Condominiums, or "condos," are a special and very 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 their:
- governing documents, and particularly the declaration and bylaws, and
- homeowners' association, or "HOA" or "owners association."
These documents set out rules for the management of the property and for unit owners to follow. They also explain who owns which parts of the property, as between private owners and the condominium association, which owns various common areas.
A condo owner typically lives in and owns a defined space in the condominium complex, which is usually called a "unit." If you are the owner, you own, in essence, the inside of the unit, and you have a reasonable amount of freedom over what you can do inside: paint walls, renovate the kitchen, and replace flooring. (But you likely have various maintenance obligations, too, and must abide by limits on things like 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 even install landscaping.
You share the common areas with the other condo owners. These areas include sidewalks, hallways, recreational facilities, and parking lots. The condos are managed by a homeowners' association, which typically is made up of individual condo owners. 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 that specify how the condo complex is to be managed.
What Your Condo's Governing Documents Say About Renting
All states have some type of law or statute that controls condominiums in numerous aspects. One of the most important state law requirements is that the developer or builder of a condo complex has to file what's called a "declaration." State laws vary on what this declaration must contain, but usually it must mention any restrictions on renting.
Many condo associations place restrictions on renting. The rationale is that renters are not as attentive to caring for property as owners are, which can be a particular 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 investment property.
You might, for example, find a clause in your condo association's declaration saying that units can be used for residential purposes only, can't be leased to non-owners, can be leased for only a part of the year, or that 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 leases, 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 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 whether overnight guests are allowed to stay for an extended time period, any provision in the condo governing documents limiting this would apply to the tenant just as if he or she were an actual owner.
In addition, a well-drafted condo lease should contain provisions for:
- who's responsible for paying not only utilities, but monthly maintenance or "condo" fees, which are used by the homeowners' association to maintain common areas and make repairs and improvements
- who's responsible for paying 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 that are required by severe weather, and
- who's responsible for paying property taxes.
Commercial Condominium Leases
It's not as common as residential leasing, but condominiums can 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 are much the same as other commercial leases. The major difference is in the state law: you'll need to make sure that the condo laws in your state allow condominiums to be leased for commercial purposes.
The same special provisions as described above for residential condo leases should be included in the commercial condominium lease, as well. And, you'll want to 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?