Property Management

Why Some Associations Put Restrictions on Renting

If you’re a condo owner, can your homeowners association put a restriction on whether or not you can rent your condo out? You bet they can. Why would they want to do that? There are several reasons, some better than others. Let’s take a look at some of the reasons why these types of restrictions can be in place.

When you’re applying for a mortgage on a condo or townhouse, you might have noticed that one metric your bank will want to know is the Owner Occupancy Percentage. Banks usually like to see at least 51% of the units in an association be owner-occupied, which signifies stability and the likelihood that the building’s affairs will be managed responsibly. Whether this is actually the case can be argued, but the owner occupancy rate does affect the ability of buyers to get a mortgage, and through that, the home values in that building. Insurance companies also share some of these assumptions. For liability reasons, many insurance companies will not insure buildings that are more than 60% rented.

Other associations decide to implement rental restrictions because of quality of life issues—owners are (fairly or unfairly) viewed as more responsible than tenants, and are assumed to take better care of their units. Many owners also prefer to see the familiar faces of other owners rather than having new tenants coming into their building year after year. Many say it helps to build a better building community.

But rental restrictions can also present a problem. For one, would-be homebuyers might be turned off by the inability to rent their condo should they need to do so. So, while helping with the acquisition of mortgages, rental restrictions could also lower the potential value of the units in a building, at least in the eyes of potential buyers.

It’s important to remember that the homeowners association really represents the interests of all the owners in the building. So, if a majority of the owners felt that they didn’t want to have a restriction on rentals anymore, they could demand a vote and amend the bylaws of the association accordingly.

Rental restrictions are a divisive issue and each building is different—it’s up to the owners and their association to make sure that the building policies match the overall sentiment of the owners.

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