The current recession has impacted New Jersey's condo and HOA communities in many profound ways. Boards and managers have been forced to address the challenge posed by multiple units in arrears, bank foreclosures, and projects put on indefinite hold.

Adding to the welter of issues is that of rental tenants in condo and co-op buildings. Individual unit owners have been renting their apartments to subtenants from time immemorial, and developers often rent out unsold units in new buildings until buyers can be found, but the economic crisis has increased the pressure to rent—either as a way of making money on a space the owner isn't occupying, or to staunch a developer's financial bleeding.

Common as it is, however, subletting isn't necessarily so welcome among boards and managers, for whom renters sometimes represent headaches rather than solutions. Fortunately there are a variety of remedies for mitigating problems associated with the growing tide of renters, and for maintaining a sense of cohesion in a mixed building or association.

Are Owners Better Neighbors?

"There is both legitimacy and exaggeration in the effects of leasing," says Jerome Liebowitz of Liebowitz & Jurecky Esqs. in Fort Lee. "It's typically frowned upon because of the perception that renters cannot be expected to take the same pride in a community or building that an owner would. Where there are a large percentage of leased units, the absence of resident owners may decrease the number of owners who are willing to run for boards or become involved in committees."

Gary Rosenberg, of the Law Offices of Gary Rosenberg in Florham Park, agrees that boards and managers often have a hard time seeing an upside to having rental residents—and the more renters there are, the less thrilled administrators become. "Ultimately, you are trying to build a close-knit community," he says. "In a co-op or condo association, the more owners that live there compared to renters, the better."

Obviously, most renters are every bit as conscientious as owners about things like noise and would be mortified at the thought of causing their neighbors any sort of distress. But others don't feel a similar sense of responsibility, which can be frustrating for their neighbors and HOA administrators. As the number of renters increases, so condo boards often find themselves fielding an increased number of complaints about noise, wear-and-tear to common areas, and even the erosion of property values. In the case of co-ops trying to refinance an underlying mortgage or fund major capital projects, having too many renters can scuttle the cooperative corporation's chances for securing the money as lenders tend to look askance at high numbers of leased units.

Know Your Own Rules

In order to maintain a harmonious environment—as well as protect your residents' investments. “It's important [for boards] to be proactive rather than reactive," when it comes to rental residents, says Christine Monaghan, CPN, director of property management for Churchill & Banks Companies, which manages some 1,000 condo units in Providence, Rhode Island.

Also of vital importance is understanding where exactly the responsibility falls when a rental tenant moves into a co-op or condo association. A tenant in a condo answers to the owner, and has little if any interaction with the HOA itself—unless rules are violated, says William D. Bierman, a partner with Nowell Amoroso Klein & Bierman in Hackensack. HOAs have a fiduciary responsibility to the unit owner, but they aren't obligated to provide any specific services to a rental tenant. So a renter who contacts the HOA when problems arise—unless the problems are of a condo-wide nature—is likely barking up the wrong tree. Dealing with a broken refrigerator in a subleased unit is not the HOA's problem; it's the unit owner's.

What can be an HOA’s problem is how the tenant behaves. Often, the owners—who are the a landlords of the rented unit, after all—do not reside in the building. Thus, the HOA has to live with whatever issues a rental tenant might bring up—figuratively and literally. If, for example, a rental tenant's teenaged son is caught vandalizing the lobby. What’s to be done?

“Technically, the association has no jurisdiction over that,” says Bierman. “They have to go through the owner, who may live in Florida, who may live in Arizona. They can call the police if the tenant is defacing the building, otherwise, breaking the law. Otherwise, they have to go through the owner. The association can’t evict a tenant out of its own building." This makes it especially important for unit owners renting out their apartments to have their tenants sign a properly prepared lease—and adding an addendum in those leases mandating that renters abide by condominium bylaws.

And before owners even think of renting out their apartments, the professionals say it's crucial for them to take a close look at their HOA's most up-to-date governing documents. One manager recalls a situation in which a unit owner allowed her tenant to have two dogs in the apartment. Unbeknownst to to this owner, her condominium's documents had recently been revised, and dogs were now prohibited. The manager describes the fallout from that situation as a “whirlwind,” where the association fined the owner $50 a day for her tenants unlawful pets and even started foreclosure proceedings on the property. The rental tenant had to move out, and ultimately sued the owner. Had the owner double-checked her HOA's governing documents (or obtained some sound legal advice before renting out her apartment) she could have saved herself and her unwitting tenant a great deal of money and stress.

Outdated Rules

Of course, consulting bylaws and playing by the rules is only effective if the bylaws and rules make sense and are up-to-date in the first place. One attorney interviewed for this article says he regularly encounters HOA bylaws that haven't been updated in decades, and recalls one instance where a building's noise clause prohibited unit owners from playing "phonographs" too loudly—which isn't all that helpful when the racket is being blasted from an iPod or satellite radio.

And sometimes the rules aren't just outdated—they simply don't cover a given situation. Take one example the above-mentioned attorney ran into a couple of years ago, when neighbors in a nine-unit condo building became concerned when they noticed unfamiliar cars in the parking lot and kept running into strangers in their hallways every few days. It turns out one of the unit owners was running a bed and breakfast out of her apartment—and the kicker was that there was nothing in the condo's bylaws that prohibited her from doing so. It took several months to first amend the bylaws and then persuade the unit owner to stop using her condominium as a B&B.

But what happens when a renter or unit owner landlord isn't cooperative? They've ignored requests to stop playing loud music into the wee hours, or insist on harboring an enormous dog. The association has sent several letters to the unit owner, all to no avail. At that point, it's probably time for your HOA's attorney to send a notice of misconduct to the unit owner. The letter puts the unit owner on notice that if their tenant's objectionable behavior continues, they—as the renter's landlord—will be on the hook for any associated expenses.

"This usually causes the unit owner to sit up and take notice," says one attorney, since unit owners certainly don't want to pay for their own association to go after them. “It's a beautiful strategy," he says, "and it usually works.” In his view, it all comes back to knowing your governing documents. "The best way to prevent potentially expensive and divisive problems is to have a clear set of rules governing conduct from the get-go," he says. "An orderly set of rules is going to help people live together.”

Doing it Right

Some boards might be forgiven for thinking that hassles might best be avoided by forbidding renters altogether. This is probably much easier said than done, however—and it's very unlikely (not to mention undesirable) for any HOA board to have the power to unilaterally outlaw rental tenants.

"There is a state law that could have a substantial impact on subletting a co-op apartment," says Liebowitz. "It is NJS 46:8D-13.1. In brief, this law states that a co-op must permit a sublet if the shareholder cannot sell the apartment for the amount of the purchase price plus improvements. The law sets forth specific requirements that must be met by the shareholder to qualify to sublet. The major exclusion from this law is a co-op that has never allowed subletting."

"In a condo or HOA the master deed is the key governing document," Liebowitz continues. "I have not seen a master deed at a condo that prohibits subletting. However, there are some administrative rules in effect at condos," such as limiting the amount of time—usually six months to a year—that a unit owner can have a tenant before either returning to occupy the unit or selling it.

The reasoning behind limiting the amount of time an owner can rent out his or her unit is the same as that used by co-op boards: a high number of transient renters tends to negatively impact the image of an association. As Bierman says, “You don’t want to turn the building into a hotel.”

If an association wants to allow subletting, but is wary of the practice getting out of control, Liebowitz recommends the following: "Place a 'cap' on the percentage of apartments that can be sublet at any one time—say 20 percent or less, for example. Interview every applicant; have the [association] attorney prepare a mandatory rider to the sublease with a copy of the rules and regulations attached; consider a security deposit to be paid to the HOA by the unit owner; and require insurance certificates with a prepaid receipt for payment of premium."

Though not common, Liebowitz also says that there's a trend among condos—mostly in New York City, but in a few other places as well—to draft rules prohibiting subletting. "This is largely because the resident unit owners (as opposed to absentee investor owners) are unhappy with the large numbers of renters and high turnover, and in some case the behavior of the subtenants," he says.

Making Peace

All this being said, it's simply not fair to pillory subtenants as the sole perpetrators of rule-breaking. For all the words of caution, there most certainly are responsible, upstanding, first-rate tenants, and it's important to treat all residents in one's building or HOA with the same courtesy and respect that a fully-vested unit owner or shareholder would expect. That respect should go both ways as well; subtenants should be willing to work at making their presence in the community an asset rather than a liability.

"The truth be told,” says Liebowitz, “many fully-vested shareholders violate rules and regulations, are inconsiderate of their neighbors and cause problems that demand enforcement. If a less-than-welcoming attitude is continually portrayed to lessees, they may become what they are expected to be; second-class citizens.”

As with so many things, he continues, communication is essential. "Lessees are not always kept informed by the owner/landlord," he says. "Copies of rules and regulations and other critical association or cooperative documents should be provided by management to lessees. It's impossible to expect someone to abide by a rule they've never been made aware of. Even the most informed unit owners receive constant reminders about their responsibilities."

Further, Liebowitz is all for encouraging renters to volunteer and assist with HOA projects, and says they should receive notices about community and building events. They should also be encouraged to report issues involving the association or cooperative, because "accepting help from lessees gives them a sense of pride in their home and community or building."

Yvonne Zipp is a freelance writer living in the Boston area. Additional research by Hannah Fons.