Understanding how rental caps work

I have searched through the forums and online to find an answer to my question.

I understand in general how a rental cap works, but does a condo HOA have to wait for an owner who is renting to sell their unit or can the HOA make them stop renting out their unit when a lease ends?

Here is some background:

I am a Board Member in a small 5 unit condo building in Seattle. Three of the condos are currently owner occupied. Every owner in the building has owned their unit or lived in the building for over 20 years.

One owner moved out 16 years ago and has been renting to the same tenant since then.

A second owner moved out in 2011 and started renting out his unit. He has a new tenant almost every year. He tried to sell his unit a few years ago but it needs a remodel and he could not sell it for as much as he wanted to and so he took it off the market. Now he plans to rent it indefinitely.

Now a third owner wants to rent their condo for one year.

Our goal is to have only 2 of the 5 units rented. Part of this is because of our HOA master insurance policy and mortgages.

This past year our HOA master insurance policy was canceled because our building is over 50 years old.

After a long process in what is a brutal market for HOA master insurance for smaller older buildings, we found a new policy, but the insurer has asked us how many rentals we have and wants us to pay more for extra liability insurance if we have ore than two rentals. We also know that having 3 of 5 units rented will negatively impact mortgages if owners want to sell.

Currently we require that new owners live in the building for 2 years before renting, but we have not had a new owner since 2002, so we have not seen that play out.

We are thinking of adding a rental cap but it won't do us any good if we have to wait for the owners renting their units to sell to implement it.

In trying to keep just 2 rentals:

With the unit owner who now plans to rent indefinitely but has a new tenant every year, if we implement a rental cap, do we have to wait for him to sell his unit for the third other owner to have a chance to rent their unit (so we only have 2 rentals total) or can we tell him that it will be another unit's turn to rent after his current tenant's lease ends?

Thank you for reading. I appreciate your time.

Thanks for your response. We have the 67% we need from the three owners who live in the building to change our Declaration. We share a larger percentage due to bigger units, so that is not my issue. I am hoping to find out more about how rental caps work in terms of whether we have to wait for an owner to sell or if we can set it up for when the current or next lease ends. If anyone has info that they could share, that would be great.

Also, I am an attorney but do not have experience in HOA law, so we don't really need to lawyer up. Was just hoping to get insight into how most rental caps are handled.

Thank you.

Dropped from 50% to 25%.

My kingdom for an edit button...

Darren

I do not believe the larger percentage based on size applies to Covenant/Bylaw changes. I say in such cases, one vote per unit.

Thank you everyone. I appreciate the responses.

We already amended our Declaration in 2013 so that new buyers must live at the building for 2 years prior to renting.

We require a one year lease or more per our Declaration. We have a short term rental restriction per our documents and our Master HOA policy does not allow short term rentals as well.

We only have 5 units. One unit is 2500 sq feet and the other 4 are all 700 sq fee eacht. The larger unit has its own entrance and private laundry and the other 4 units share an entrance and a laundry room. It would be awkward for someone to lie about rentals or have a short term rental without those 4 owners doing something about it.

We already know we have the votes to change Declaration and one of the Owners who rents has already said as soon as his longtime tenant of many years moves out, he's going to sell his unit, and he says he will do whatever the Board wants to do, which he has done agreeably for any other matter for the 30 years he has owned the unit.

The other owner who rents out his unit is not an investor. He lived in the unit for many years and only rents it out because, in his words "he does not know how to sell his unit for more than he paid for it." He does not want to spend the money to remodel his unit so that he can sell it, and because our old historic building is completely remodeled, his unit sticks out like a sore thumb when he tries to sell it.

So that we only have 2 of the 5 units rented at a time, we would like to create a rental cap, and give him notice that it will be someone else's turn to rent after his current tenant leaves.

If anyone has experience in writing an amendment for a rental cap that terminates rentals after a tenant moves out, rather than after a unit sells, any insight about that would be appreciated.

We only need 67% to change our Declaration. The way our Declaration was written, vote are determined by share of ownership. In that case we have the votes we need with 3 of the units, but we have 4 of the 5 who agree.

I can come up with appropriate wording. That is not what I am looking for. It is my understanding that the standard rental cap terminates leasing when a unit sells, so I am trying to get feedback from any other Board members or buildings that may have created a rental cap for when a lease ends rather than a sale.

I realize that was changed to 90% a few years ago. I would need to do more research, but have not because the 4 units that agree would equal 90% because the rental that may or may not vote with us has a 10% share. Our Declaration was written to vote by share, not by number of units.

I am just looking for feedback from others about how they have structured their rental caps.

It is my understanding that the standard rental cap terminates leasing when a unit sells, so I am trying to get feedback from any other Board members or buildings that may have created a rental cap for when a lease ends rather than a sale.

Thanks again.

The 90% rule only applies to condo associations formed after 1990. Ours was formed in 1964.

The Owner who is renting out the unit with a lot of tenant turnover states he does NOT want to be a landlord, so we are not worried about him extending leases, etc. He just had a tenant move out last month.

There is nothing holding us back from doing it, but I came here to get feedback from any HOAs that may have used a rental cap for when a lease expires instead of when a unit sells.

Thanks again.