It is normal to come across HOA rental caps in homeowners associations. These communities enforce these caps in an effort to control rentals within their neighborhoods and keep property values high. For both homeowners and board members, it’s important to understand what rental caps are, if they’re allowed in the first place, and how they impact the HOA.
What are HOA Rental Caps?
Many homeowners associations enforce rental restrictions to combat the negative effects of rentals, particularly short-term rentals, on the community. One of the restrictions HOAs have is a rental cap.
What is a rental cap in HOAs? Simply put, a rental cap is a limit on the amount of permitted rentals within a homeowners association. This cap can be a number or a percentage of homes or units. For instance, if an HOA has a 5% rental cap, that means only 5% of the homes or units in the community can be rented out at any given time.
Homeowners and board members can find out if their HOA has a rental cap by checking their governing documents. The CC&Rs and bylaws should be able to tell members if there is an existing cap and, if so, what the number or percentage is.
HOA Rental Caps vs Condo Rental Caps
Rental caps in both HOAs and condominiums are essentially the same. Like single-family communities, condo associations can also have rental caps that limit the number or percentage of rentals within their complex.
A rental cap is even more beneficial for condo communities because residents tend to live closer together. There are more shared elements and spaces, too. Because of this, it is even more important to control the behavior and effects of renters within the association.
Can Illinois HOA Restrict Rentals?
In general, an HOA in Illinois can restrict rentals and even prohibit them altogether provided their governing documents say so. According to 765 ILCS 160/1-20, if an HOA currently allows leasing, it must amend its governing documents if it wishes to prohibit leasing.
If an owner is renting out their home at the time of the prohibition, they can continue to do so until they sell their home. Additionally, the HOA can’t charge a special fine, fee, penalty, or added dues to an owner who leases their home.
For condominiums, 765 ILCS 605/27 applies. If a condo association wishes to restrict rentals, it must amend its declaration, which would require a two-thirds affirmative vote from the members.
It is important to note that Illinois law doesn’t prohibit HOA rental caps for both single-family communities and condominiums.
Why do HOAs Have Rental Caps?
There are several reasons why associations continue to enforce HOA rental caps or other rental restrictions. These include the following:
- Marketability. Communities tend to attract more potential buyers if there are more homeowners compared to renters in them.
Fewer Disruptions. By restricting rentals, an HOA can limit the number of strangers moving in and out of the community. Homeowners usually prefer stable communities where they know their neighbors.- Less Maintenance. Homeowners are more likely to care for their homes and HOA property because they have a real stake in the community. Additionally, there’s more frequent wear and tear associated with people constantly moving their furniture and belongings in and out, especially in condominiums.
- Lower Insurance. Insurance providers favor communities with fewer renters. Associations also don’t need a high liability coverage.
- Lower Mortgage Rates. Many lenders prefer communities with rental caps, which would make the community more attractive in the eyes of buyers.
- Better Sense of Community. It’s easier to foster a sense of community and engage residents in social activities when there are fewer renters.
- Higher Property Values. All of this combined leads to higher property values, which improves owner satisfaction.
Do HOA Rental Caps Have Disadvantages?
Like with most things, rental caps also come with their fair share of downsides. These include the following:
- More Foreclosures. Without the ability to rent, some owners may fall behind financially. This increases the chances of foreclosure and vacant homes.
- Quick Sales. When owners can’t rent out their units, they may choose to sell quickly. This can result in less control over who moves into the community.
- Higher Costs. Monitoring and enforcing rental caps often requires both time and money. Associations may need to invest in software, hire staff, or consult legal counsel.
- Enforcement Challenges. It’s not always easy to verify whether a unit is being rented. Owners may allow family members to live in the unit, which can blur the lines and make enforcement more difficult.
- Increased Administrative Work. The board may need to manage a waitlist for rental approvals and track which owners are eligible to lease. This creates more tasks for board members.
How to Deal With Bad Renters in HOA
While the HOA board can’t directly evict a bad renter, there are some actions available that will help deal with bad renters. Apart from enforcing HOA rental caps, here are the strategies for addressing bad renters in a community.
1. Lease Agreements
Depending on the governing documents, an HOA board may be able to ask for a copy of the lease agreement from the owner. This lease agreement should outline the terms and conditions of the rental and what actions are available for breaches.
Board members may also require landlords/owners to include a clause that requires tenants to follow the HOA’s rules. If the tenant violates the rules, they can face penalties, which can include eviction.
2. Hold the Owner Accountable
It is ultimately the owner’s responsibility to ensure that they have a good renter. They should screen tenants before signing the lease and orient them on the rules of the association.
If their tenant violates the rules, the HOA should hold the owner accountable. This can mean charging fines, suspending their privileges, and using other legal remedies.
3. Request Eviction
If permitted, the HOA may ask the owner/landlord to evict their tenant. It is imperative to provide supporting documentation at this point, including violation notices, complaints, and reports. The owner is liable for the behavior of the tenant.
The Final Decision
Board members should weigh the positive and negative impacts of HOA rental caps. Every community is different, and rental caps are not one-size-fits-all. The HOA board should evaluate the condition and needs of their association before determining whether a rental cap is the right choice.
Hillcrest offers HOA management services to communities in Chicago. Call us today at 630-627-3303 or contact us online to request a proposal!
