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Subject: Owners renting unit under the counter
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SarahB7
(Washington)

Posts:5


05/12/2021 3:39 PM  
One of our units was sold about 9 months ago to a couple who proclaimed their intent to occupy it themselves or to let their son live there. They were told in no uncertain terms that our rental cap was met and that they could sign on to the rental waiting list if they had plans to rent it in the future. A couple of months went by with the unit unoccupied, and then one day a completely strange couple moved in, telling neighbors that they were either "friends of the family" or owners of an unstated percent of the property. When requested to furnish proof of this ownership, the main owner, who had bought the place under an LLC, was hostile, threatening to "take action" against whoever the inquiring individuals might be. Informed that the Board had a legal right to request such documents, the main owner finally provided the paperwork.

The original buyers had obviously studied our Declarations/CC & Rs and figured out a way to rent the unit under the counter. The current occupants are, according to the LLC, 1% owners. According to the "Residential Occupancy Agreement" we received from the buyers, these individuals have been appointed "on-site managers," for which they receive compensation of $200 deducted from the "occupancy fee" they pay for the privilege of living there; the amount of this "occupancy fee" is equivalent to what our actual, legitimate renters pay. We had the documents reviewed by an attorney, who found that the arrangement was not in violation of the Declarations, since the occupants are technically owners, even at 1%.

The Board is currently moving forward to revise the language of the Declarations in order to close the loophole and ensure that no one else can get through it. Currently, the language in the Declarations notes that this section (On rentals and restrictions) "applies to the occupancy of any Unit by a person other than its Owner, including occupancy by tenants, assignees, and subtenants," excluding only "guests, family members or care givers who share occupancy with the Owner." Nowhere in the Declarations is there any language that approves an "occupancy fee," which is just rent by another name, as far as we can tell.

We would appreciate hearing from HOA members who have experienced similar situations, or who might have good advice about how we should word the revision of that verbiage on ownership and rentals. We realize that revising the language is only the first step, and that in order to legally amend the document we need to have a vote. But meanwhile, it would be great to hear from other HOAs. Thanks!
SheliaH
(Indiana)

Posts:4221


05/12/2021 7:21 PM  

I believe the phrase is under the table, not under the counter. Anyway....

This is why you need your association attorney to work through the verbiage with you - that's why you hire him or her.

As far as this scenario is concerned, some communities make exceptions for people who are relatives of the owners, as they may be living there rent free, but paying other expenses, such as the utilities. I don't know what sort of proof the residents would have to provide, if any, to show they are relatives (otherwise, you get bunches of people every few months or once a year claiming to be relatives.) Other communities require that the owner live in the community for two or three years before being eligible for renting the place out.

Rental caps are ok in theory, but as one who lives in a community where I'm sure we have 50% rentals, I've concluded one of the best ways to keep this in check is by enforcing the hell out of the CCRs. You should be able to walk around your community and not tell who rents or owns because everyone is complying with the rules - and that should include the Airbnb bunch. If you're consistent and fair and apply the rules as written with appeal rights, you may get some pushback, but at some point, people will see the board is serious. Investor-owners (a group I'm not particularly fond of AT ALL) often look for communities where the rules aren't enforced very much so they can rent to anyone whose rental check won't bounch and leave their drama for the board and the neighbors to handle.

You wrote your current documents state the rental restrictions exclude guests, family members or caregivers who share occupancy with the owner, and that may be the hook you need to counter this. These folks gave you documents saying they're on-site managers and get $200 from an occupancy fee for the privilege of living there. I would interpret the exclusions as not applying to people who happen to live there WITH the owner (the "share occupancy with the owner part). It doesn't sound like these people are family members or caregivers - and if they're guests, why are they being charged to live there?

Of course, I'm not an attorney and neither are you, and most of the folks on this website aren't attorneys either. We also live in different states, so what's true in yours may not be the case in mine or vice versa. That's why you may need to brace yourself for a showdown in court with this people where a judge will figure out what the verbiage means.

Since your community is working on revising the documents which will likely require homeowner approval, you may find you have to grandfather these people under the new amendments unless the community votes to make them effective immediately. That may require even more legal maneuvers or a variation of the same, and these people may not be the only folks you need to worry about. Best to refer this to your attorney now and see how this shakes out, as it could give you an idea of what the documents may need to do in the future. Good luck.
MelissaP1
(Alabama)

Posts:10523


05/13/2021 4:15 AM  
Slow your roll... It may not be legal to have a rental cap or prevent rental. I have been told by a lawyer that if the HOA does not own the property then they can't tell you what you can do as far as renting. Of course .there is more to it than that. However, it's something you all need to take a breath and step back from until have proper legal advice. Otherwise, you could be opening your HOA up for a possible lawsuit.

It doesn't help your dealing with a LLC. These are not as simple as dealing with one owner. They are owned by multiple people. I liken an LLC to whomever draws the shortest straw does the "time". Basically, your dealing with multiple people whom will blame each other or pass the buck. Strongly recommend the proper legal advice when dealing with an LLC.

Plus what happens if they do exceed the amount? What punishment is your HOA allowed to levy? Fines don't do much in this situation. An owner will most likely suck them up. Can't lien or foreclose if they are paying their dues. Can not evict the renter. It is one thing to restrict it. It is another to enforce it.

Former HOA President
AugustinD


Posts:1675


05/13/2021 5:49 AM  
Posted By SarahB7 on 05/12/2021 3:39 PM
Nowhere in the Declarations is there any language that approves an "occupancy fee," which is just rent by another name, as far as we can tell.
I googled on the legal meaning of "occupancy fee." It appears to refer to a buyer-seller situations, where payment to an owner (including a new condo association) occurs for occupancy before the closing date.

I do not see how what the 1% owners are paying qualifies as an "occupancy fee."

I have every confidence that the 99% owners are counting this money as rental income on their LLC's taxes.

But your attorney opined that these owners found a loophole (and this seems like a fair reading of the Declaration to me as well, unfortunately).

I see that some Declarations flat out prohibit ownership by LLCs. What percentage of your units are currently rented? If the percentage of units that are rented is high, passing an amendment to prohibit an LLC from owning a unit will be difficult-to-impossible.

I am sorry you have dishonorable people now owning a unit.
CathyA3
(Ohio)

Posts:2466


05/13/2021 6:23 AM  
I have to admire the sneakiness of the original buyers. On the other hand, they may discover that they're so sharp that they cut themselves. A co-owner has more rights than a tenant does, and things could get very interesting if someone dies and this unit winds up in probate. (This week on Schadenfreude Theatre: "Under the Table and In Over Their Heads". Makes me want to grab a box of popcorn and pull up a chair.)

But this reminds me why I dislike rental caps: they're hard to enforce, and they don't treat all owners equally. An owner's right to rent their unit is contingent on what others have done previously. This gives people a valid reason to challenge the cap in court - and our attorney recommended that we not amend our rental restriction to have such a cap, because case law is divided on upholding them.

As far as banning ownership by LLCs, I think that's probably a non-starter. And it is not true that they are owned by multiple people - many have single owners. In fact I'm looking into starting one myself. Personal opinion: I think anyone buying a condo should buy it under an LLC. It protects you from many of the effects of being forced into a business relationship with a bunch of strangers, some of whom - let's face it - are lousy partners.
SarahB7
(Washington)

Posts:5


05/13/2021 10:51 AM  
Thank you so much, Sheila—-this is very helpful advice. We do plan to consult an attorney as the next step.
SarahB7
(Washington)

Posts:5


05/13/2021 10:53 AM  
Thank you, Melissa — we're certainly planning on consulting an attorney and haven't done anything more than gather facts at this point. Step by step!
SarahB7
(Washington)

Posts:5


05/13/2021 10:58 AM  
Many thanks for your thoughts, Augustin—we have 15% rental units currently. I'm sure you're correct about the 99% owners and their intentions. We've been owners in the condo for 13 years and this is the first time we've had underhanded dealings. Mainly, now, we just want to make sure it doesn't become a trend!
SarahB7
(Washington)

Posts:5


05/13/2021 11:00 AM  
Thanks, Cathy! It's true, these owners are impressively devious. Very helpful to have your thoughts!
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