Few things are more frustrating to community associations than owners who rent their unit, but fail to pay assessments. Where an owner actually collects income from the unit, but fails to contribute, our sense of fair play screams foul. The obvious solution is to collect the assessment from the tenant directly through a rental intercept provision, but the success of the rental intercept depends on so many factors that it is not the panacea it seems.

As more and more units have gone into foreclosure, the number of investors interested in purchasing units to generate rental income has increased. In many cases, investors buying foreclosed units to generate rental income have not done the due diligence required to understand the entire assessment picture. They may not know the amount of the regular assessments on the unit, the existence of a master association or to what extent they are responsible for assessments that were delinquent prior to the purchase. They may also be ignorant of rental restrictions and provisions in the governing documents relating to rentals. Regardless of their reasons, when the landlord-owner refuses to pay, a rental intercept is an excellent tool, but only if the association has been diligent in enforcing its rental provisions.

An effective rental intercept provision in the governing documents must include the following components:

• The right of the association to collect assessments directly from the tenant upon the happening of certain events;

• A requirement that copies of leases be provided to the association; and

• A requirement that the lease contain a provision that the tenant will comply with the association’s governing documents or – even better – that the lease incorporate the rental intercept provision itself.

Most rental intercept provisions in governing documents contain these provisions, but having the right language is not enough. Some declarations go even further and state that even if the required language is not in the lease, the lease is “deemed” to contain the provision. But this last statement is ineffective because tenants are not subject to the governing documents unless they are contractually bound to comply with them through their lease. In other words, while the association may have a legal right to obtain the rent, the tenant has no legal obligation to pay.

Thus, the success of a rental intercept depends not upon magical “deeming” language, but upon the enforcement of the lease requirements. If the association cannot confirm that there is actual language in the lease requiring tenants to comply with the governing documents or pay its rent to the association to satisfy delinquencies, the association’s attempt to enforce the rental intercept could subject the association to liability. The practical problem is that the enforcement must occur when the unit is first rented, not when the delinquency arises.

So, yes, a rental intercept may be the answer, but diligent enforcement of the lease provisions is the key. If you have further questions you can contact me by clicking here.