Most condo owners prefer that their neighbors are owner-occupants. As a result, many condo boards enact rental restrictions or even outright ban rentals. If validly done, the condo board can levy fines and file lawsuit to stop you from renting your unit. Here is how to determine whether your board’s restrictions are enforceable.
Most buildings don’t start off with rental restrictions. Developers want to cast the widest net possible for buyers, which means they want to be able to sell the new units to both owner-occupants and investors. Rental restrictions tend to scare off investors. As a result, rental restrictions tend to be enacted only after the condo board has been turned over to the unit owners.
On its face, rental restrictions seem counterintuitive. Why would anyone voluntarily give up that right? One reason is that it is a way to maintain unit values. Most buyers cannot qualify for a purchase loan if a condo is less than 50% owner-occupied, which severely restricts the pool of potential buyers. Property that is difficult to sell tends not to be particularly valuable. In addition, renters tend to be less invested in the quality of a building long term and can be rather transient. This can have the effect of lowering the quality of life for owner-occupants.
Restricting or banning rentals in a building is not a simple matter. In order to be valid and enforceable, such a restriction requires an amendment to the condominium declaration. Amending the declaration requires the vote of at least 2/3 of the ownership interests to pass. Obtaining a super-majority in favor of a rental restriction can be quite a difficult task, and many initiatives to institute rental restrictions fail. Interestingly, until recently, it was an open question whether a rental restriction could be enacted by the board as a condominium rule rather than an amendment to the declaration. About a year ago, the appellate court in Illinois made it clear that a rule without an amendment is not an enforceable rental restriction. Stobe v. 842-848 West Bradley Place Condo. Ass’n, 2016 IL App (1st) 141427.
The consequences of an enforceable rental restriction can be significant. Renting a unit in violation of a restriction will probably at least get you fined. Worse, the board will probably also sue you for possession of the unit or an injunction against renting it. If your tenant is evicted, they will probably sue you for breach of contract. The whole thing quickly becomes expensive and messy. Before that happens, it is crucial to understand whether your association has a valid rental restriction, and what your rights are to rent your unit. Before you buy a condominium that you intend to rent out, make sure you review the board’s rental policies before making a costly mistake.
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