CCAL Law Conference — Rental Restrictions

The first session that I’m attending is on rental restrictions in community associations; the presenters are David Ramsey, Esq., CCAL and Jennifer Loheac, Esq., lawyers from the New Jersey firm of Greenbaum, Rowe, Smith, Davis, LLP.

New Jersey, like Utah, has no cases specifically on associations’ rights and abilities to amend to restrict rentals, although a case dealing with parking, ________, touches on the rights associated with property ownership.

Woodside Village VIII Condo. Ass’n. v. McClernan, 806 So. 2d 452, (Fla. 2002),  involved a restriction on rentals which allowed short term rentals without association consent, and longer term (over one year) leases with the consent of the board.  Ultimately, the board sought to allow rentals for only nine months of a year.  New purchasers could not lease their units until they had owned for a year.

An investor continued to rent in violation of the restriction; the association sued and the defendant counterclaimed.  The lower courts held for the defendant/owner; the Supreme Court reversed.

One side note to the Woodside Village case arose from Woodside’s having had set aside 6 units for disabled rentals; that led to a challenge and partial settlement.

In Seagate Condominium Association v. Duffy, 330 So.2d 484 (4th District Ct. App. 1976) , the challenge arose in connection with an allegation that the rental restrictions unduly “restrained the alienation’ of units.

The rental restriction had been passed by 96% of the units.  The unit owner rented to college students; a lawsuit ensued.  Florida had limited only absolute and near absolute restrictions; the restriction on leasing was not absolute.  The court indicated that these amendments would be reviewed in the context of reasonableness; impliedly, at least, the 96% sentiment was significant.

Breene v. Plaza Tower Ass’n, 310 N.W. 2d 730 (N.D. 1981), involved a declaration that prohibited various types of actions; the association prohibited almost all leasing.  Breene sued; prevailed at the trial court, and the association appealed.  The court precluded any amendment with a retroactive effect or effect on current owners; presumably they considered these rights too significant to allow change of rights as to existing owners.

Shorewood West Condo. Ass’n v. Sadri, 992 P.2d 1008 (Wash. 2000), involved a challenge from investor/buyers, but the lower court precluded the retroactivity of the provision.  The Court of Appeals reversed, and it was further appealed to the Supreme Court.  The change in the bylaws was found to be invalid; had the amendment been in the declaration, owners would have notice of the change.

Charter Club on the River Home Owners Ass’n v. Walker, (Unreported, Georgia Court of Appeals, 2009 Ga. App. LEXIS 1397), involved another challenge by a unit owner who was renting, and continued to rent, after the amendment.  Georgia’s statute imposed amendments which restricted “use” without the owner’s consent.  Georgia’s court started out by asserting that restrictions in declarations will be strictly construed.  Leasing property is a type of “use;” hence the statute precluded the restriction.  The question arising from this case is whether it can be applied to those who voted in favor of it (yes, according to a Georgia lawyer at the seminar) and whether it can be applied against those who didn’t vote (no, according to the same lawyer).

Villa De Law Palmas Homeowners Ass’n v. Terifaj, 121 Cal. Rptr. 2d 780 (Court of Appeal 2002) involved a restriction adopted by rule; the owner challenged the rule and the trial court questioned the validity of the rule.  The association then made the rule into an amendment, and the court’s inclinations shifted.

Apple Valley Gardens v. McCutta , from Wisconsin, involved a developer who retained some units; the association amended to prohibit them.  The declaration, from the outset, had impliedly allowed rentals through such provisions as one providing that the lease of a unit would not relieve the buyer of an obligation to pay the assessments.

The bylaw amendment was held to be acceptable, and not contrary to the declaration, and lastly the limitation was not an unreasonable restraint on alienation.

Villas West 2 v. McLauthen involved Fair Housing Act challenge to a rental restriction.  The purchaser bought after the rental restriction was in place; the McLaughlins both moved from the house.  The daughter attempted to rent the house; the no-lease provision was alleged to have a disparate effect on minorities.  The rental restriction had an adverse impact on minorities;  in the disparate impact, the association could respond only by showing a good reason for the rule.  The speakers anticipate more of these fair-housing based challenges to rental restrictions.

Moving onto “tips for the practitioner,” the speakers suggest:

  • Include a hardship exception, to make the amendment seem more palatable to owners and the courts;
  • Make the hardship exceptions objective, to protect arguments respecting arbitrariness;
  • Don’t even try to take away vested rights (e.g., such as terminating an existing lease);
  • Better in the declaration than the bylaws, (or even worse, a regulation;
And now there’s an interesting discussion about whether or not grandfathering is acceptable, and if so, how do you do it.  (There’s a practical side to this, both in connection with getting votes and avoiding lawsuits.)

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