HOA Governing Documents Must Properly Provide for Restrictions on the Leasing of Separate Interests

The governing documents of many common interest developments contain provisions that restrict the owners’ rights to lease their units. These restrictions range from absolutely prohibiting leasing, to partially restricting leasing, to merely imposing restrictions on tenants’ rights. The validity of the restrictions that are imposed by a homeowners association on leasing are frequently the subject of conflicts between owners who lease their separate interest and their homeowners association. A consideration of the validity of lease restrictions starts with an evaluation of the provisions contained in the association’s declaration relative to owners’ rights to lease. It is crucial to know if the covenants give the board general authority sufficiently broad to allow the association to control leasing or tenants in some fashion. If the declaration authorizes the board to make rules regarding leasing (or, at least, does not prohibit it), counsel should next determine if a proposed restriction is both reasonable and to be reasonably applied.

For example, it may be unreasonable to restrict short-term leasing in a vacation area, but it may be reasonable to totally prohibit leasing in a redevelopment project if the goal is to provide a stable community of owner-occupied units for low- and moderate-income persons. Regardless of whether a court presumes the leasing rule to be valid or subjects the rule to stricter scrutiny, it is in the best interests of the community to enact reasonable rules and apply them reasonably.

As a general rule, covenants that are contained in a recorded declaration are presumed to be enforceable unless they are found to be unreasonable. Because this presumption does not apply to restrictions in bylaws or rules and regulations, it would be wise for homeowners associations to include desired leasing restrictions in the declaration rather than in the rules. Irrespective of this general rule, leasing restrictions that violate fair housing laws, or which are determined to be an unreasonable restraint on alienation, will be subject to a court determination that the restriction is void. The following restrictions adopted by homeowners associations that have the authority to implement restrictions specified in their declaration, have been found to be consistent with federal FHA standards and guidelines:

• Leases must be in writing and subject to the governing documents;
• The association may request and receive a copy of the lease or rental agreement;
• The association may request the names of all tenants occupying the unit;
• The association may prohibit leasing of the unit for an initial term of less than 30 days; and
• The association may establish a maximum allowable lease term and a maximum number of rental units (subject to FHA’s then-current requirement).

A restriction that is not permitted is a requirement that a prospective tenant be approved by the association or its agents. (Per HUD Mortgagee Letter 2011–22)

Total Prohibition on Leasing

If there is a strong public policy reason, courts may uphold a total prohibition on leasing. For example, courts have upheld leasing restrictions which: