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Subject: Renter vs owners
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PaulaR3
(South Carolina)

Posts:33


05/06/2021 5:57 AM  
We are having an issue in a 147 condominium including 3 commercial customers. We are getting close to having 50% rental units. How can we protect ourself and property values by turning into a rental building? Can we legally request the new Co—Owner sign a statement they will not rent out the unit? Probably not. Our bylaws state minimum rental period 90 days which is unfortunate. Are any large condominium projects having a similar issue and waht are you doing about it? Thanks. Paula
LetA
(Nevada)

Posts:1244


05/06/2021 6:12 AM  
You amend your CC&R's to state that any new sales of units the owner must live in the unit for 2 or 3 years before they can rent out their unit. This is typical language you find in deed restricted communities.
CathyA3
(Ohio)

Posts:2021


05/06/2021 7:09 AM  
Posted By LetA on 05/06/2021 6:12 AM
You amend your CC&R's to state that any new sales of units the owner must live in the unit for 2 or 3 years before they can rent out their unit. This is typical language you find in deed restricted communities.



That's correct as far as it goes. However, it's likely that ship has sailed since you're already close to 50% rental. Many HOAs require the approval of a super-majority of owners to amend the CC&Rs, so you're talking 67%-75%. Some communities require only 51% but my impression is that this isn't common. It will be difficult to get your current landlords to vote for anything that they perceive as limiting their rights.

Unfortunately this situation is like many others: by the time you decide you have a problem, it's too late to fix it. I hate to be a Debbie Downer, but in your position I'd bail (in fact I'd have bailed a long time ago).


CathyA3
(Ohio)

Posts:2021


05/06/2021 8:37 AM  
Further thoughts: the presence of commercial property complicates this. You refer to them as "customers" - are they co-owners or are they tenants? If owners, do your CC&Rs or bylaws give them any special rights or obligations vs. homeowners - for example, does a commercial owner have multiple votes vs. one vote per unit for homeowners? If tenants, what does their rental agreement say?

The HOA's board will likely have to consult with the association's attorney to get answers on this.
PaulaR3
(South Carolina)

Posts:33


05/10/2021 6:38 AM  
I apologize. They are commercial Co-Owners not customers. The Building Manager has been keeping the percentage of Owner Occupied to Rentals. Her
Numbers are lower than mine. She says 66 out of 147 are rental units.

My concerns are: if a Co-Owner purchases as a second home and then rents out, isn’t that considered rental? How about the commercial properties? If they are occupied by owner but running a business, is that considered Owner Occupied?

The Building Manager owns one of the Commercial units which she uses for her office for her rental and sales office as well as Building Manager.

Thank everyone for their comments. I assume we would need to amend the bylaws at the next Annual Meeting.

PaulaR3
(South Carolina)

Posts:33


05/10/2021 7:29 AM  
What damages can be charged to a buyer of a condo if they state it will be owner occupied iand they rent? If it is in our bylaws approved by Co-Owners.

I guess we would have to hire an attorney to determine what could be charged.

Thank you.

AugustinD


Posts:601


05/10/2021 7:51 AM  
Posted By PaulaR3 on 05/06/2021 5:57 AM
Can we legally request the new Co—Owner sign a statement they will not rent out the unit? Probably not.
The courts want to see condos/HOAs following their own covenants and bylaws. Time and again, the courts say the covenants and bylaws are "contractual terms." So far, you have not posted anything that says to me that the COA (condominium owners' association) covenants and bylaws require new owners or co-owners to commit to renting or not renting.

A Board-created rule is only legally enforceable if it has a basis in the covenants. So the Board cannot invent a rule like what you propose and expect the courts to enforce it.

Without following the proper, lawful procedures for amending the covenants, requiring such a commitment (not to rent) would not be something the courts would enforce.

Posted By PaulaR3 on 05/10/2021 7:29 AM
What damages can be charged to a buyer of a condo if they state it will be owner occupied land they rent? If it is in our bylaws approved by Co-Owners.
First, what it sounds like your COA board wants is a new use restriction. Fine; many COAs are understandably trending in exactly the same direction. But use restrictions are typically not in the Bylaws but instead, in the CC&Rs (covenants, conditions and restrictions, a.k.a. Declaration). To be direct: Don't be thinking your COA can seek an amendment to the Bylaws that adds a use restriction when said use restriction would really be an amendment to the covenants.

The threshold for amending the covenants is often higher than the threshold for amending the bylaws. Why? For one thing, because there is a hierarchy of legal power in the documents that govern a COA/HOA. Covenants trump Bylaws.

The COA would not be able to seek damages or even fines in its effort to enforce an unlawful amendment to the covenants like the one you propose.

As for amending: To do this right, have the COA attorney oversee all. Follow the requirements for amending and voting on amendments as given in the covenants, the SC Condo Act and the SC nonprofit corp act. From experience, and if the governing docs (covenants et cetera) allow, I advise a year or so long campaign to amend the covenants, with a roughly three-month voting period. If allowed, use an online voting service to make it as easy as possible. The COA should send out several mailings to owners.

It is common for a long set of proposed amendments to fail to pass. Granted a COA/HOA does not want to have many amendments floating around, with each amendment passed in a different year. Still, the more narrow you can make the set of amendments, the greater the chances that you will get the super-majority to successfully amend the covenants (the contract).

Your COA attorney may say that some rental units have to be grandfathered. Language on grandfathering should be included in the proposed amendment.
CathyA3
(Ohio)

Posts:2021


05/10/2021 8:37 AM  
Posted By PaulaR3 on 05/10/2021 6:38 AM
I apologize. They are commercial Co-Owners not customers. The Building Manager has been keeping the percentage of Owner Occupied to Rentals. Her
Numbers are lower than mine. She says 66 out of 147 are rental units.

My concerns are: if a Co-Owner purchases as a second home and then rents out, isn’t that considered rental?


Yes.

How about the commercial properties? If they are occupied by owner but running a business, is that considered Owner Occupied?


Yes, although you should read all of your CC&RS and bylaws thoroughly. I expect they define all of this stuff somewhere in there.



Thank everyone for their comments. I assume we would need to amend the bylaws at the next Annual Meeting.



As AugustinD and I both mentioned earlier, you'll need to amend your CC&Rs, not your bylaws, since you want to change the terms of the current contract. This is a legal process and it requires approval of a majority of the unit owners (and probably a super-majority). You'll also need to have a lawyer draft the necessary amendment since it's important that the amendment agree with the rest of your CC&Rs as well as state laws.

Amending CC&Rs can take up to a year, starting with writing the amendment, conducting the vote, tallying results, and recording the amendment if it passes. The cost to do all of this is about the same whether or not the amendment passes, so it makes sense to start the process by surveying the membership to see if you even have the necessary support. If you don't, you're throwing away the money. Using your Building Manager's numbers, you're around 48% rentals at this point - assuming these owners would vote No to an amendment, as would some of the current owners who aren't renting, chances are that any limits on renting would not be approved.
AugustinD


Posts:601


05/10/2021 8:49 AM  
Posted By CathyA3 on 05/10/2021 8:37 AM
Using your Building Manager's numbers, you're around 48% rentals at this point - assuming these owners would vote No to an amendment, as would some of the current owners who aren't renting, chances are that any limits on renting would not be approved.
Yikes; this is so.

Good post by CathyA3, potentially saving this COA's Board a lot of time and money.
KerryL1
(California)

Posts:8123


05/10/2021 8:52 AM  
Your commercial owner(s) probably are treated differently indoor CC&Rs and their ("lots") wouldn't be counted toward your % of rentals of your residential condos.

But how many actual "lots" are in the commercial portion? You wrote 3, but that just might be suites. Your CC&Rs but most likely your condo plan for the state willows how many actual lots ae in your ocmmercial portion.

Our once building, for instance, has 7 commercial suites, but they are within 2 commercial lots.
CathyA3
(Ohio)

Posts:2021


05/10/2021 8:59 AM  
Kerry has a good point about the commercial owners. The CC&Rs and bylaws should describe the percentage of ownership the commercial owners have, how many votes they have, and whether there are any limitations their votes (such as not voting on residential matters).

This community's board should have a chat with the association attorney before pursuing this because it may be moot.
JeffT2
(Iowa)

Posts:624


05/10/2021 9:23 AM  
In SC condos, the CC&Rs are called the master deed. This is what you need to amend.

You will have to convince the existing renters that new restrictions do not affect their units (grandfathered), and that the new restrictions are in their best interest to protect their property values from sliding and keep insurance and maintenance expenses lower.
JohnC46
(South Carolina)

Posts:11059


05/10/2021 12:29 PM  
One reason people buy into associations with no rental limits is because they either plan on renting their unit out or like the flexibility to do so if needed. It can be near impossible to get rental restrictions added especially if many units are presently rented.

Our Covenants do not allow an owner to rent their unit during their first year of ownership. Our minimum rental period is 6 months.
PaulaR3
(South Carolina)

Posts:33


05/11/2021 5:27 AM  
Our HOA was established in 1980. To the best of my knowledge, no covenantsI assume that Covenants would have to be voted on a majority of the Co-Owners at the regular scheduled meeting. I am the Secretary and prior Boards have not been concerned with the percentage of owners occupied units to rental units. I assume we need to talk to a HOA attorney familiar with covenants.

The bylaws state things such as maintenance and minimum rental period, pets among other things. I assume this would have to be in the Covenants which would take priority over the bylaws.
JeffT2
(Iowa)

Posts:624


05/11/2021 8:10 AM  
SC law from the Horizontal Property Act (Condominiums):

"SECTION 27-31-170. … Each co-owner shall comply strictly with the bylaws and with the administrative rules and regulations adopted pursuant thereto, as either of the same may be lawfully amended from time to time, and with the covenants, conditions and restrictions set forth in the master deed …"

When people here say covenants (or CC&Rs), that means your "master deed" (known as a declaration in other states). The bylaws are also part of your master deed.

"SECTION 27-31-150. ...The administration of the property constituted into horizontal property, whether incorporated or unincorporated, shall be governed by bylaws which shall be inserted in or appended to and recorded with the master deed..."

In condos, there is often an overlap between the master deed (declaration) and the bylaws, especially since the bylaws are part of the master deed. You can consult with a lawyer about which to amend for rental restrictions.
KerryL1
(California)

Posts:8123


05/11/2021 11:58 AM  
Good, useful help for Paula, Jeff.

But, I'm wondering, Paula, if what you're calling "bylaws" might not actually be your Rules & Regulations?? bylaws don't usually have stuff about pets, etc, in them. they usually are about the structure of the HOA, it's board, types, of meetings, sections of directors, appointment of officers, etc.

Bylaws usually (but not always) need owners votes to amend. rules & regs do not.
JohnC46
(South Carolina)

Posts:11059


05/11/2021 12:53 PM  
FYI
In SC The Horizontal Property Act applies to associations with multi levels such as a high rise. It does not apply to associations that are not multi level such as single homes, townhouses, duplexes, etc.
JohnT38
(South Carolina)

Posts:602


05/11/2021 1:16 PM  
Posted By JohnC46 on 05/11/2021 12:53 PM
FYI
In SC The Horizontal Property Act applies to associations with multi levels such as a high rise. It does not apply to associations that are not multi level such as single homes, townhouses, duplexes, etc.




We fall under this act and we are not multi level. Our condos are all ground level and side by side. There are 36 buildings each consisting of 4 condos. All land is owned by the HOA.
JohnC46
(South Carolina)

Posts:11059


05/11/2021 1:56 PM  
Posted By JohnT38 on 05/11/2021 1:16 PM
Posted By JohnC46 on 05/11/2021 12:53 PM
FYI
In SC The Horizontal Property Act applies to associations with multi levels such as a high rise. It does not apply to associations that are not multi level such as single homes, townhouses, duplexes, etc.




We fall under this act and we are not multi level. Our condos are all ground level and side by side. There are 36 buildings each consisting of 4 condos. All land is owned by the HOA.



I might beg to differ but no need to. Do your Covenants/Bylaws specifically say so?
JohnT38
(South Carolina)

Posts:602


05/11/2021 2:01 PM  
Posted By JohnC46 on 05/11/2021 1:56 PM
Posted By JohnT38 on 05/11/2021 1:16 PM
Posted By JohnC46 on 05/11/2021 12:53 PM
FYI
In SC The Horizontal Property Act applies to associations with multi levels such as a high rise. It does not apply to associations that are not multi level such as single homes, townhouses, duplexes, etc.




We fall under this act and we are not multi level. Our condos are all ground level and side by side. There are 36 buildings each consisting of 4 condos. All land is owned by the HOA.



I might beg to differ but no need to. Do your Covenants/Bylaws specifically say so?




Yes, they do.
JohnC46
(South Carolina)

Posts:11059


05/12/2021 12:31 PM  
Posted By JohnT38 on 05/11/2021 2:01 PM
Posted By JohnC46 on 05/11/2021 1:56 PM
Posted By JohnT38 on 05/11/2021 1:16 PM
Posted By JohnC46 on 05/11/2021 12:53 PM
FYI
In SC The Horizontal Property Act applies to associations with multi levels such as a high rise. It does not apply to associations that are not multi level such as single homes, townhouses, duplexes, etc.




We fall under this act and we are not multi level. Our condos are all ground level and side by side. There are 36 buildings each consisting of 4 condos. All land is owned by the HOA.



I might beg to differ but no need to. Do your Covenants/Bylaws specifically say so?




Yes, they do.




The act does say an association can dictate that they fall under it. Obviously your Declarant did that when drawing up your docs. Based on this, I will hazard a guess your are in the Myrtle Beach area as the act was drawn up do to stop some of the shenanigan's many of the developers in that area were pulling.

One of the driving forces behind creating such a document for all associations has been in the Horry County region as mainly single home buyers felt they were not given a full picture of what a declarant can do before turning the association over to the owners. They succeeded in getting the SC Homeowners Association Act 27-30-110 passed in 2018. My cursory read is that it is not earth shattering and still will not protect a buyer from a seller/developer with larceny in their heart. Also it does not cover the myriad of issues that can arise in an owners association. Link to an overview of it:

https://www.hendersonproperties.com/2018/08/new-hoa-laws-sc/#close

JohnT38
(South Carolina)

Posts:602


05/12/2021 1:46 PM  
JohnC, I'm in the Greenville area (Greer). Our community dates back to 1980. I'm familiar with this act because over the years owners had put up fences which violates the SC Horizontal Property Act since the land is owned by the HOA and cannot be divided. The issue came up and our lawyer advised us to grandfather in existing fences and take them down when the owner moved. Needless to say we had some unhappy owners.
JohnC46
(South Carolina)

Posts:11059


05/12/2021 2:32 PM  
Posted By JohnT38 on 05/12/2021 1:46 PM
JohnC, I'm in the Greenville area (Greer). Our community dates back to 1980. I'm familiar with this act because over the years owners had put up fences which violates the SC Horizontal Property Act since the land is owned by the HOA and cannot be divided. The issue came up and our lawyer advised us to grandfather in existing fences and take them down when the owner moved. Needless to say we had some unhappy owners.



What type arrangement are you? Meaning single family homes, duplexes, townhouse, etc. You must be what are called zero lot line units meaning no land ownership. We are 40 duplexes (side by side) and 32 single one and two story homes for a total of 112 owners. Each home has a small (15 x 30) backyard that is fenced in with a 7ft shadow box, privacy fence. Fences installed by builder and must be repaired/replaced with identical material. No other fences allowed.

Fences, sheds, parking, and landscaping are the biggest PIA issues for associations.

JohnT38
(South Carolina)

Posts:602


05/13/2021 7:14 AM  
Posted By JohnC46 on 05/12/2021 2:32 PM
Posted By JohnT38 on 05/12/2021 1:46 PM
JohnC, I'm in the Greenville area (Greer). Our community dates back to 1980. I'm familiar with this act because over the years owners had put up fences which violates the SC Horizontal Property Act since the land is owned by the HOA and cannot be divided. The issue came up and our lawyer advised us to grandfather in existing fences and take them down when the owner moved. Needless to say we had some unhappy owners.



What type arrangement are you? Meaning single family homes, duplexes, townhouse, etc. You must be what are called zero lot line units meaning no land ownership. We are 40 duplexes (side by side) and 32 single one and two story homes for a total of 112 owners. Each home has a small (15 x 30) backyard that is fenced in with a 7ft shadow box, privacy fence. Fences installed by builder and must be repaired/replaced with identical material. No other fences allowed.

Fences, sheds, parking, and landscaping are the biggest PIA issues for associations.





You are right these are zero lot line units. Each building consists of 4 ground level 1 and 2 story condos and each has a ground level front door. The HOA maintains basically everything except for garage doors, exterior doors and windows. Driveways, sidewalks, decks, patios, etc., are covered by the HOA. Because we are 40 years old and nothing was properly maintained we are a maintenance nightmare. We are about to start year 3 of an effort to revitalize everything. The major hurdle left is the roads and curbs which we hope to have done in 2022.

My advice to anyone considering buying a condo is to not make the mistake that I did. Study the financials, Reserve Account and governing documents before you take the plunge. I had always owned single family homes and I didn't have a clue what I was doing or getting into and for that, shame on me.
JohnC46
(South Carolina)

Posts:11059


05/13/2021 1:49 PM  
John

I am on my 5th association in 3 states (IL, MA, SC). In my first association (two story apartment like) I paid no attention to anything as I never had any issues. In my second association (3-4 townhomes per building) I got on the BOD to stop something the BOD was trying to do. By my 3rd association (2-3 townhomes per building) I knew how things worked and as all was well, I did not get involved. In fourth association (single family homes) I was on the ARC and I got involved in a movement to get rid of several BOD Members via election but I declined running for the BOD.

Now in my 5th association (duplex and single family) the Declarant asked me to be on a 5 person advisory BOD. Come turnover time there was a move to stop me from being elected as I had upset a few people while on the advisory BOD. I admit I was upset over it but I politely backed away. At the next Annual Meeting my name was put up and several people supported the nomination. I declined to run saying there were people on the BOD I would not be able to work with. People knew who I meant. Well two of the three I could not work with decided not to run (they had been on for 2 years) people started asking me to run. I did run and I have been on the BOD now for 3 years as VP & Treasurer. I stay on so that some other fool does not get elected. My term is up as is the Pres term and he and I have been discussing running. He said he will and he wants me to. I have told him if a "good" person runs then I probably will not run again but if no one does run or a fool runs, I will run again.

Bottom line is it took me a few associations to learn how they should run and which ones to avoid. The problem is many do not know which ones to avoid. One major warning sign is an older association with older owners and having little to no reserves. Not only will there have to be a dues increase but getting such will divide the association and make for a hostile environment.

Old line. Fool me once, shame on me. Fool me twice, shame on me..

MelissaP1
(Alabama)

Posts:10247


05/13/2021 3:05 PM  
I think people jump to the wrong perception and conclusion about percentage of renters. It's not necessarily a "property value" issue. Property values are based on "real" numbers... The effect of renters is on loan offerings/packages.

There is a HUD form that is filled out by the HOA on certain types of loans. Mostly government backed like FHA, Freddie Mac, and Fannie Mae. However, more commercial mortgage companies are starting to require more from HOA's. This form is more or less an "appraisal" of the HOA finances. Questions include if it is "fee simple", collection rates, lawsuits, liens, rentals, and other information. This form evaluates the risk the bank may take when approving loans or offering.

This translates to potential less loan options to new buyers and higher refinance rates to existing owners. It means that your HOA may not be able to offer potential buyers FHA type loans. The buyer may need to apply for a higher rated conventional loan instead. The supply of potential buyers lessens if there are too many red flags on that HUD form.

It is typically 50% rentals, filed lawsuits, open liens, or poor collections rates are the red flags. It isn't how pretty or uniformed your HOA may appear. That is just to attract potential buyers. The reality is they may not be able to purchase in your HOA no matter what price the homes list for.

Former HOA President
PaulaR3
(South Carolina)

Posts:33


05/31/2021 5:14 AM  
Thanks for all of the information.
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