Condo rental restrictions play a key role in shaping how communities operate and maintain stability. These rules help boards manage leasing activity, protect property values, and meet lender or insurance requirements. That said, such rules can also meet pushback from owners. Boards should know how to apply these restrictions fairly and consistently.
What are Condo Rental Restrictions?
Condominium rental restrictions are rules that limit or regulate how unit owners can lease their units. These rules usually appear in the governing documents, particularly the CC&Rs and bylaws.
Associations typically view rentals as a bad thing because of their impact on the community. Restrictions aim to maintain a higher owner-occupancy rate and reduce turnover. This helps in maintaining a more stable neighborhood.
When renters keep changing, long-term residents tend to feel uncomfortable. They dislike seeing new faces all the time, as it interferes with their sense of security. High turnover rates can also create problems with parking, noise, and traffic.
Additionally, some lenders and insurers favor communities with fewer rentals. Associations with a high renter population might suffer from higher premiums or interest rates.
That said, restrictions can vary from one association to another. Some COAs limit the number of units that owners may rent out, while others impose conditions before an owner can turn their unit into a rental. A few may even prohibit rentals altogether.
Are Condo Association Rental Restrictions Legal in Illinois?
The Illinois Condominium Property Act (ICPA) gives individual condo associations wide latitude to create their own rules and restrictions when it comes to renting owner units. For example, some COAs may place limits on the number of units that can be leased at any given time, while others might restrict the number of times an owner can rent their property during a specified period.
If an association prefers to keep renters out, it’s imperative to have a clearly defined policy outlined in the governing documents. Clear documentation becomes especially important if the board needs to enforce any condo rental restrictions or finds itself facing litigation.
Common Rental Restrictions in Condos
Most condo associations don’t outright ban rentals altogether. Instead, they place reasonable restrictions to regulate the use of units. Condo rental restrictions come in several forms, including but not limited to the following:
1. Condo Rental Caps
Also known as an HOA rental cap, this limits how many units may be leased at one time within the community. Rental caps in condos are often expressed as a percentage. For example, a COA may only allow 5 percent of the total units to be used as rental properties.
Limiting rentals allows the board to maintain a higher owner-occupancy rate. This is more favorable both in terms of maintenance and governance. It also makes the condo association more attractive to lenders, insurers, and potential buyers.
2. Waiting Periods
Waiting periods require new owners to live in the unit for a set period of time before renting it out. This helps ward off institutional investors, who are only interested in buying units to rent them out or control decisions. It also ensures that owners get a better grasp of how the community works, giving them a chance to get involved before deciding to lease the unit.
3. Minimum Lease Terms
Condo communities often impose minimum lease terms to prevent short-term rentals. Lease terms can vary from one condo to another, but short-term rental restrictions typically require leases to last several months or longer. Anything below 30 days is considered a short-term lease.
Associations tend to prefer long-term leases over short-term ones because of the negative impact of the latter. Short-term rentals drive up traffic issues, parking problems, and security concerns. These types of tenants also tend to be more careless about the property and its rules.
4. Hardship Exceptions
Hardship exceptions allow boards to approve rentals in special cases, such as job relocation or financial hardship. This type of consideration for condo residents helps build trust within the association.
5. Lease Agreements and Registration Forms
Boards may require owners to prepare and sign lease agreements. This is to protect both the association and the landlord, as these agreements outline the expectations and obligations that tenants must fulfill.
Some associations may also require owners to complete registration forms. This helps the board keep track of compliance with rental caps and other rules.
6. Penalties for Violations
If an owner violates condo rental limits or other rules, the board can take action against them. These include notices, fines, and even legal action. That said, board members must ensure fair and consistent enforcement at all times.
7. Tenant Behavior
Many condo associations require owners to be responsible for the behavior of their tenants. If a tenant violates a community rule, penalties will apply to the owner. Boards should make sure to clearly communicate this stipulation to avoid disputes later on.
Should Condos Restrict Rentals?
Short-term rentals, including those facilitated through websites like Airbnb and VRBO, continue to gain popularity, but does that mean they should be allowed in a Chicago condo association? Ultimately, the choice is up to each individual community in Illinois, but there are several factors to weigh when deciding whether to allow STRs in a COA.
If, after careful consideration, the association determines that it would like to restrict owners from leasing their units entirely or enact other limitations on the number of rentals allowed within the association, it’s generally recommended that the association amend the CC&Rs to reflect the new rules rather than simply pass the rule by a board vote.
To do this, boards should begin by reviewing their governing documents. These documents outline the process for adopting or amending restrictions, including Airbnb restrictions. In Illinois, amendments to the CC&Rs require a two-thirds affirmative vote from the membership (765 ILCS 605/27).
If the vote passes, the board must record the amendment with the county. After that, the board should distribute a copy of the amendment to all owners so that everyone knows of the change.
Legal Challenges and Risks
Condo rental restrictions can create legal issues if the board fails to handle them properly. Here are some legal challenges worth noting.
- Grandfathering. This may apply to owners who rented their units before a new rule took effect. These owners may retain their leasing rights.
- Fair Housing Concerns. These can arise if restrictions impact certain groups unfairly or disproportionately. Boards must apply rules in a fair and uniform way to avoid problems.
- Owner Disputes. These may occur when owners feel that they have limited rights when it comes to rentals. To mitigate this risk, the board must communicate clear rules and procedures.
Legal requirements exist for a reason. If the board fails to follow them, rental restrictions may become void and unenforceable. When in doubt, consulting legal counsel is the best course of action.
Not a Universal Decision
Condo rental restrictions help maintain order and uniform appeal within a community. Whether or not a COA should apply such restrictions depends on its needs and standards. That said, if a board does intend to enact new rental rules, the CC&Rs must clearly reflect them.
To learn more about Chicago condo association’s rights and restrictions, contact us at First Community Management. We offer full-service management across the greater Chicago area to assist your association board and property owners.