Tips and Traps for Dealing with Rentals in Common Interest Communities

One of the most common issues which common interest community  (“CIC”) managers, boards and residents have to deal with these days is what to do – or not do – about units which are leased by the owners.  CIC rentals can create major headaches for everyone, particularly if the occupant of a leased unit chooses to ignore the rules and regulations for the community.

Here are some tips – and traps – to consider when dealing with rental units in CICs:

1. Be Aware of Lease Restrictions.  Many CIC declarations were drafted with a limit on the number (or the percentage) of units which can be leased at any particular time.  Managers need to be aware of those limits and records should be kept as to which units are leased units.  Further, there should be a process created for the association to be notified of and give consent to a unit being leased.  Be careful, however, not to put the association in to the position of determining the worthiness of the tenant, as this could pose risks for the association vis-à-vis the unit owner in the event that problems later arise with a tenant.  The important point is to have a process to oversee that the proper quantity of units is being rented, not that the association should pass judgment on the caliber of the tenant (although some residents may push the association board to do just that).

2. Make Sure to Require Leases to Reference the CIC’s Governing Documents. Many standard apartment leases provide that the tenant is in default if he or she does not adhere to any rules and regulations for the apartment.  CIC leases are no different.  The provisions within the CIC governing documents allowing rentals should require that any lease explicitly require tenants to comply with the declaration, rules and regulations, and so forth.  Again, however, care must be taken not to cross the line and be too intrusive into the landlord-tenant relationship so as to give rise to liability for the association for disputes between the landlord and tenant.  For example, do not require that lease forms be submitted to the association for approval prior to signature by the tenant.  If a unit owner chooses to omit any reference to the governing documents and a problem arises with respect to the occupant of the unit, the association will be able to enforce those violations (of both occupant and owner) against the owner.

3. Stay Out of the Eviction Process. While an association may wish to have the ability to evict a tenant who is consistently in violation of the CIC rules, resist this urge at all costs.  Minnesota’s landlord-tenant statutes are complex and, in some instances, a landlord can be held liable for money damages to a tenant.  Associations who choose to interject themselves into the landlord-tenant relationship by having the power to evict a tenant (which could, theoretically, be accomplished through a power of attorney granted by the unit owner to the association) could face liability from both the unit owner and the tenant for a violation of these laws. 

4. Remember that the “Member” of the Association is the Owner, Not the Tenant.  While actions of the tenant certainly trigger consequences for the unit owner, in certain instances, the association should be mindful of which party retains the rights as a member of the CIC – it is the unit owner, of course.  Meeting notices, proxy forms and other matters subject to voting by the members should be sent to the unit owner of record rather than the tenant.

In regards to a tenant’s violations of the CIC rules, while an association may choose to also send a notice of violation to the tenant, it is of foremost importance that these notices get to the unit owner.  In other words, to be safe, the association manager should send such violation notices to both the owner and the occupant.

Similarly, if the CIC bylaws limit participation at member meetings to unit owners, tenants who attend annual and special meetings to voice their opinions and concerns must do so through their landlord; in other words, if they wish to speak at a meeting as a member, they should be asked to provide a properly executed proxy form from the unit owner allowing the them to appear on the unit owner’s behalf.

5. Remember that Unit Owners Must Comply With Any Applicable Local Requirements for Landlords.  This last tip/trap is for the unit owners themselves:  make sure to comply with any local ordinances applicable to landlords.  Foremost among these is the requirement in most cities that landlords must have a valid rental license in order to legally collect rent.  While this issue should not affect the CIC association itself, a good set of lease provisions in your CIC governing documents should make clear that the association is not responsible for ensuring a unit owner’s compliance with any applicable federal, state and/or local laws affecting landlords. 

CIC renters are going to be a fact of life in most associations for some years to come.  Savvy CIC managers will focus their efforts on creating reasonable standards and procedures to ensure that the occupants of rental units comply with the rules and regulations of the CIC as much as possible while at the same time taking care to avoid crossing boundaries that could lead to liability for the CIC.