Most Condominium Associations are seeing more and more tenants move in to their communities.  It seems to be the result of a number of circumstances.  Many people have lost their  homes in foreclosure or Bankruptcy and need a place to live.  Renting may be their only option.  The tight credit market has made it more difficult for people to obtain a mortgage and therefore they cannot purchase a home.  Also, investors are finding the low price of condominiums to be very attractive and are purchasing units solely to rent them.  And, some co-owners who have lost their jobs or have relocated cannot sell their units and are often forced to rent them in order to pay the mortgage and other expenses.              

So how do tenants affect the community?  It is generally thought that tenants have less respect for the property since they don’t have an investment in it.  Also, their guests may care even less.  And, it seems as though tenants tend to violate the restrictions more frequently either because they aren’t aware of those restrictions, or they simply don’t care.  In addition, some landlords simply don’t care about the conduct of their tenants, and are only concerned about receiving their rental payments.  So all of this may result in tenants violating the restrictions more often, including damaging the buildings or other common elements.              
Another problem that arises because of tenants, is that an excessive number of rented units in a condominium may cause complications in obtaining mortgages if too many units are rented, especially FHA mortgages which are unavailable in a complex when more than 50% of the units are rented.  In addition, a large number of landlords may result in non-residents being elected to the Board of Directors, and perhaps even constituting a majority.  Those non-resident Directors may be more concerned about protecting their investment than protecting the integrity of the community and the enforcement of its restrictions.              

So what can be done to keep all of this from happening, or to reduce the impact of tenants in the condominium?  The typical condominium documents permit the leasing of units and proscribe certain leasing procedures for landlords, including providing the Association with a copy of the lease and putting a provision in the lease stating that the tenants must comply with all of the conditions of the condominium documents.  Many Associations are in the process of amending their documents to restrict or even prohibit the renting of units.  An argument can be made, however, that such a modification of the condominium documents would violate the property rights of the landlords.  That concept has not been litigated in Michigan and at this point, such amendments appear permissible.  It is important to recognize, however, that any amendment to the condominium documents that changes the terms or conditions upon which the unit may be rented, require the consent of at least two-thirds of the co-owners and their mortgagees.               

In what ways can tenants be restricted?  First, some Associations seek to absolutely prohibit the renting of units.  If a significant number of units are already being rented, be aware that those landlords are not likely to consent to such a prohibition.  And, any units that are already rented upon the implementation of a rental prohibition, would likely have to be permitted or “grandfathered.”                

Another option would be to limit the percentage of units in the complex that can leased, rented or occupied by non-co-owners.  The typical percentage limitation is anywhere between 10% and 30%.  Or, the Bylaws could require that the co-owner occupy the unit for a minimum period time before being allowed to rent it.               

If there are any rented units in a condominium, it is important that landlords be required to provide the rules and regulations to their tenants, and perhaps even have their tenants confirm their receipt and acknowledge their agreement to comply with them.  Some Associations also charge landlords a “rental fee”, but care must be exercised in that effort.  Further, it may be wise to grant to the Board of Directors the ability to allow exceptions to the rental restrictions, in the case of hardship.  Caution must be used in granting exceptions, because exceptions often become the rule.              

Are there any “benefits” to having tenants in our condominium?  Indeed, there are several.  First, if an occupant in a condominium is in violation of the restrictions, it is easier to evict that tenant than it would be to require a co-owner move.  Second, if a co-owner is delinquent in the payment of their condominium assessments, the Association would be permitted to “garnish” the tenant’s rent and require the tenant to pay the Association those past due assessments, before paying their landlord the balance of their rent.  The Condominium Act clearly provides that doing so does not constitute a violation or breach of that lease agreement.              

It is therefore important for a Board of Directors to be sensitive to the tenant situation, and to address the issues promptly.  And, if an Association is considering amending their documents to limit or otherwise restrict the renting of units, it is important to do so before too many of the units become rented, since most landlords will reject any efforts to restrict their rights.