Quesiton: I am the president of a 230-unit condominium. Our Board has imposed a 13% restriction on the number of leased units in the building; our declaration is silent on that subject, offering only a restriction on the number of times a unit can be leased in a 12-month period. The number of leased units has been rising and we are concerned about lower property values and higher operating costs if the percentage of leased units continues to rise. For a variety of reasons, we do not believe the required 2/3 majority needed to pass a formal amendment to the declaration could be obtained. Is there another method to follow to make the restriction legally binding without a formal vote to amend the declaration? – Herb.
Answer: Herb. First, as I always tell presidents of their condo association, “my condolences”. It’s a tough job, no one ever thanks you, the hours are long and there is no pay. But, its your investment and presumably that’s why you accepted the task.
Lease restrictions are the current hot-button topic in community associations. Perhaps the main reason is that the Federal Housing Administration (FHA) has imposed lending restrictions that, among many other conditions, require that no more than 50 percent of the complex can be investor owned. And, today at least, FHA is the main game in town when it comes to making condo mortgage loans.
So, associations all over the country are looking for ways to impose restrictions on the number of units that can be rented. There is a concept in law known as “restraint on alienation”. In simple English, this means that the law encourages the free transfers and sales of real property. And courts have held that putting restrictions on the ability of a property owner to rent or sell his/her home is (or can be) a restraint on alienation.
However, there is another concept in community association law, namely that every owner is bound by the association’s legal documents as they existed at the time the person became an owner AND as those documents may be legally amended from time to time.
In a condominium, for example, there is a hierarchy of power. First, the
State law is supreme. Next comes the Declaration, then the Bylaws and finally the rules and regulations.
Courts around the country have had to address the question of what can be done to put restrictions on the number of renters so as to comply with FHA guidelines. And the courts have basically ruled that if a restriction is legally incorporated in the Declaration or the Bylaws, it will be upheld as valid.
My recommendation: try to amend your Declaration; it’s the higher authority. And typically, to amend your legal documents requires a super-majority – usually 2/3 or even seventy-five percent vote of the membership. And this does
not mean just the members who are present at a meeting; it requires a super-majority of all of the owners, based on their percentage interests.
You state that you are not sure you can muster the requisite 2/3 majority. That’s the price of democracy. The legislators who crafted condo laws have made it clear that major changes in the operation of the association must be approved by more than a mere majority.
Needless to say, owners who rent may not be inclined to vote in favor of restrictions. You can try to grandfather those owners by having the amendment state that it does not impact in any way on existing owners. You should try to convince those investors that if the proposed amendment does not pass, the investor may not be able to find a buyer who is able to get loan.