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June 30, 2008
LIMITING RENTALS IN CIDS - MORE ON THIS SUBJECT
There are some lease limitation cases going on here in California and also in other states that I am watching. I am in the process of rewriting my article on my website called "Lease Limitatiton Amendments - Are They Legal." Here are some of my thoughts on the subject:
I have always felt that a good clause that can be supported by objective reasonableness should uphold, and they have - but I have always believed (from reading the cases from all states that I could get my hands on)- that there are at least 2 mandatory criteria:
1. the necessity of grandfathering current lessors until they transfer their property (from a vesting rights viewpoint)
2. the necessity of providing a hardship clause (from a reasonable-ness standpoint)
The legislative moves across the country (which closely align to what California legislators are looking at) have proved this out focussing on the issue of "consent" by owners.
The last formal survey on rentals and the effects and subseqent study I know of was the 1985 DRE commissioned study that showed (through a rather small sampling but maybe adequate at that time), that there tended to be more problems in high percentage rental developments). Experience for boards proves that to be true again and again.
One rendition I heard about with regard to the California legislation that is proposed (SB2259) was that it was triggered by a complaint that a man that was called into military service was denied the right to lease his home during his tour of duty, because of a lease limitation provision.
I have discussed this with other attorneys in California. Some attorneys complain that if the limitation says 30% the HOA can not not approve a hardship request because it would make the units unmarketable via purchase by FNMA or Freddie Mac. Others like me believe that that is a perfect example of a hardship that should be approved.
Attorneys are polarized on these things. Boards are put to quite a task these days in considering financial hardships. Something occurring frequently today that did not seem to be as prevalent an issue last year (before the subprime and other mortgage crisis and economically difficult times) is that more and more owners could not be pushed over the brink when they could otherwise pay their assessments if they could just rent their units. In an HOA where the delinquencies have gone from 10% to 40%, giving owners a boost that would enable them to pay the assessments makes sense. The approval might be tied to keeping the assessments current if an owner claims if they can rent, they can pay. Just an observation, not legal advice.
This is a very topical issue and I am very appreciative that it is being discussed, and it is encouraging to see that the trial courts are upholding these clauses. However, it will take only one bad apple to spoil the batch in California. We could be on the brink. One board could screw it up. And since the new election laws are closely tied and controlling in any election to amend documents to add a lease limitation clause, I could see an association messing up the voting process, so be careful!
I wish the HOA attorneys best of luck with these cases because there is a need for a remedy to keep rentals in any HOA from getting out of hand.
However, ... a word of caution. Those of us who truly understand the need, the cases, and the right way to do things believe leasing limitations are and should be legal and they are (if well written) and should be found reasonable under the circumstances. But most of the rest of the world (including my former real property law professor) either believe they are an unreasonable restraint on alienation, or think they are "discriminatory" or "unconstitutional" (a favorite claim of anyone challenging the HOA restrictions, whatever they may be).
Just my thoughts. I would like to hear yours.
Posted by Beth Grimm at June 30, 2008 10:27 PM