Legal rights for condo rentals when building allows only 10%

8 Replies

Hi Investors! Newbie is here 🙋🏻‍♀️bought my first condo in Minnetonka Minnesota planing on renting but the building allows only 10% rental. It’s about 12% right now They are trying to minimize renters in the building. The board told me with “winged” if l do rent out “they don’t know about it.”  Kinda like l can but not?!! 🤷🏻‍♀️ If l do rent it Is there any legal things I would face in the future? Any suggestions opinions greatly appreciated. 

@Jansel Hutton For future purchases put this scenario first on your list. I almost made this mistake when I offered on a townhome. Thankfully the listing agent said she would need to check to see if rentals were allowed. They weren't.

How many units are in the building and does 10% rental percentage work out to an even number? If 10% is 8.1 units you may still be able to make the argument that you could rent. As the round number of units would be, say, 14%.

Did you read the bylaws before purchase, and did it say anything on % of rental units?

Is the association in good standing?

Is there a wait list to become a rental? Make sure you see the list and so they cant play favorites.

All these could play to your advantage, or you could get a written variance from the association....or just do it and screen very well so you dont draw attention. Get it in writing as associations can be very political.

@Jansel H.  You have no legal rights in this case other than to not purchase there, they disclose the rules up front and you have 10 days to read and agree to them.  If you are purchasing a condo with 10% down you are using an owner-occupied product and must occupy it for 12 months. It sounds like you should find another investment.

Promotion
Apartments.com
List, Screen, Lease, Get Paid, Manage.
No Better Place to Lease Your Place
Owners rely on the #1 rental site to get the best results from their rental properties.
Get Started Now

When you purchase a condo, townhouse, or any other property that is governed by a Homeowners Association, you sign a contract that agrees to abide by the rules they currently have and any that they set forth in the future. Violation of these rules usually means fines, which can be added to your account daily if the issue is not rectified. Large balances can lead to leans on your property and eventually foreclosure. (You will also be responsible for the legal fees)
You definitely did this one bass ackwards. This is something you should have researched prior to the purchase. Your only option is to convince other unit owners that the ability rent out your unit is good for property values, and makes it easier to sell. If you get enough support you can push for the board to vote on and change the rule. I wouldn't rent it out against their wishes, as you then have to deal with fines PLUS you will have to pay to rehouse the tenant.

Do not rent it out under the (wink) "they won't know about it" way. All it takes is one upset neighbor or one upset owner that is playing by the rules and not renting it out for this option to become a nightmare. Also, this Board may look the other way, but there is no guarantee that the next Board will feel the same way.

Ask the Board what the turnover rate is for rentals/sales here. Is that 12% going to be renting forever or do rental units frequently get sold and become owner occupied? I know a person who owns in one HOA where the rental waiting list hasn't budged in over a decade!

See if the Board will give you a written variance to rent. If there is no current waiting list, they may be willing to work with you. You can also bribe come to an agreement with the HOA. If they won't allow you to rent, see if they would make an exception if you paid for the fence to be repainted or a fountain to be installed in the courtyard.

@Jansel H.- I would see what a happens with a violation according to the HOA laws. I would not suggest renting it under the "wink" approval as others have said. If you can join the board I would do that and see what concerns people have about rentals and identify if you can provide any facts to overcome it and lobby for more rentals. This will be a long process though.

Generally investors are less likely to default their HOA fees compared to owner occupants but it's different for each hoa. If you can present facts and try to change the trend or sell the place that's my recommendation. Feel free to DM me if you want to chat more.

Tough situation! Did you happen to receive and review all of the required association documents before closing on the property? There would have been a 10-day contingency with your purchase agreement where you could have backed out of the deal with your earnest money refunded. The association documents would have outlined any rental restrictions or limitations.

The other thing that I want to mention is that HOA's can be fickle to begin with. If the HOA Board and the owners vote during the annual meeting (and have a quorum), they can choose to outlaw rentals, make changes, etc. It's definitely one of the risks in investing in condos. The flip side is that if there are too many rentals in an association, financing options can become limited (no conventional, cash or portfolio loan only). I may or may not have had some experience with some of this...

Check the CC&R's. Short term rentals might be a big no no but longer term should be detailed.

The higher percentage of rentals effects others values especially regarding financing. 

So do your due dilligence and go from there.