As housing markets in many parts of the country—including New England—have foundered, many developers have opted to convert portions of communities originally intended to be condominiums into rental properties. When a development with no owner-occupied units converts to rental, it’s not such a big deal—after all, no units sold means no unit owners are affected.
But sometimes, rental conversions take place in buildings where a handful or more of the units have been purchased—meaning that new unit owners are living side-by-side with rental tenants, or that owners are renting out their units as income properties. In both scenarios, inter-residential relations in a mixed community can become complicated. The growing numbers of renters in New England condo buildings and HOAs present these communities with challenges—but also opportunities. There’s a lot at stake, since having a fully-occupied community keeps property values up and maintenance fees low.
Financially speaking, rental tenants don’t have the same level of investment in the unit they call home as owners do in real property they’ve bought. This doesn’t mean that all—or even most—renters are going to be irresponsible, or that renters aren’t interested in the upkeep and well-being of their units. But the perception of differences between the two types of residents lingers, and can be a source of friction between building residents, trustees and board members and property managers.
Mixed communities with many owners and renters together is a market reality—and buying into or living in such a community needn’t be a big gamble. Providing they know how to plan for and react to different situations, unit owners, trustees and board members can successfully manage the owner/renter dynamic. And when a community has clearly defined policies on renters, as well as open communication and community-building events for all residents, conflicts can be eased or altogether prevented.
Economic pressures are changing many communities from what they once were or from what they were intended to be into something new. Due to the recession, the glut of units on the market has meant that many New England area condominiums and homeowner associations have had to either adopt a total rental strategy or partial rental strategy to get units occupied and offset maintenance costs. Across the region, thousands of units have been converted and are being converted to rental, experts say.
“Because of slow unit sales there were many cases where developers did begin to rent units that had previously been marked for sale,” says Mark S. Einhorn, an attorney with the law firm of Marcus, Errico, Emmer & Brooks in Braintree, Massachusetts. “It is hard to say with any accuracy how many developers or buildings throughout the region had to switch gears from marketing units from sale to rentals, but I know of at least a few projects in Boston where the developer had to turn to rentals in order to pay expenses.”
“In condominiums, leasing is controlled by a provision in the master deed and most documents do not limit the number of rentals, and if the document limits the number of rentals, the declarant usually reserves the right to lease any unsold documents,” adds Patrick J. Brady, an attorney, who is a partner at MEEB. “So if the declarant can’t sell the units, they rent them, usually with the hopes of selling later when the market improves.”
There’s no question that having rental tenants in a co-op or a condo community affects a building’s profile with lenders and buyers, but so does having many unsold or empty units in the community. Fannie Mae and others have passed rules stipulating that they won’t give a loan to a unit owner of any building that has more than 30 percent renters.
Still, with numerous condo associations across New England, mass vacancies in partly-filled communities and the many defaulted units empty have left associations with few choices to recover losses and stabilize faltering buildings.
Increasing numbers of people are choosing to rent rather than buy a home because of the potential loss of property values and the financial risk involved in buying. Others have been forced to rent due to loss of their home. These and other factors have affected the local economy so that the rental market is now hot. For many communities and owners these days, it makes the best sense to rent out units, since there is so much demand for rentals and far less demand from people wanting to buy condos.
Legally speaking, what’s involved in changing a community from condo to rental or to partial rental is based upon the community’s governing documents. Depending upon the wording of the condo association’s covenants, such a change in the community might require a vote of the homeowners, with two-thirds of them approving the change of the organizational structure to rental. In other communities, the bar for such a transition is much, much higher.
Whatever the requisite vote is, moving forward with a new community makeup requires some careful planning.
Protecting the developer’s and/or owner’s investment in the building is primary. And partly because the way in which such residential changes take place varies from community to community, engendering understanding among the residents also is crucial for success. Such understanding begins with everyone knowing about the change.
For communities that are transitioning to partial rental, trustees or board members might want to consider a publicity campaign to inform residents of what is going on and what the change means to them. The campaign could include a letter sent to all residents about the change, a notice posted on community bulletin boards or in the community’s newsletter, and organizing events meant to bring tenants and owners together to mingle.
In many cases, the rights of renters are comparable to those of owners in a community. Usually, a renter enjoys the same rights to use a community’s laundry rooms, gyms and other facilities as an owner.
“The condominium association does not own units. Persons who purchase units and the declarant for any unsold units are the owners of the units,” says Brady. “Therefore when a unit is rented, the unit owner is the landlord. And when a unit is rented, a landlord-tenant relationship is in effect between the unit owner and the tenant. The condominium association is not a party to the relationship. Renters have renter’s rights of any tenant to the unit and that is between the owner (landlord) and tenant. As for condominium rights, a tenant has the right to use the common area amenities of the condominium as any owner would. However, tenants do not have owner’s rights for certain things such as voting.”
But if the renter is leasing from a unit owner who is behind in his or her association fee payments, the renter could suffer the consequences of not being allowed to use the facilities, based upon the owner’s delinquency.
Generally speaking, renters have no voting rights in a community, and sometimes don’t even have the right to attend association board meetings. An individual unit owner can confer his or her right to vote to the renter, but usually a renter has no say-so in the community’s governance.
The day-to-day concerns of the rental tenants in a co-op or condo building can be handled by a variety of entities. If the association is renting the unit, the property manager will handle the renter’s concerns. If an individual unit owner is renting out the unit, that owner would take care of issues with the unit.
“In some projects there are some differences between what renters and owners can do,” says Einhorn. “For instance, some projects prohibit renters from keeping pets but permit owners to [have them], but in general, renters usually have the same right to use recreational facilities as owners.”
In the case of some communities in which a developer has bought a number of units, sometimes such developers set up a leasing agent office to handle the rentals in the community. In these scenarios, employees of that office address the concerns of renters. Such developers have the right idea, since cooperation is the biggest obstacle to inter-community conflicts.
Because of the varying lifestyles in the state, sometimes the members of some associations have an “us versus them” mentality.
Whether or not the perception is true, it doesn’t need to hamper inter-residential relations, since most differences among neighbors come and go.
The most common problems and complaints arising with rental tenants in co-op and condo buildings are minor annoyances. Usually, complaints from other residents regarding renters are about excessive noise, or about the renter not keeping his or her unit clean. Sometimes people have problems with noise from a renter’s dog, or with more people staying in the condo than are permitted.
“In some cases the board’s and owner’s perspectives are that renters don’t respect the property as much as we do,” says Daniel J. Rivers, the director of the Condominium Division of G&G Management in Newton, “There are many owners who violate the rules and regulations as well. It seems to become a larger issue when it is a renter who breaks the rules because it is perceived that since renters don’t have a financial interest in the property, there is a higher chance that they will not follow the rules.”
Board members and property managers can work towards harmony in the community by keeping the lines of communication between residents and management open. They also can organize get-togethers for everyone in the community, such as barbecues or pool parties. Experts encourage some kind of board involvement and community events, so there’s a sense of community whether you’re an owner or renter.
Renters and unit owners alike can help themselves in building a better community by attending association board meetings, which many communities allow renters to attend. In some cases, renters are allowed to speak at such meetings. Residents also can inform themselves about their new mixed community by availing themselves of the opportunities to learn more about community government through such organizations as the various chapters of the Community Associations Institute based in the New England region: CAI-Connecticut, CAI-New Hampshire, and CAI-New England. Links to those chapters can be found at the national website, www.caionline.org. In many newspapers, attorneys write advice columns about condo and association laws. And as always, there’s a plethora of information on the subject available online.
Jonathan Barnes is a freelance writer and a frequent contributor to New England Condominium. Staff Writer Christy Smith- Sloman contributed to this article.