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Posted at 05:30 AM ET, 08/07/2012

For Rent by Owner: Condominium association’s restrictions on landlords can cause tension

Having signed a lease with new tenants for my apartment in Dupont Circle, one would think that I can go back into landlord hibernation.  In some ways, however, this is the beginning of a new process — the condominium approval.  

Renting out a condominium differs significantly from renting out a house because, by virtue of ownership, a unit owner is a member of the condominium association and is subject to its bylaws and rules. The primary function of the association is to maintain the building and common areas and collect a charge to cover the costs. They build up a reserve fund to cover extraordinary costs like replacing the roof and paving the parking lot. A condominium that doesn’t maintain sufficient reserves and defers maintenance puts the owners at a risk of a special assessment when a large repair arises. My building’s size, around 16 units, justifies hiring an outside manager, and it is very meticulously run by a three-person board elected by the association members.  

In addition to the financial responsibilities, the association promulgates rules that maintain quality of life. Condominiums can impose noise regulations, pet restrictions and, most importantly for me, restrictions on renting.  These rules range from commonsensical to nit-picky, but I know it’s in my interests to comply.  If I can keep on the good side of my fellow owners on the little things, I can fend off the existential threats to my being a landlord.  

For example, after many noise complaints, my condominium voted in a rule that 85 percent of the square footage of an apartment has to be covered by rugs. So, despite the fact that our apartments all have beautiful wood floors, they must be covered up. Every time there is a new resident of the apartment, the representatives of the condominium come out with tape measures and calculators and figure out the carpeting percentage. If we were still living there, I would think it kind of silly because, like many Asian households, we have a policy of having everyone take off their shoes in our home. But that does not matter to the association.  The rule applies whether you’re quiet as a church mouse or you aspire to be Michael Flatley, Lord of the Dance.   

There is, of course, a natural tension between the condominium members who live in their apartments and those, like me, who rent out their apartments. This came to a head this year and nearly resulted in jeopardizing my continued ability to rent out my apartment.  

Many resident owners believe that rental units diminish their own property’s value.  In their view, the rental units are free riders on a communal endeavor, and as the person who has rented out his for almost 20 years, I am an easy target.  My renters benefit from the owners’ careful stewardship of the building, I collect a big fat check, and the resident owners are left with the problems. On top of that, the resident owners provide sweat equity; for example, several of them do the gardening and others serve on the board. While I do pay an extra rental fee of a couple hundred dollars per month, the other owners do not think this fully compensates them for their efforts.  

The 2008 financial crisis exacerbated the hostility to rental units.  Suddenly, lenders became wary about lending money for condominiums where so many units were no longer owner-occupied.  Federal guidelines about percentages of units being owner-occupied, largely ignored in the 2000s, were suddenly receiving new attention from banks and regulators.  I recall a contentious association meeting where a new owner in the building said that it was difficult for him to obtain a mortgage because the high ratio of rentals in the building. This put a scare into many of the owners. 

In my admittedly self-interested view, this fear was overblown. Our building never had more than four or five units being rented out. And one should not ignore the fact that the ability to rent out the apartment props up the price of condominiums in the building.  If a number of distressed owners had to sell at the same time, prices would have plunged. As it was, our building weathered the financial crisis fine without the need to impose rental restrictions.

This year, however, the condominium seemed determined to enact some change at the annual meeting. While the majority of members appeared to support tightening the rules on rentals, the board faced the reality that an outright ban on rentals was probably not feasible as it would require a super-majority to change the bylaws.  They proposed instead a sharp increase in the additional fee required of rental owners. 

Attending the meeting by telephone, I listened to the debate. There was stronger opposition to rental restrictions than I had anticipated. One owner who was a Foreign Service officer expressed her objection to the new rules. She stated that she had specifically sought out a condominium to buy based on the ease of renting since she anticipated being posted overseas in the future.

When it came my turn to speak, I acknowledged that I had rented out my apartment for 18 years, which, I imagine, drew some gasps from some of the owners.  (There are only a handful of owners who have longer tenures in the building than I do.)  But I also spoke honestly about my love of the apartment and my desire to keep it as a place where my daughters might want to live after they graduated from college and start out their careers in D.C., like their father did. 

And while I would support an increase in the fee imposed on a non-resident owners, I would do so only if it was a reasonable reflection of the cost to the condominium and wasn’t designed to force me to sell the apartment. 

In the end, after more than two hours of polite but impassioned debate, we reached consensus on a plan to double the monthly rental fee but have it phased in depending on the number of years that the apartment was rented out.  

The outcome was not perfect, as it will put me deeper in the hole on my cash flow, but I felt some relief that something more drastic did not pass which may have effectively required me to sell my apartment.   

 Read more For Rent by Owner

A Colorado-based lawyer, Douglas Hsiao has rented out his Dupont Circle condo for 18 years. In his occasional column, he details his search for a new tenant.

 

By Douglas Hsiao  |  05:30 AM ET, 08/07/2012

Tags:  landlord

 
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