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JaneK
(California)

Posts:166

07/30/2007 10:07 AM
This is a ‘grandfather clause” in our CC&Rs: “The restrictions on leasing and renting contained in this Section 4.2 shall not apply to any Member who was an Owner of a Lot on January 11, 1998 (the date when the Second Amendment to the original Declaration setting forth rental restrictions was first recorded). Notwithstanding the foregoing, the restrictions on leasing and renting contained in this Section 4.2 shall apply to any Lot or Lots upon transfer of title to such Lot subsequent to January 11, 1996.” We now have the maximum number of rentals allowed by the restriction. The rental of property by a ‘grandfathered’ owner would put us over our limit and probably classify our property as ‘investment’ rather than ‘residential.’ Property values are falling with the market and more rentals would probably make things worse. Yet according to the above statement we cannot stop a grandfathered owner from renting his/her property. The dates don’t make sense to me either. What if you bought in 1997? I’ve heard in some cases these grandfather clauses are illegal. Can anyone explain the dates and give me more info on this type of ‘grandfather clause?’ Confused, Jane

DaneC
(California)

Posts:210

07/30/2007 10:21 AM
From reading the clause, a possible interpretation could be - If you bought from someone other than the developer after Jan 11, 1996, then you have no authorization to rent or lease. If you bought directly from the original developer, up to Jan 11, 1998 then you can rent or lease. You state "We now have the maximum number of rentals allowed by the restriction. The rental of property by a ‘grandfathered’ owner would put us over our limit" .... What was the method used to determine that the rental threashold had been reached?

Dane Clark Official HOATalk.com Sponsor Vice President, Common Interest Developments Bay Commercial Bank Learn More About our Community Assoc. Banking Programs *See legal notice below (end of page) or go to www.hoatalk.com/legal

RogerB
(Colorado)

Posts:3619

07/30/2007 10:49 AM
I agree with Dane's interpretation. Who authorized the additional rentals beyond those grandfathered which exceeded the percent rental limit? Such approval was a violation. I would demand no more rentals be allowed until such time as they would not exceed the defined maximum limit; and it includes those which are grandfathered.

Roger Borcherding Official HOATalk.com Sponsor DARCO Property Management (Colorado) (303) 925-0150 *See legal notice below (end of page) or go to www.hoatalk.com/legal

JaneK
(California)

Posts:166

07/30/2007 12:32 PM
The developer isn’t involved. This was added nearly 20 years after the developer left. Our limit is a maximum of 25% rentals and, say of 100, 25 are rented. I don’t know how the 25% came about. All rentals have to be approved by the board. I was hoping the board would keep it slightly below the 25% in case someone who was ‘grandfathered’ wanted to rent. The last rental approved was purchased after 1996. Right now one more rental would put us over the 25% limit. Roger, can we legally deny a 'grandfathered' owner? Guess that's my real question. The CC&Rs do not address this possibility. The board actually sent a survey to all owners. We wanted leases, names of occupants, etc in our files. We are a small complex and it’s easy to tell who owns and who doesn’t. Dane, the 75% you mention is possible and to me, scary. Jane

DaneC
(California)

Posts:210

07/30/2007 1:32 PM
Consider the following scenario - An investor from say Vermont, wants to acquire a unit via a 1031 exchange - will the Corporation (Association) refuse to allow that person to rent or lease the unit - would that not be a constraint against interstate trade? Or does the Managing agent advise every prospective purchaser, that they cannot acquire a unit for investment purposes?

Dane Clark Official HOATalk.com Sponsor Vice President, Common Interest Developments Bay Commercial Bank Learn More About our Community Assoc. Banking Programs *See legal notice below (end of page) or go to www.hoatalk.com/legal

Jadedone4
(Virginia)

Posts:495

07/30/2007 1:48 PM
...working backwards.. Dane your scenario would be voided by the fact that the seller, or managing agent (in most cases) is required to disclose the CC&R's to any perspective purchaser (often with a "right to cancel" clause, during a set period time from contract signing). So a purchase or transfer of the unit, is still bound by the CC&R's established by the HOA and enforced upon the current owner (seller). Unless you can get some language which allows "assigning of rights" to the future purchaser (which I would suspect would be counter to the CC&R's and voided - IMHO - if ever went to court), then once the unit is sold/conveyed it then becomes part of the "non-grandfathered" percentage of units, which cannot be rented. Jane, the scenario that I believe that Roger was addressing what that if any of your "grandfathered" units decided not to rent for say 10-15 years and then decided to rent, that could possibly move your ratio of rentals well above the 25% threshold. Not sure if possible (or legal, but the board typically has some discretionary powers in matters), but you might want to take the overall percentage of "available" to be rented units (grandfathered) and hold that number to overall community allowed rental percentage and use the delta of two to establish a "practice" of approved rentals, which will give you a little "breathing room" before you reach the 25% figure. Unsure if this can be successfully defended if challenged by a owner - but it does speak to the intent of the community to limit rental units.

MelissaP1
(Alabama)

Posts:650

07/30/2007 3:04 PM
My question is: Was there ever a defined punishment for exceeding the rental limit? Your documents may "limit rental" but do they adress what is to be done. Sounds like they don't. Basically, no "follow-through". I have always been against a policy against limiting rentals. My reasons are pretty clear. This situation being one of them. Your HOA has now limited rentals but doesn't offer a way to enforce it. You can't fine the owner, raise their dues, or even evict their tenant. Renters have rights beyond the owner's control. Here's where it gets confusing. The effect of your community turning "Rental" to "investment" effects the availability of certain loans. New buyer's may not be able to get loans that are supported by federal monies. (Freddy mac, FHA, HUD, etc.) The potential buyers may have to rely on other loan options such as conventional or other commercial type loans. (80/20, 100% financed, etc.) So essentially the effect of this catagory of "investment" really means limiting the availabity of types of loans and making it more difficult for new buyers to come in. There is a form that is sometimes filled out by the HOA's President at the closing of some homes. Mostly the one's involving certain types of loans. (Mostly federal). That form has about 25 questions on it. It covers items such as Fee simple? How many not paying? How many are owner occupied? etc... It's more or less a survey by HUD. (Housing and Urban Development). The form is to give them an idea of the property condition. Remember, if this home is foreclosed on by them, they will own it. They need to know what their investing in just like anyone else. They don't want to invest in property that is majority rental. That's a bad investment and they can deny a loan on this. Why invest their money if they risk not getting a good return? Banks and mortgage companies are into real estate to make money. So the effect of having rental property limitted ripples down to everyone. It's darn if you do and darn if you don't. You limit rental property, you could limit buyers. You don't limit rental, you can get stuck with bad renters. It's really up to the owner's to decide which side of the rock and the hard place they want to stand.

Former HOA President

RogerB
(Colorado)

Posts:3619

07/30/2007 3:29 PM
Jane, as an example if your association's CC&Rs allow a maximum rental of 25% and you had 100 units then 25 could be rented. Say 15 of the units are still grandfathered to allow renting (they may or may not have ever rented) but have the right to based on the existing CC&Rs when they purchased 25 years ago. I think that leave only 10 units which the Board may approve for rental. Thus the Board would have the option of approving from 0 to 10 units as rentals. Otherwise they could end up violating the CC&Rs because the 15 units still retain the right to rent at any time.

Roger Borcherding Official HOATalk.com Sponsor DARCO Property Management (Colorado) (303) 925-0150 *See legal notice below (end of page) or go to www.hoatalk.com/legal

PaulM
(Pennsylvania)

Posts:1347

07/30/2007 3:39 PM
JaneK: It would seem to me since your present CC&R clause/s are very confusing and 'muddied' as they stand now, you may want to consider an amendment. At this point, it is suspect and left to whomever is 'trying to interpret'.??? The document is also over 10 years old, and resident needs and real estate trends change. Hold a special meeting for this one purpose, get a handle on what percentage of rentals the majority of the community is willing to bear, hold a member vote and file a clearly understood 'amendment' which the majority can agree with.

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