property and refuse to enforce it. Also, a total ban doesn’t allow the association any flexibility to accommodate unusual situations, such as a member whose financial hardship forces him to lease his unit. That is why the association should choose a reasonable restriction bylaw, allowing, for example, 20 to 25 percent leasing. The association also should give itself the flexibility to reduce the number of units that can be leased if lenders’ underwriting requirements change. This way, the association won’t have to endure the cost and effort of amending its bylaw in the future.