What Kinds of Leasing Restrictions are Allowed by the FHA?

Community Associations Institute (CAI)  reposted a blog article from Eric Boucher at Ready Set Loan Condo Team.  The article discussed the hot topic in condominium/HOA law across the country – leasing restrictions.  FHA has come out with much more definite guidance about what kinds of leasing restrictions will disqualify a community from being FHA approved.  The article explains:

Allowable Leasing Restrictions – The association can:

• Restrict total number of units that can be rented at any given time
• Restrict the total percentage of units that may be leased at any given time
• Create a hardship clause for exception to the first two above
• Require that the Board be provided with a copy of the lease
• Require that the lease must be in writing
• Request the names of the tenants
• Require that the lease conforms to the legal governing documents of the association
• Set minimum and maximum lease periods
• Require unit owner to check the Registered Sex Offenders list
• Require rent to be assigned to association if the unit owner is delinquent in the payment of his/her common charges
• Require that the lease be on a specific form

Non-allowable Leasing Restrictions – The association cannot:

• Outright restrict leasing of all units (at least one unit in the condominium must be allowed to be leased)
• Require that the unit owner inhabit the unit for a period of time prior to being allowed to lease the unit
• Require Board/HOA approval of lease
• Require Board/HOA approval of modifications to, alterations of, amendments to or extensions of lease
• Be granted automatic power of attorney by the unit owner upon purchase of a unit
• Restrict a unit owner’s ability to lease his/her unit if he/she is delinquent in the payment of common charges
• Require potential tenants to sit with the Board
• Require credit references
• Require criminal background checks (except for Registered Sex Offenders list)
• Require Board/HOA approval of tenant
• Have the power to void leases (leases cannot be voidable by a third party)

These lists are the same advice that our clients receive when considering a leasing restriction.  That is, if the community wants to be FHA qualified, the Board cannot play a role in the consideration or approval of lease requests.  All the Board can do is enforce the numerical limit that has been set.

Keep in mind that these lists only apply to FHA approval.  They do not guarantee that a court is going to enforce a leasing restriction that meets the FHA requirements.  In order to be enforceable, a leasing restriction must also:

• Be recorded as an amendment to the Declaration
• Follow the proper procedures to amend the Declaration
• Establish a reasonable number of rentals. Even though FHA permits the number of rentals to be as low as one per community, state courts may think that number is unreasonably low.  Ten to thirty percent is a typical range of rental units permitted in this region.
• “Grandfather” units that are rented when an amendment is passed.

Aaron Marines is an attorney at Russell, Krafft & Gruber, LLP, in Lancaster, Pennsylvania. He received his law degree from Widener University and practices in a variety of areas including Commercial and Residential Real Estate, Land Use, Land Planning and Zoning matters.