As housing markets in many parts of the country—including New Jersey—have foundered, many developers have opted to convert portions of communities originally intended to be condominiums into rental properties.
When a development with no owner-occupied units converts to rental, it's not such a big deal—after all, no units sold means no unit owners are affected. But sometimes, rental conversions take place in buildings where a handful or more units have been purchased—meaning that new unit owners are living side-by-side with rental tenants, or that unit owners are renting out their apartments as income properties.
In both scenarios, inter-residential relations in a mixed community can become complicated. The growing numbers of renters in New Jersey condo buildings and HOAs present these communities with challenges—but also opportunities. There’s a lot at stake, since having a fully occupied community keeps property values up and maintenance fees low.
Financially speaking, rental tenants simply don’t have the same level of investment in the unit they call home as owners do in real property they’ve bought. This doesn’t mean that all—or even most—renters are going to be irresponsible, or that renters aren't interested in the upkeep and well-being of their units. But the perception of differences between the two types of residents lingers, and can be a source of friction between building residents, board members and property managers.
Mixed communities with many owners and renters together is a market reality—and buying into or living in such a community needn’t be a big gamble. Providing they know how to plan for and react to different situations, unit owners and board members can successfully manage the owner/renter dynamic. And when a community has clearly defined policies on renters, as well as open communication and community-building events for all residents, conflicts can be eased or altogether prevented.
Economic pressures are changing many communities from what they once were or from what they were intended to be into something new. Due to the recession, the glut of units on the market has meant that many New Jersey area condominiums and HOAs have had to either adopt a total rental strategy or partial rental strategy to get units occupied and offset maintenance costs. Across the state, thousands of units have been converted and are being converted to rental, experts say.
“It’s a little bit harder to purchase right now and it’s harder to get loans, therefore people are resorting to renting,” says James Cervelli, president of Cervelli Property Management in North Bergen. “It's not really happening in certain areas but it seems to be happening across the board.”
“I think the reason we are seeing an increasing amount of renters in condominiums in New Jersey has to do with the resale value of the units are just so low,” says Thomas Chilenski, CMCA, president and senior property director of Cedarcrest Property Management in Fairfield.
”So it’s a good move for owners who want to move up or upgrade to a home instead of selling and taking a loss, they retain the unit and keep it as an investment rental property.”
“The housing market in New Jersey is relatively flat right now,” adds Joe Balzamo, president of Alliance Property Management in Morristown. “Homeowners are at a point where they can’t get the value that they wish to get for their home and renting is one of the options they are choosing.”
There’s no question that having rental tenants in a condo or co-op community affects a building’s profile with lenders and buyers, but so does having many unsold or empty units in the community. Fannie Mae and others have passed rules stipulating that they won’t give a loan to a unit owner of any building that has more than 30 percent renters.
Still, with numerous condo associations in the state, mass vacancies in partly filled communities and the many defaulted units emptied have left associations with few choices to recoup losses and prop up their faltering buildings
Increasing numbers of people in New Jersey are choosing to rent rather than buy a home because of the potential loss of property values and the financial risk involved in buying. Others have been forced to rent due to loss of their home. These and other factors have evolved the local economy so that the rental market is now hot. For many communities and owners these days, it makes the best sense to rent out units, since there is so much demand for rentals and far less demand from people wanting to buy condos.
Legally speaking, what’s involved in changing a community from condo to rental or to partial rental is based upon the community’s governing documents. Depending upon the wording of the condo association’s covenants, such a change in the community might require a vote of the homeowners, with two-thirds of them approving the change of the organizational structure to rental. In other communities, the bar for such a transition is higher.
Whatever the requisite vote is, moving forward with a new community makeup requires some careful planning. Protecting the developer and/or owner’s investment in the building is primary. And partly because the way such residential changes take place varies from community to community, engendering understanding among the residents also is crucial for success.
Such understanding begins with everyone knowing about the change. For communities that are transitioning to partial rental, board members might want to consider a publicity campaign to inform residents of what is going on and what the change means to them. The campaign could include a letter sent to all residents about the change, a notice posted on community bulletin boards or in the community’s newsletter, and organizing events meant to bring tenants and owners together to mingle.
In many cases, the rights of renters are comparable to those of owners in a community. Usually, a renter enjoys the same rights to use a community’s laundry rooms, gyms and other facilities as an owner.
“The owners and renters have the same rights in a community,” says Balzamo. “The tenant has to follow the condominium’s bylaws. The tenant has to follow the same rules and regulations as the owner does but they are not allowed to attend board meetings because they are not an owner. If the tenant violates the rules and regulations the owner is pursued not the tenant.”
But if the renter is leasing from a unit owner who is behind in his HOA payments, the renter could suffer the consequences of not being allowed to use the facilities, based upon the owner’s delinquency.
Generally speaking, renters have no voting rights in a community, and sometimes don’t even have the right to attend association board meetings. An individual unit owner can confer his right to vote to the renter, but usually a renter has no say-so in the community’s government.
The day-to-day concerns of the rental tenants in a co-op or condo building can be handled by a variety of entities. If the association is renting the unit, the property manager will handle the renter’s concerns. If an individual unit owner is renting out the apartment, that owner would take care of issues with the apartment.
In the case of some communities in which a developer has bought a number of units, sometimes such developers set up a leasing agent office to handle the rentals in the community. In these scenarios, employees of that office address the concerns of renters. Such developers have the right idea, since cooperation is the biggest obstacle to inter-community conflicts.
Because of the varying lifestyles in the state, sometimes the members of some associations have an “us versus them” mentality.
Whether or not the perception is true, it doesn’t need to hogtie inter-residential relations, since most differences among neighbors are fleeting and not of great importance.
The most common problems and complaints that arise with rental tenants in co-op and condo buildings are minor annoyances. Usually, complaints from other residents regarding renters are about excessive noise, or about the renter not keeping his unit clean. Sometimes people have problems with noise from a renter’s dog, or with more people staying in the apartment than are permitted.
“Renters very rarely care about the community association aesthetics, they are not emotionally invested because they do not own,” says Chilenski. “This creates endless issues with homeowners who care about their community and how it looks.”
“I have homeowners that feel that the tenants are bringing down their property value,” adds Balzamo. “They might feel that they are not taking as good care of their property as the owners should or would be this makes them feel that the overall property value is diminished but I don’t know if that’s necessarily true.”
Board members and property managers can work towards harmony in the community by keeping the lines of communication between residents and management open. They also can organize get-togethers for everyone in the community, such as cocktail hours and barbecues or pool parties. Experts encourage some kind of board involvement and community events, so there’s a sense of community whether you’re an owner or renter.
Renters and unit owners alike can help themselves in building a better community by attending association board meetings, which many communities allow renters to attend. In some cases, renters are allowed to speak at such meetings. Residents also can inform themselves about their new mixed community by availing themselves of the opportunities to learn more about community government through such organizations as CAI. In many newspapers, attorneys write advice columns about condo and association laws. And as always, there’s a plethora of information on the subject available online.
Jonathan Barnes is a freelance writer and a frequent contributor to The New Jersey Cooperator. Staff Writer Christy Smith-Sloman contributed to this article.