Condominiums, or "condos," are a popular form of property ownership. Also called "common interest communities," the most unique aspects of a condo involve how it is owned and how the property is managed or maintained. As opposed to other types of real property, like apartments and office buildings, the special ownership aspects of condos create unique issues for renting or leasing a condominium.
The creation and management of condominiums are almost entirely controlled by state laws, which can further complicate any condominium lease or rental. So, whether you're a landlord or a tenant, be sure to check the condominium laws in your area, or get some advice from an experienced real estate attorney before you sign a lease.
Condo Ownership, Management, and Control
Condominiums are controlled by a set of governing documents, particularly the declaration and bylaws, and a homeowners' association, or "HOA."
The governing documents set out rules for the management of the property, covering everything from the condominiums' floor plans to what services the HOA pays for. They also explain who owns which parts of the property, as between private owners and the condominium association. The condominium association usually owns various common areas, such as the lobby, parking garage, and elevators.
A condo owner typically lives in and owns a defined space within the condominium complex, usually called a "unit." If you are the condo owner, you own, in essence, the inside of the unit, and you have a reasonable amount of freedom over what you can do there: paint the walls, renovate the kitchen, and replace the flooring. (But you likely have various maintenance obligations, too, and must abide by regulations, on such things as the type and color of curtains you can hang.) You likely can't do much, if anything, to the outside of the unit, such as paint exterior walls or install landscaping.
You share the common areas with the other condo owners. These areas typically include sidewalks, hallways, recreational facilities, and parking lots.
Condos are managed by a homeowners' association, which is usually made up of individual condo owners who volunteer to serve. Among other things, the HOA collects a monthly fee from you and other homeowners and uses the funds to maintain the common areas of the property. The HOA also enforces the condo bylaws and the rules and regulations specifying how the condo complex is to be managed.
What Your Condo's Governing Documents Say About Renting
Your state probably has a law or statute governing the creation and use of condominiums there. One of the most important state law requirements is normally that the developer or builder of a condo complex has to file a "declaration." State laws vary on what this declaration must contain, but usually it must mention any restrictions on renting, if any exist.
Many condo associations place restrictions on renting. The rationale is that renters are not as attentive to property care as owners are, which can be a problem in a community that has agreed to abide by various rules in order to keep property values high. The terms of the association's mortgage may also limit the number of units that can be rentals. And its insurance carrier may raise the rates if it perceives the community as primarily rental property.
The condo association's declaration could have any number of limitations on renting, including specifying that units can be used only for residential purposes, units can't be leased to non-owners, units can be leased for only part of the year, or only a certain percentage of the units within the property can be leased.
Whether you're a potential tenant or landlord, it's critical that you review and understand the condo's declaration and bylaws, as well as the state's condo laws, before you attempt to lease a condo.
Terms of Residential Condo Leases
Despite the restrictions, residential condominium leasing is a common practice. Investors often buy condos just to lease them as residences, or for things like timeshares.
When preparing and signing a residential condominium lease, you'll find that it contains basically the same terms as any residential lease, but with one critical distinction: A condo lease will contain a provision saying that it is subject to the terms of the condo declaration and bylaws.
In plain English, that means that not only the landlord, but also the tenant, needs to be aware of any terms affecting day-to-day use of the property, such as where parking is allowed, what types of pets may or may not be permitted, what types of holiday decor might be hung on the exterior, and any limits on use of common areas.
For example, even if the lease were to say nothing about how long overnight guests could stay, if the condo governing documents limited stays to three days, this limit would also apply to the tenant.
In addition, a well-drafted condo lease should detail who is responsible for paying for:
- utilities, including water, electricity, gas, and any other city-provided services
- monthly maintenance or "condo" fees, also known as "HOA" fees
- special assessments, or special fees that are charged to cover the costs of improvements or repairs that are not accounted for in the association's yearly budget, such as building repairs required by severe weather, and
- property taxes.
Commercial Condo Leases
Condominiums can also (in most states) be leased for commercial enterprises, like office buildings, shopping centers, and professional offices such as doctors' and lawyers' offices. Like residential leases, commercial leases for condos contain much the same language as other commercial leases.
The same special provisions as described above for residential condo leases should be included in the commercial condominium lease. Pay special attention to the "use" provision of the lease, that is, the description of what type of commercial enterprise the condo can be used for. For instance, if a tenant wants to open a delicatessen, the declaration needs to be checked to make sure that it does not limit commercial use to non-food businesses.
Questions for Your Attorney
- Would you review the terms of this draft lease to make sure that it covers all issues relevant to renting a property within a condominium association?
- My commercial condominium complex's declaration or bylaws contain a restriction on the placement of business signs. Is there a way to change or amend them so my condo is more attractive to potential tenants?
- If I rent a residential condo and I'm required to pay real estate taxes, can I deduct my payments on my federal income taxes? Can I deduct the monthly maintenance/condo fee that I have to pay?
- I own a five-condo commercial complex, with two condos empty. A potential tenant insists that I sign an agreement saying that I won't rent another condo in the complex to a competitor of his. Should I agree? Can I charge him extra for the agreement?