For a variety of reasons, associations, particularly condominium and town home associations, frequently ask if they can restrict leasing in their communities. Concerns about financing and insurance often generate interest in leasing restrictions. Intangible costs may include perceptions that tenants do not have the same interest in the community and are more likely to violate rules and regulations; perceptions of difficulty in blending investor owners and tenants in the life and operations of the community; perceptions of a lack of interest by investor owners in common area maintenance and reserves if investor owners are in the community for the short term. A recent Florida case provides some guidance as to how a court may analyze leasing restrictions.
FACTS: The Supreme Court of Florida, in a decision issued on January 3, 2002, upheld a leasing restriction that precluded any owner from leasing during the first twelve (12) months of ownership and limited leasing to not more than nine (9) months in any twelve month period, reversing the trial court decision that held an owner would be deprived of a vested interest by a leasing amendment, (
Woodside Village Condominium Association, Inc. v. Jahren, 806 So.2d 452 (Fla. 2002)).
RULING: In the
Woodside Village case, two owners who owned their units prior to the amendment challenged the leasing restriction. In its decision, the Florida Supreme Court cited an earlier Florida case, (
White Egret Condominium, Inc. v. Franklin, 379 So.2d 346 (Fla. 1979)), in which the court recognized that "reasonable restrictions concerning use, occupancy and transfer of condominium units are necessary for the operation and protection of the owners in the condominium concept." The Court also quoted favorably from an earlier case to further explain the restrictive nature of condominium ownership and living:
Inherent in the condominium concept is the principle that to promote the health, happiness, and peace of mind of the majority of the unit owners since they are living in such close proximity and using facilities in common, each unit owner must give up a certain degree of freedom of choice which he might
otherwise enjoy in separate, privately owned property. Condominium unit owners comprise a little democratic sub society of necessity more restrictive as it pertains to use of condominium property than may be existent outside the condominium organization.
The court in the
Woodside Village case also noted that restrictions contained within a declaration of condominium should be given a very strong presumption of validity when challenged. Based on a “reasonableness test,” the prevailing view among courts in a number of jurisdictions appears to be that a duly adopted declaration amendment that restricts the occupancy or leasing of units in a condominium complex is binding upon owners who bought their units before the amendment was adopted.
Associations in Colorado should be aware that the case of
West v. Evergreen Highlands Association, 55 P.3d 151 (2001), casts a degree of uncertainty as to the ability of an association to add new restrictive covenants to its governing documents. In the
Evergreen Highlands case, the Colorado Court of Appeals concluded that an amendment provision in governing documents only allowed changes to the existing covenants and did not allow for addition of new covenants, which included a covenant to create a mandatory membership association in a community that previously had a voluntary association. This case is presently on appeal to the Colorado Supreme Court and it may likely still be some time before the Court issues a decision. Depending on the amendment language in an association’s declaration, the outcome in the
Evergreen Highlands case may be significant for associations considering adding new use restrictions.
PRACTICE POINTERS:
Associations may review the following practice pointers when considering leasing restrictions:
1. Review the issues the association may have with leasing. Can they be addressed by adopting provisions to give the association more control over tenants (e.g., eviction) or are restrictions on the right to lease necessary to address concerns.
2. Review the declaration regarding authority and requirements to amend (e.g., owner and mortgagee requirements).
3. Better to amend the declaration than to adopt a rule. A declaration amendment provides record notice and reflects CCIOA (post-1992) intent that provisions regarding use restrictions be adopted by at least 67% of owners.
4. If leasing issues are not substantial at this point, consider less restrictive options.
5. If pursuing an amendment, obtain signatures from as many owners as possible.
6. Document rationale for leasing restrictions (e.g., to comply with secondary mortgage requirements; to preserve the character of the community as primarily owner-occupied).
7. Consult your association’s legal counsel before adopting any rules that restrict an owner’s right to lease his/her unit.
8. REMEMBER: There is no Colorado Appellate law on leasing restrictions to look to for guidance.
