Rental restrictions are a common tool used by homeowners and condominium associations to help maintain community standards, property values, and insurance or lending requirements. Your association may already have short-term rental restrictions in place. Equally important for an association can be rental caps. A rental cap places a limit or “cap” on the number of rental units allowed within an association at any given time. The cap can be a specific number or a percentage of rental units.
A community can benefit from a rental cap, and one advantage is the implication a rental cap can have for the association’s insurance. Insurance companies view communities with rental units as higher risk. Higher risk translates to higher insurance premiums for associations. Unit-owner occupied units are less risk and help keep insurance premiums lower. If the number of rental units exceeds 20 to 30% of units in an association, many insurance companies may in-crease rates, decrease coverage, or decline coverage. This is why it is common to see rental caps set around 20 to 30% of the total units.
Rental caps not only benefit the association’s insurance but help to maintain a higher quality of life for the unit owners and community. Rental tenants moving in and out can consistently cause disruptions and may increase the risk of property damage. They also tend to cause more disturbances or are less likely to follow CC&Rs since they are not permanent members of the community. By limiting the number of rental tenants, the association can minimize the likeli-hood of these issues and help create a strong sense of community.
When it comes to rental caps, concerns need to be addressed. Rental caps may create more work for the board. Boards will need to ensure owners adhere to the cap and determine who will be allowed to rent their unit. If you are interested in implementing a rental cap in your as-sociation, first consult with the association’s legal counsel to ensure the rental cap and associ-ated processes are implemented in accordance with the law.
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