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JeffT
(Maryland)

Posts:33

09/10/2008 1:02 PM
Where would the proper place (Articles, by-laws, CCR) be to put in a restriction on the number of rentals homes allowed in the community? Currently we have nothing that speaks to rentals in any documents and we would like to do this. Each document has it's own way of making changes. Some easier than others.

JohnO6
(Georgia)

Posts:122

09/10/2008 1:48 PM
There may be other, more educated, responses to your question, but our HOA recently accomplished this by amending the CCRs. I believe that to be the proper document to amend since: A). The articles of incorporation really relate to the formation of the corporation that is your HOA B). The By-laws/rules really relate to the operational aspects of the HOA, BUT C). The CCRs are the deed restrictions that are tied to the actual ownership and permissions related to the purchased property.

JeffT
(Maryland)

Posts:33

09/10/2008 2:07 PM
That ain't helping. That is the way I look at it, but it's easier to change the by-laws. I was hoping that maybe it could be done there. It will be tough to change it in the CCR since it requires a 75% vote of all members to make changes to the CCR. By-laws only require a majority of a quorum and the quorum only requires 10% to show up.

DonnaS
(Tennessee)

Posts:2840

09/10/2008 2:12 PM
Sorry Jeff but it is a Restrictive Covenant issue or CC&Rs as you called them. It is a usage of the units and ByLaws are not high enough on the scale of importance in the Docs. This is an amenity that some owners bought into or some might need to rent down the road. NOT A BYLAW issue.

JeffT
(Maryland)

Posts:33

09/10/2008 2:41 PM
Darn, Darn, Darn

DonnaS
(Tennessee)

Posts:2840

09/10/2008 3:00 PM
Jeff, What kind of community are you? Reason I ask is that if you are a 55+ community, there is a Federal limit of 20% of all units can be rented. If more is allowed, the community loses it's 55+ status.

RobertR1
(South Carolina)

Posts:2154

09/11/2008 1:37 AM
Jeff, Don't dispair yet. Some of these things in HOA's take years to get changed. I would suggest, if you and your followers feel the need, you first comb your documents and any state statutes involved, such as non-profit ot whatever. Second, some posts here in the not to distant past seem to indicate Maryland has some important legislation working in Annapolis regarding HOA's, so check search feature for Maryland on this site. Go to your representatives office and present your problem to them. Also check around your area and see how this no rentals are handled in other like associations. To your end, you will also need an education program to convince your members it is better for their investment to have no rentals. All this takes chewing instead of big bites. As you know, you don't stand a chance unless you change the way you normally conduct business. My condo has, over time, placed no restriction on any qualification to own property here. Resort area is reason in some sense, but absentee owners with rental agendas and Flipping property is another. Results over the years are just devastating, and the absentee owners, as above, don't care, or do care for the wrong reasons and will "Flip" as soon as possible, and the cycle starts again. Now with the housing markets still going bad, more and more properties are being effected amd some of them seriously effected with foreclosures, etc. Allo this spells trouble for the happy homeowner who wanted a place to retire or provide a secure life style and some sense of order.

DonN
(Michigan)

Posts:240

09/11/2008 2:17 PM
There are other posts on this subject. I suggest searching HOA Talk with "rental". Rental is a land-use issue and properly belongs in the CC&Rs or Master Deed, a document that runs with the land. There appears to be some confusion because "bylaws" appear to be used sometimes for the name of the covenant document that is part of the Master Deed. Articles of Incorporation and bylaws are names used for corporate documents that are part of the governance of the nonprofit corporation. For an amendment to a restrictive covenant to be valid, it would have to be fair to all owners and uniformly applied. Either the restrictive covenants allow rental, or they don't. If discretion is provided in the restrictive covenant, then the discretion would have to be fairly applied. Who would decide? On what basis? How could a restrictive covenant restrict the number of rentals? Whose property would be restricted from renting? Would any formulation of restricting the number of rentals be fair? Would you like to be an owner who wished to rent the property and was prevented from doing so because there are too many rentals?

Don Nordeen Governance of Property Owners Associations

RobertR1
(South Carolina)

Posts:2154

09/11/2008 2:54 PM
Don, Accepting all you say to be written in stone, how about a comment on mortgagors restricting money available because of a high % of rental units. FHA seems to have a floating restriction or something. I know the answer to this is, well there are mortgagors that don't require a limit on rentals. Right you are but the question has to be asked; does a high # of renters effect the overall health of the organization. If it does, then couldn't rentals be restricted to protect the viability of the association. Then there is the question; We all know there are associations all over the place that have somehow contrived to have restricted owners, some severe, and some containing rental restrictions. How can they do that if your reasoning has legal standing? I understand your rational of the subject, but I suggest some of it is just not followed in the real world, and a lot of that is because of the power of some Master Deeds, State Statutes and and other supporting clauses, approved by the state. Could you be talking about a specific case with specific conditions testing the court system and some ruling was handed down that was also specific to the parties involved?

KirkW1
(Texas)

Posts:1145

09/11/2008 4:02 PM
Don, While I agree that this belongs in the CC&Rs, you are off on either being allowed or not allowed. As to who decides when to give discretion, it is the elected Board of Directors. They do have the power. This may not meet with your desired viewpoint, but that is part of the purpose of the Board. Now if I were writing the change to the Covenants (and I may need to at least participate in this soon), I would place the basic mechanism in the Covenants. I would allow for a range as set by the by-laws. I think that many things should have a two tiered approach. You don't want things changing willy nilly, but you do want the ability to adjust to circumstanced. As a note, a neighborhood near me recently lost a court case regarding rentals. Seems the owner was renting by the day. Often times the house is being rented to sports teams for a weekend or such and they have had buses and the like into the neighborhood regularly. Trouble is that there is nothing to stop this. I don't believe there is anything in our covenants that would cover such either.

DonnaS
(Tennessee)

Posts:2840

09/11/2008 4:21 PM
Kirk, Sort of related to what you posted about short term rentals. The city of Key West Fl has an area of very beautiful, turn of the centry repoduction homes called Truman Annex. Many of the owners were renting these homes out on a short term basis. The City had a limit on rental terms in this area and tried to enforce the ban. Some of the homeowners took the City to court and WON!!! It cost the city many hundreds of thousands of dollars to pay the court costs AND lost rental income to the owners. This went all the way to the State Courts. There are cases popping up all over the place on rental bans NOT being legal and in the best interests of owners. I see many HOAs getting themselves involved in suits in the future.

KirkW1
(Texas)

Posts:1145

09/11/2008 6:28 PM
While I don't doubt the veracity of what you are saying, I question the mental process of some judges. In fact, I think many should have to face what they hand out. Thus the judge who rules that short term rental restrictions are invalid should be forced to deal with them next door to their house. (Along the same lines while I don't blame the town I would have loved if Scalia of the Supreme Court had faced his house being taken via eminent domain.) To be honest, I never thought about it. But I would not be happy with very short term rentals next to me. And by short term rentals I am talking about the daily rental basis. Now if an area is predominantly that way, it becomes a whole new story. Or if it was established before the "regular" owners came along they really don't have the same position in my mind. Just as I see a huge difference between not allowing a pig farm to move into the field next to me and telling one already there that they must move now that I am here. In short, I have a problem with removing established uses of land. I don't have a problem with restrictions that exist before purchase.

DonnaS
(Tennessee)

Posts:2840

09/12/2008 6:03 AM
Kirk, Key West only has a few full time residents and tourism is the way of life so this was a special case. Yes, in a quiet HOA neighborhood, it would not be my choice either but we have written into both of my rental unit communities, that no lease or rental can be shorter than 6 months. Florida is an animal of a different color because of all of the seasonal people.

JeffT
(Maryland)

Posts:33

09/12/2008 6:04 AM
Thank all After making a big stink I found out that the by-laws were amended in 2004 to include more powers of the BOD to basically control everything including fining. Which will lead to another issue: How could they change it without ever notifying me,and some other members, of the meeting to vote on the changes as required. Then never notifying once the changes were made. Another story for another time.

MaryA1
(Arizona)

Posts:2248

09/12/2008 6:10 AM
Posted By JeffT on 09/12/2008 6:04 AM Thank all After making a big stink I found out that the by-laws were amended in 2004 to include more powers of the BOD to basically control everything including fining. Which will lead to another issue: How could they change it without ever notifying me,and some other members, of the meeting to vote on the changes as required. Then never notifying once the changes were made. Another story for another time. Jeff, Some bylaws can be amended by a vote of the board -- a vote of the members is not required. This is specified in your bylaws. However, whether the members must vote on the amendment or not doesn't matter, what does matter is that they certainly should be notified of any amendment.

KirkW1
(Texas)

Posts:1145

09/12/2008 7:39 AM
What the requirements are to be valid can vary. I know that our documents specify that all changes must be mailed to all owners. As such, failure to notify could become grounds to nullify the change. Now understand that to nullify a change if it were done improperly will take a court case. I am not saying don't challenge it, just be ready for a reality on cost. It could be that at the contact from your lawyer people will back down. But don't count on that.

RobertR1
(South Carolina)

Posts:2154

09/13/2008 9:27 AM
For comment Anyone with a comment about the fact we accept the premise that all our documents are legal and enforceable and we attest to their validity when we agree to live in an association. We don't make any qualifications. Has anyone ever hear of a buyer refusing to agree to the contract purchasing the property and moving in? I think this goes back to the right to restrict the number of rental properties in the association. You are not saying you can't rent, you are saying, the health of the association, as defined by the owners and the documents have authority as to when you can rent your property. Has that for an early morning buzz.

RobertR1
(South Carolina)

Posts:2154

09/13/2008 10:20 AM
Here is a Blurb picked up off CAN site. Court Decision Upholding “Discriminatory” Rental Ban also Calms Industry Nerves True or False: 1) Owner-occupants have more invested in the property and will be more concerned about maintaining it. 2) A large concentration of tenants in a common interest ownership community can threaten the value not only of the units they occupy but of the community as a whole. You won’t find many owners or professionals in the common interest ownership world who would challenge either assertion. The assumption that owner-occupants are preferable to tenants is reflected both in secondary mortgage market policies that make a high owner-occupancy rate a condition for approving condominium loans and in the rental restrictions (or outright rental bans) that many communities have adopted. But this conventional wisdom was challenged last year when an Indiana Appeals Court ruled that a rental ban in one condominium community violated the federal Fair Housing Act. Although the decision applied only in Indiana, it sent nervous ripples throughout the industry, because with a relatively small number of judicial precedents addressing condominium issues, it is not uncommon for courts in one jurisdiction to rely on the decisions of courts in others. Fortunately, at least in the view of most industry practitioners, the Indiana Supreme Court has reversed this unsettling decision.

GeorgerwilliamsW
(Indiana)

Posts:707

09/13/2008 10:40 AM
I have been aware of this case for some months. This case was decided in May by the Indiana Supreme Court, which overturned the Appeals Court ruling and sent it back for further consideration. Basically, it upholds the no-lease provision. The court's opinion is rather comprehensive, if anybody cares to read it. "A homeowner whose deed contained various covenants applicable to her subdivision rented out her residence, notwithstanding a covenant not to do so. Her homeowners association sued to enforce the prohibition, and she countersued, claiming that the agreement she had made through the covenant violated the Fair Housing Act. "Her counter-complaint appeared to include elements of two very different claims—disparate impact and intentional discrimination. "The trial court granted her relief, appearing largely to rely on disparate impact. We conclude that relief on these grounds was erroneous. We remand for reconsideration of the intentional discrimination claims." http://www.in.gov/judiciary/opinions/pdf/05150801rts.pdf The specific language in the covenants is: Lease of Dwelling by Owner. For the purpose of maintaining the congenial and residential character of Villas West II and for the protection of the Owners with regard to financially responsible residents, lease of a Dwelling by an Owner, shall not be allowed. Each Dwelling shall be occupied by an Owner and their immediate family.

FredN
(California)

Posts:11

09/13/2008 9:08 PM
Can a board limit the number of units any one person or group of persons can own within the complex? If a community association cannot prevent a person or group of persons from owning multiple units, can the association's governing documents can be amended to limit the number of votes such owner(s) have? As explained below in more detail, if the owners in a community association voted to amend its governing documents to limit the number of units a person or group of persons could own and/or to limit the number of votes an owner of multiple units would have, such rule would not be enforceable. California Civil Code Section 711 states that: "Conditions restraining alienation, when repugnant to the interest created, are void." Under Civil Code Section 711, conditions restraining alienation (i.e., conditions affecting the transferability) of real property are closely scrutinized by the courts to determine whether the restraint is reasonable. Courts will uphold reasonable limitations on the transfer of real property, but will strike down unreasonable ones. In determining whether a particular restriction on selling a unit in a community association is an unreasonable restraint on alienation, a court will weigh the justification for the restraint against the restriction's impact on the unit owner's property rights. Presently, California law permits a unit owner to sell his or her unit to whomever he or she wants, even to someone who already owns another unit at the Association. Therefore, a restriction limiting the number of units a person may own (which, in effect, limits to whom a unit owner can sell his or her unit) would be considered a restraint on alienation. Unfortunately, there are only a handful of cases applying Civil Code Section 711 to the governing documents of homeowner associations, and none of them directly address this type of restriction. As such, there is no way to state with certainty how a court would interpret such a restriction if this matter were tried in court. Notwithstanding the lack of established case law in this area, a court is likely to find that such a restriction is unreasonable, and, therefore, strike it down, because the justification for the restraint does not outweigh the restriction's impact on the transferability of a unit. The arguments made most frequently to justify limiting the number of units which one person or group of persons may own is that if a person or group of persons owns multiple units, he/she/they can wield too much control in issues voted on by the members, such as the election of directors and assessment increases, and it is likely to increase the number of rentals at the Association. However, a court is likely to find that there are less intrusive means available to an association to limit the impact on voting and to discourage rentals, or to regulate rentals more effectively. For instance, an association's governing documents may be amended to delete the cumulative voting provisions, to prevent more than one co-owner of a unit from serving on the board of directors at any time, and to enhance the leasing restrictions (e.g., imposing a rental cap or requiring that owners own their units for a period of one or two years before they are eligible to rent their units). Also, from a practical standpoint, such a restriction would be difficult to enforce. That is, if the Association discovered that an owner owned more than the prescribed number of units, the Association's primary recourse would be to sue the owner for violating the Association's governing documents. It is questionable whether a court would force the owner to sell his unit. It is also likely to be very expensive to litigate such an action. Moreover, a person could simply "get around" such a restriction by taking title to units in the names of different entities. Once a pattern of clear and consistent enforcement of uniform architectural standards is established, and these standards are communicated to the owners in a reasonable and understandable way, it will be easier for the Board to maintain the uniform appearance of its building exteriors.

DonN
(Michigan)

Posts:240

09/19/2008 3:25 PM
RobertR1 & KirkW1 My thoughts on your questions. Robert — A mortgage company could restrict rental of the mortgaged property. That would be a private contract between the owner and the mortgage company. But the mortgage company cannot restrict rental of other properties in the CID. A restriction on rentals could be amended into the CC&Rs. The approval requirements would have to be researched, and may vary from state to state. It is conceivable that a rental restriction might be considered as changing the character of the CID, in which case unanimous approval might be required. My recollection is that there are multiple supreme court cases on this, and that the requirement varies by state. Amend means to revise, to correct, to adjust, to fix, etc., not a wholesale change that might change the character of the CID. Kirk — If rentals are allowed in the CC&Rs, and if discretion is to be exercised by the board, then both authorities must be in the CC&Rs. If the CC&Rs are silent with regard to rental, then rentals are okay (not prohibited), and the board would have no discretion. The board only has the powers concerning the use of property that are authorized to the board in the CC&Rs. But again, discretion has to be fairly exercised and uniformly applied. Recently, the CC&Rs in my PUD were amended to restrict use to single-family residence (includes long-term rental), but each lot was given a revocable license with specific conditions for short term rental. The association has the authority to revoke the license. However, revocations would have to be fairly and uniformly exercised.

Don Nordeen Governance of Property Owners Associations

RobertR1
(South Carolina)

Posts:2154

09/19/2008 3:48 PM
Don, How would you classify the statement, "This property is a 65 unit condominium constructed for the purpose of residential use." At some point there was inserted a Renters Policy, which by the way has never be followed. Now does this renters policy lend itself to amending that would include rental restrictions. If there is a policy and no enforcement that certainly does not mean there is no restrictions and if there is restrictions, why not rental restrictions? Does this fit your criteria? Also if there is term rental limitations of any kind, why is this different than any other kind of rental restrictions.

DonN
(Michigan)

Posts:240

09/20/2008 1:06 AM
RobertR1 The devil is in the detail. The answers depend upon what the CC&Rs state. Is "constructed for the purpose of residential use" the same as "use restricted to single-family residence" or "use restricted to residential use"? My guess is that the courts would likely decide that "construct" and "use" are the same, and that the drafter's intent was to restrict use of the property to residential use. But the court would likely have to decide. If "constructed for the purpose of residential use" means use restricted to residence, then any short-term rental policy would be in violation of the CC&Rs, unless approved as an amendment to the CC&Rs. Michigan has a Court of Appeals case that so opines. The association would have no authority to write rules or issue policies that in conflict with the CC&Rs. A new restriction cannot be imposed by the association unless so authorized in the CC&Rs. If the "residential use" has not been followed for a long time, the restriction may have been waived. But again, that is for a court to decide. Do the CC&Rs contain a provision that states failure to enforce does not void the provision? While the rules for interpreting restrictive covenants (CC&Rs) are well defined (and likely don't vary much from state to state), the meaning depends on the exact language in the CC&Rs. The devil is in the detail.

Don Nordeen Governance of Property Owners Associations

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