Should your HOA have a rental policy?

As the demand for rental properties continues to grow rapidly – especially in secure lifestyle estates and high-end cluster home complexes – it’s becoming increasingly important for Homeowners’ Associations (HOAs) to implement formal rental rules or policies.

That’s the word from Andrew Schaefer, MD of national property management company Trafalgar, who says that while this may seem contrary to idea of freehold property owners being able to use their homes as they please, such policies are essential to the core purpose of any HOA, which is to protect the property values and long-term appeal of the estate.

“Many tenants, including corporate clients and young professionals, respect estate rules and contribute positively to the community. However, as most HOA directors know, there are always exceptions. A minority of tenants can cause disproportionate disruption, and if their landlords are absentee owners, HOAs often struggle to get prompt co-operation to solve the problem. Having a rental policy can help close this accountability gap.”

Meanwhile, he notes, the most recent PayProp Rental Index shows that while the proportion of tenants who are in arrears with their rent has edged down to 17% over the past year due to lower inflation and several interest rate cuts, the overall percentage of prospective tenants who fall into the “high risk” category for rental defaults is rising and currently stands at 25%.

“In addition, increases in electricity, water, and fuel costs, as well as rising global tensions are likely to place more tenants under financial pressure in the coming months. This should be of concern to landlords and HOAs alike, as rental defaults often coincide with neglect of property and disregard for community rules, leading to rising tensions with neighbours as well as an erosion of estate standards.”

What is more, says Schaefer, absentee landlords are statistically less likely to maintain their properties and often hesitate to invest in repairs or pay HOA levies, especially when they’re struggling with rent collection. “And if too many properties in an estate are tenanted, this dynamic can severely impact the collective resources available for maintaining roads, gardens, and security infrastructure. Over time, this decline can result in a visible drop in the estate’s appearance, resident satisfaction, and ultimately, property values.

“Mortgage lenders also tend to be wary of estates with high rental densities, making it more difficult for buyers to secure home loans. This will further depress resale values.”

However, rental rules enshrined in the HOA constitution or MOI will help to safeguard the integrity of the estate and protect home values by setting out clear expectations for landlords and their tenants, he says. Such policies should include:

• A requirement for owners to include the HOA constitution and rules in their lease agreements;
• A clause making any violation of these rules by tenants a breach of the lease;
• A stipulation that landlords must take swift corrective action if their tenant breaches the rules, including eviction where necessary, and
• A security requirement that landlords provide the HOA with their tenants’ full names, contact information, vehicle details, and a copy of the lease.

“In holiday towns or resort areas, the HOA might also want to stipulate a minimum rental period to discourage disruptive short-term letting that can be a threat to security and the peaceful atmosphere of an estate.”

These steps will create a system of shared accountability that benefits long-term residents, landlords, tenants and the HOA itself. They will also ensure that quality of life within the estate remains high, and that the estate retains its appeal to future buyers and investors, says Schaefer.

“In short, HOAs that create rental rules and policies should not be seen as trying to limit owners’ rights, but rather to protect their shared investment. A well-run estate with a sound rental policy is not only more pleasant to live in but also far more likely to experience increased property values in years to come.”

In HOAs that do not currently have a rental policy, he says, the rules contained in their constitution or MOI can be amended to include one. In most cases, homeowners will need to propose an amendment which can then be voted on at an HOA members’ meeting, like an Annual General Meeting (AGM). But they will need to check their HOA’s governance documentation for the specific process and voting requirements.