Leasing Caps and Owners Who Bought Before Them
A community adopts a cap on rentals and discovers it cannot apply it to half the owners. Several statutes now exempt anyone who took title before the restriction, and the exemption travels with the owner rather than with the property.
The rule in short
Rental restrictions are usually adopted by amendment to the declaration. Statutes in several states provide that an owner is not subject to a leasing prohibition or restriction unless the provision was effective before the owner acquired title, or the owner consented. Narrow carve-outs allow associations to regulate short-term rentals and limit the number of rentals per year for everyone. Statutes elsewhere impose a floor on how restrictive a cap may be.
Rental caps arrive after a community notices that a growing share of its units are tenant-occupied. The amendment passes, the board sends a letter, and a group of owners replies that they bought the unit as an investment and are not giving it up. In several states they are right, and the statute rather than fairness is what makes them right.
The shapes a rental restriction takes
Restrictions come in a small number of forms and they are not interchangeable. A hard cap limits the number or percentage of units that may be leased at one time, usually with a waiting list. A minimum lease term forbids short stays without limiting the number of rentals. A frequency limit caps how many separate tenancies a unit may have in a year. An owner-occupancy requirement conditions leasing on the owner having lived there for a stated period.
Each targets a different concern, and boards frequently adopt the wrong one. A community worried about transient use gains nothing from a percentage cap, because a single unit rented weekly stays inside it. A community worried about lender financing needs the percentage cap, because the ratio is what secondary market guidelines look at.
All of them belong in the declaration rather than in a board rule. A restriction on the use of a unit is a covenant, and a board adopting one by resolution is almost always acting beyond the authority the documents grant.
The exemption several statutes now supply
One statute provides that an owner of a separate interest is not subject to a provision in a governing document, or an amendment to one, that prohibits the rental or leasing of any separate interest in the community unless that provision or amendment was effective before the owner acquired title.
Another is more detailed. A governing document or amendment enacted after a stated point that prohibits or regulates rental agreements applies only to an owner who acquires title after its effective date, or to an owner who consents individually or through a representative. The same provision then carves out two categories that apply to everyone: an association may amend to prohibit or regulate rental agreements for a term of less than six months, and may prohibit renting a parcel more than three times in a calendar year.
Those carve-outs are the practical answer for a community concerned about transient use. They reach every owner regardless of when title was acquired, which is why a short-term restriction is far easier to enforce than a general cap.
Statutes protect the owner who held title before the restriction. Nothing preserves it for a purchaser. That produces a two-tier community for years: exempt owners renting freely alongside newer owners who cannot. Boards sometimes respond by offering exempt owners consideration to consent. Consent is effective where the statute allows it, but it should be documented in writing and recorded against the unit, because an oral agreement disappears at the next closing.
| Restriction | Reaches owners who bought earlier | Typical purpose |
|---|---|---|
| Percentage cap on leased units | No, in states with the exemption | Preserving lender financing ratios |
| Minimum lease term of six months or more | Yes, under the express carve-out | Ending transient occupancy |
| Limit on the number of tenancies per year | Yes, under the express carve-out | Ending high-turnover use |
| Owner-occupancy period before leasing | No, in states with the exemption | Discouraging purchase purely for rental |
| Lease registration and tenant rules acknowledgment | Yes | Administration and enforcement |
Which conveyances break the exemption
Because the exemption turns on when title was acquired, the statutes have to say which transfers count. One provision states that the right to rent is not deemed terminated where the transfer is exempt from reassessment by the county assessor under specified tax provisions, or falls within listed categories including certain probate transfers and transfers between family members.
Another provides that a change of ownership does not occur when an owner conveys to an affiliated entity where beneficial ownership does not change, or when an heir becomes the owner, and defines an affiliated entity as one that controls, is controlled by, or is under common control with the owner, or that becomes a parent or successor by transfer, merger, consolidation, public offering or reorganization.
The unifying idea is that the exemption follows economic ownership. Moving a unit into a family trust preserves it; selling to a stranger does not.
Fees, addenda and the limits on administration
Even where a cap cannot reach an owner, associations often try to regulate the tenancy instead. Statutes increasingly restrict that too. One provision bars an association, except as expressly authorized in the chapter or the declaration, from conditioning or prohibiting a rental, from charging a rental, application or processing fee above a stated dollar amount during the term of a lease, from charging an annual or monthly rental fee not expressly authorized, from requiring the owner to use a lease or addendum the association prepared, and from taking a deposit from the owner or the tenant.
What remains permissible is narrow and administrative. Requiring notice of a tenancy, a copy of the executed lease, and contact information for the tenant is generally allowed. So is providing the tenant with the rules and holding the owner responsible for the tenant's compliance.
Associations that overreach here lose ground they did not need to give up. A modest registration requirement that is actually enforced does more to control a rental population than a fee schedule that gets struck down.
Floors, and the limits on how far a cap may go
Some statutes now push in the opposite direction, protecting rentals rather than restricting them. One provides that a community may not adopt or enforce a provision restricting the rental or lease of separate interests to less than twenty-five percent of the units, while permitting a higher percentage to be allowed. It also bars provisions that prohibit or unreasonably restrict rental of separate interests and accessory dwelling units.
The interaction with the amendment process matters. A cap has to clear the approval percentage, the certification and the recording described in the article on amending the declaration and the bylaws, and it binds later purchasers because the covenants run with the land, as described in the article on why the declaration binds a buyer who never signed it.
Enforcement then runs through the ordinary machinery. An owner accused of leasing in violation gets the notice and hearing described in the article on the hearing an owner gets before a fine, and an owner who suspects the cap is being applied to some units and not others will need the association's own records under the article on inspecting association records.
Points to carry away
- A rental restriction is normally adopted as an amendment to the declaration, not as a board rule.
- Several statutes exempt owners who took title before the restriction became effective unless they consented.
- The exemption is commonly preserved through transfers that do not change beneficial ownership.
- Short-term rental restrictions and limits on the number of rentals per year often apply to everyone.
- Some statutes set a floor, barring a cap that would restrict rentals below a stated share of the units.
Questions readers ask
Does the exemption pass to a buyer?
Ordinarily not. The exemption attaches to the owner who held title before the restriction took effect, so a buyer purchasing afterward takes subject to the cap even though the seller was exempt. That is what makes these provisions transitional rather than permanent: the exempt population shrinks with every sale. Sellers marketing a unit as a rental should expect a buyer's counsel to check the recording date of the amendment against the deed, because the answer changes the property's income potential entirely.
What counts as a transfer that keeps the exemption?
Statutes list the conveyances that do not break it, and the theme is that beneficial ownership has not really changed. Typical entries include transfers exempt from property tax reassessment, transfers into a revocable trust for the owner's benefit, transfers between spouses or to a child, transfers on death to an heir, and transfers to an entity the owner controls. A sale to an unrelated buyer is never on the list. Where a statute enumerates the exceptions, anything outside the list breaks the exemption.
Can an association require a copy of every lease?
Usually yes, and requirements of this kind are commonly upheld because they are administrative rather than prohibitive. Associations may generally require registration of tenants, a copy of the lease, a statement that the tenant will abide by the governing documents, and a modest processing fee where the statute or documents authorize one. What draws challenges is approval authority over the tenant, screening requirements that reach protected characteristics, and fees large enough to function as a deterrent rather than a cost.
Sources
- California Civil Code § 4740 — Prohibition on rental applies only prospectivelyAn owner is not subject to a rental prohibition unless it was effective before the owner acquired title.
- California Civil Code § 4741 — Limits on rental restrictionsA floor below which a governing document may not restrict the share of units that may be rented.
- Florida Statutes § 720.306 — Voting and election procedures; amendmentsRental amendments apply only to owners acquiring title afterward or consenting, with carve-outs for short terms and frequency.
- Virginia Code § 55.1-1806 — Rental of lotsStatutory limits on how an association may regulate the rental of lots and what it may require.
- California Civil Code § 4270 — Amendment of a declarationThe approval, certification and recording steps a rental amendment must satisfy.
- Florida Statutes § 718.110 — Amendment of the declarationAmendment thresholds and the matters that require consent beyond a percentage vote.
Metro Law Advisors is a publication, not a law firm. This article states general rules and cites its sources; it is not advice about any particular case, and the law differs by state and changes over time.
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