One of the most challenging aspects of being a landlord is dealing with a deed-restricted community. While the upkeep and usage restrictions can work well for homeowners, landlords may find them difficult to navigate with tenants.
A good understanding of the different rules and regulations can help you be successful as a landlord in a deed-restricted community.
What is a deed-restricted community?
A deed-restricted community is a neighborhood with certain limits on what a homeowner can and cannot do with their home and property. These deed restrictions can likewise apply to landlords and their properties and tenants.
A homeowners association (HOA) usually runs these communities, and they have established rules and regulations in place. Common deed restrictions you’ll find include:
- Using the property for business purposes is limited or not allowed
- Specifying the type of fence, the color of the front door, or the type of garage door
- Limits on the number or type of pets and animals allowed
- The location and placement of campers, boats, and trash cans
- Restrictions on property modifications
- Age limits (55 and older for senior living)
Deed-restricted communities are good for landlords who want to keep their rentals looking neat and uniform. The restrictions are usually placed on properties to protect their value or prevent businesses from operating out of the house.
The Importance of CC&Rs, Bylaws, and Rules & Regulations in deed-restricted communities
If you already own deed-restricted investment properties or want to purchase one, you’ll need to understand your neighborhood’s rules.
For example, suppose you intended to rent a home through a service like Airbnb, but the deed restriction doesn’t allow short-term property leases. If the limits require terms of at least six months, Airbnb may not be an option for you.
The US has over 350,000 community associations, and many have three types of governing documents you’ll need to be familiar with: CC&Rs, Bylaws, and Rules & Regulations.
Covenants, Conditions & Restrictions (CC&Rs)
The CC&Rs cover the rights and obligations of the HOA, including property-use restrictions, maintenance requirements, insurance obligations, and guidelines for rule enforcement and dispute resolution.
The record is filed with the state and requires a membership vote to make changes, making it difficult to amend.
Bylaws establish how the HOA or management company will operate. Common provisions include how often the HOA will have board elections, the process for nominating and electing new board members, meeting frequency, and the duties and responsibilities of board members.
Bylaw changes also require a vote by the membership, making updates or revisions difficult.
Rules & Regulations
The community’s Rules & Regulations encompass all of the rules that aren’t covered in the CC&Rs or Bylaws. A simple HOA board vote, followed by a review by the members, can change the Rules & Regulations.
Because it can be modified more easily than the other governing documents, it’s an excellent place to specify rules that may need to change seasonally or over time as different demographics move into and out of the community.
Deed Restrictions vs. Zoning Ordinances
A quick note about zoning ordinances — they’re not the same as deed restrictions. Property owners can create deed restrictions, and the rules apply only to the neighborhood or community association.
On the other hand, the local planning department creates zoning ordinances. They can restrict entire cities, towns, or other jurisdictions. An elected zoning board can administer and enforce the ordinances. Changes are possible but are influenced by politics because it depends on the board's vote.
However, you must still be aware of zoning ordinances. Local governments can prohibit rentals in some areas, classifying them as inappropriate commercial business activity in a residential area.
Can You Rent Out Your House in a Deed Restricted Community?
If you buy a home in deed-restricted property and want to rent it out, you'll need to know if the rules allow rental properties. Unfortunately, there isn’t one right answer. It depends on what the development’s governing documents say.
Rental restrictions can vary. Your community might have a complete ban on rentals or no restrictions at all. Common rules tend to fall somewhere in between and can include:
- Limits on the number of rental units allowed within the neighborhood
- Minimum lease terms
- Tenant registration, deposits, or fees
- Restrictions on the use of common areas or community events
Review the HOAs bylaws, Rules & Regulations, and CC&Rs to find out what's allowed. If you don't have a copy handy, you can get it from your HOA or the county’s real estate records.
What If the Development Restricts Rentals?
Your deed-restricted property may not allow rentals of any type — short-term or long-term. If that’s the case, you may not have much recourse. Even though the restrictions can be changed, it’s a difficult process to amend them.
First, you’ll need to review the terms of the restriction. Some rules expire, and HOAs can’t enforce the deed restriction after the expiration date. If it isn’t expired, check to see if the document outlines steps to take to remove the restriction.
Your next step is to approach the governing body, usually the HOA. Let them know you want to remove the restriction. You may also need to involve the community — community approval may be required for any changes to deed restrictions.
If you can’t get the HOA or the community to agree to remove the restriction, you have one last option: file a petition in court. The court’s decision will override the community’s. However, you may want to consult with a real estate attorney before pursuing legal action.
What If the Renter Violates the Deed Restrictions?
You, as the landlord, must provide the renter with a copy of the HOAs rules and restrictions. But if a renter violates them? You could be held accountable. The homeowner (or landlord) is responsible for fines and penalties imposed due to their tenant’s actions.
Some regulations allow the HOA to demand tenant eviction after multiple violations. So, if your tenant breaks multiple rules, don’t be surprised if the board directs you to evict them.
The Bottom Line
Deed-restricted communities are not necessarily a bad thing. Restrictions may help maintain the value of your property and limit potential issues with neighbors. But they can specify what you can and can’t do with your property — the rules may not allow rental properties at all.
Check your governing documents to become familiar with the guidelines. If rentals are allowed, clearly communicate the restrictions with your tenants and protect your investment with a landlord insurance policy. Landlord insurance provides property damage and liability protection. It can cover fire, lightning, vandalism, and other common risks a home might endure.