Article
Courtesy of The Sun Sentinel
By Daniel
Vasquez
Published March 18, 2009
Renting out
empty units may help your community association cope with budget woes
caused by owners in foreclosure or delinquency, who do not pay maintenance
fees.
As the problem grows, so does the number of associations turning to
tenants to generate revenue. Here are some things to consider before your
association proceeds.
Can my association rent units?
If an empty unit is not owned by the association, it has no right to
lease, rent or do anything for profit with it. That is, unless there is
some provision in the governing documents granting that right, or a
receiver is appointed to specifically collect rent from an existing tenant
in connection with a pending foreclosure action.
However, the
receivership process can be costly and time consuming and the money earned
from it can be placed in escrow for a long time, said Leigh Katzman, of
Katzman Garfinkel Rosenbaum, which represents more than 1,000 associations
statewide. "Associations can spend a lot of time and money and in the
end spend more money than they will eventually recoup."
And whether your association may legally become a landlord also depends on
your documents.
Florida law won't stand in your way. Unless prohibited by an association's
declaration, articles of incorporation or bylaws, state law (F.S. Sec.
718.111(9) ) gives an association the power to purchase units in its own
community and rent, lease or sell them, said Steven Rubin, a Boca Raton
attorney who specializes in condo law.
Rubin said it's important to note state law does not limit an
association's right to purchase a unit at a foreclosure sale resulting
from the association's foreclosure of its lien, or to take title by deed
in lieu of foreclosure.
Two condo cases
"There are two circumstances which must be analyzed separately,"
Rubin said.
The first is when the association purchases a unit not in connection with
its own lien foreclosure action. In this case, which is uncommon, if there
is no prohibition in the governing documents, renting is permitted. Some
documents, however, may require a certain percentage of unit owners'
approval.
The second case is the association's purchase of a unit as a result of the
foreclosure of its assessment lien or when a deed is given to the
association by the unit owner in lieu of foreclosure. Renting is
absolutely permitted in this case, Rubin said.
This applies no matter what documents say and without any membership vote.
"Assuming the association owns the unit which it acquired at its lien
foreclosure sale, the association could lease the unit and receive the
rents," Rubin said.
Rental responsibility
Whenever an association leases a unit, it has the same obligations as any
other landlord would, and is subject to the Florida Landlord Tenant Act
contained in Chapter 83 of the Florida Statutes.
Any rental income received by the association must be reported to the
Internal Revenue Service, but that will not affect its not-for-profit
corporate status. The rental income is usually designated as operating
income.
Before the association decides to lease, it should calculate the amount of
income it will receive relative to the expenses it will incur, including
any refurbishing, experts say.
And associations should understand that if the unit is subject to unpaid
real estate taxes or a superior mortgage, the association is not liable to
pay those debts. However, those lienors may themselves foreclose.
"From a business standpoint, leasing a unit pending sale or other
disposition gives the association the potential to recoup lost assessment
income and could be a very wise decision," Rubin said. "On the
other hand, the association must also be prepared to comply with its
landlord obligations which oftentimes are the source of inconvenience and
annoyance to board members, and occasionally require the association to
evict the tenants for noncompliance with the lease."
Daniel
Vasquez can be reached at:
[email protected]
or at 954-356-4558 (Broward) or 561-243-6686 (Palm
Beach County). His condo column runs every Wednesday in the Local
section and at www.sunsentinel.com/condos.
You also can read his consumer column every Monday in Your Money and at www.sunsentinel.com/vasquez
|