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Taming Transient Turmoil Managing Renters in Condos

 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.  

 Status Quo

 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.  

 Changing Places

 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.  

 Acting Neighborly

 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.

 

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