Allowing renters in an owner occupied condo building

Asked by Cdub, Chicago, IL Sun Mar 29, 2009

We live in a 6 unit bldg. Our condo bylaws do not prohibit renters. Most owners agree we want to change the bylaws to "no renters, with exceptions". For example we currently have an owner who will be overseas for a year and would like to sublet to his brother. In this market, we want to be flexible, while protecting everyone. What are standard exceptions? We are thinking limits such as 12 to 24 months, owner responsible for yardwork/upkeep, max 2 units at a time, etc.

Help the community by answering this question:

+ web reference
Web reference:


Sara Buyer, Both Buyer And Seller, 60622
Fri Feb 12, 2010
Robin - Thanks for your response, but your advice seems conflicting. You're saying an HOA should allow owners freedom to lease their units because future buyers are interested in being able to rent out their unit - but those potential buyers might not even get the chance to get a loan if the owner-occupancy rate is too low. What's an HOA to do in this market? To quote Cdub: "In this market, we want to be flexible, while protecting everyone."

I like Chris's suggestion of offering renting exceptions on a short term basis.
0 votes
Robin Wilson, Agent, Winnetka, IL
Thu Feb 11, 2010
In this climate where people cannot sell and are choosing to rent instead of selling at a loss, its critical to have the flexibility to lease your unit. True story though that lenders are looking for 75% or better owner-occupied units in a development in order to lend...start deviating from that and the banks get very nervous and your lender pool could be limited.

I will say this - if you're thinking of refinancing your condo/townhome/single family/boat/trailer/whatever - do it while you live in it as an owner-occupant. If you move out and it becomes NOT your primary residence, there will be "hits" to your interest rate when you refi that keep you from getting as good a rate as an owner-occupant will.

One other thing of note - my clients are coached to have an "exit strategy" Before making a commitment - "What if I buy this place and then 1) want to move, 2) take a new job, 3) get married, etc. " One exit strategy might be to lease the place when you move - if the condo association prohibits that, then my clients choices are limited. And I strive to keep limits off my clients.
Web Reference:
0 votes
Sara Buyer, Both Buyer And Seller, 60622
Thu Feb 4, 2010
Christopher - Thank you for your post. My condo association is also struggling with this. I am confused by your advice regarding the 20% rule because I looked on the Freddie Mac site, and it claims there are no owner occupancy requirements for someone who is looking to get a loan for a condo unit to be their primary residence or second home in an "established" condo project. The requirements are only for people looking to get loans for investment properties or people looking to buy in a new development. what's the real story?
0 votes
Christopher…, Agent, Chicago, IL
Mon Mar 30, 2009
Dear Cdub,

I would suggest speaking with your condo association's attorney before you pass any new bylaws amending your current condominium bylaws. You want to make sure that any bylaws that you pass are not in violation of the Illinois Condominium Act which would open your condo association up to potential litigation from an owner who was "wronged" by the updated bylaws and rules.

Typically lenders are concerned about the total percentage of units that are rented within any condominium association. In your building's case even one rental brings you to 16.67% rental units. Most lenders underwriting guidelines require that fewer than X percentage of units in any association be rentals. Often that percentage is 20% or less, although underwriting guidelines are constantly adjusted.

You also want to avoid writing rules or bylaws that would allow one (or two) units in the association to become the de facto "rental" units. If you limit the number of rental units to one, then you do not want the first unit to be rented to remain the only unit that can be rented in your development ad infinitum. You want to write rules and bylaws that rotate the ability to rent your unit. If you don't then the one and only unit that can be rented in the development becomes automatically more valuable than the others.

You also do not want to find yourself in a situation where you have additional owners who are in desperate need of renting (i.e. due to a job relocation or some other unforeseen circumstance) who are prohibited from renting their units on even a short term basis.

I'd suggest contacting your association's attorney. Or if your association does not already have an attorney on retainer, I'd suggest contacting John H. Bickley, III at the law offices of Kovitz, Shifrin, Nesbit. His number is 847-537-0500, and this law firm specializes in condominium law. I do have other attorneys who I might suggest, but I would certainly contact this firm first for this type of work. Let me know if you have any additional questions or if you need any additional assistance. Good luck.

Christopher Thomas
Broker Associate, Sudler Sotheby's International Realty
773-418-0640 (cell)
0 votes
Search Advice
Ask our community a question

Email me when…

Learn more