As I discussed fully in a blog posting on March 21, 2011, for a condominium association to obtain HUD certification for purchasers of units in that association to obtain FHA-backed loans, one of the requirements is that at least 50% of the units in the project must be owner-occupied. Simply put, that means associations must have a mechanism to regulate the rental of units. Ironically, HUD also had in place guidance that would have disqualified any association with rental restrictions in the association’s governing documents.
On March 18, 2011, HUD relaxed this stance on leasing restrictions and temporarily permitted some restrictions to be present in governing documents. The good news is that HUD, in the Condominium Project Approval and Processing Guide (“Guide”), has made permanent the ability of associations to have rental restrictions in the governing documents if those restrictions meet one or more of the following criteria:
● All leases must be in writing and subject to the declaration and by-laws of the condominium project.
● The condominium association may request and receive a copy of the sublease or rental agreement.
● The condominium association may request the name(s) of all tenants including the tenants’ family members who will occupy the unit.
●Unit owners are prohibited from leasing their units for an initial term of less than 30 days.
● The condominium association may establish a maximum allowable lease term (e.g. six months, twelve months, etc.).
● The condominium association may establish a maximum number of rental units within a project; however, the percentage of rental units may not exceed the current FHA condominium project owner-occupancy requirement.
● The condominium association may not require that a prospective tenant be approved by the condominium association and/or its agent(s), including but not limited to meeting creditworthiness standards.
While it’s good news that HUD has made the relaxation of the prohibition on leasing restrictions permanent, the Guide also has formalized some new requirements that will be a challenge for associations. Keep an eye on this blog for future postings on the new requirements.