The
decision whether to ban or restrict rentals in an existing private
subdivision or condominium association is one fraught with peril.
So why consider doing it at all?
There
seems to be an emerging consensus nationally that rental properties in
private subdivisions tend to decrease property values in those
subdivisions. Several studies have linked tenancies with decreased
property values because of an increase in crime. Tenants are less likely
to maintain the property as well as the owners do. Owners are more
likely both to respect the subdivision’s other restrictions and
covenants and to engage in community activities. Mortgage lenders tend
to shy away from lending in private neighborhoods in which there is a
high ratio of rentals. Alternatively, occupancy versus vacancy, tenancy
versus short sales may modulate against the outright bar to rental properties in subdivisions.
Relying
on such data, courts are inclined to validate rental restrictions
contained in an association’s Declaration. Such restrictions are upheld
for the same reasons as other restrictive covenants generally: the
original parties agreed contractually to the restrictions.
Because
there is nothing inherently illegal about restricting rentals,
inserting restrictions, even an outright ban, in a new subdivision’s
Declaration is not a problem.
The
thornier question arises when an existing subdivision or condominium
association wants to “shut the gate after the cows have already left the
barn;” that is, ban or restrict rentals despite the fact that the
Declaration did not expressly authorize either. In contrast to the
situation where the Declaration expressly contemplates restricting
rentals, courts are reluctant to enforce “second thought” restrictions
when they are embodied in a mere “rule” or “regulation” passed by an
association’s executive board pursuant to a “general grant of authority”
to adopt rules and regulations.
That
said, and depending on the precise wording of a given Declaration, rule
or regulation, it is possible to “regulate” – if not outright ban –
rentals even where an express grant of authority is not present in the
Declaration. Something more is required.
Real
estate developers in particular would do well to consider to what
extent the community association will be empowered to restrict or
outright ban rentals in the subdivision or condominium. At a minimum, a
Declaration can be written in such a way as to empower the association
to adopt rules regarding rental restrictions sometime in the future
rather than at the actual formation of the subdivision.
♢ ♢ ♢
This
article was written by Philip Roth, a trial attorney and shareholder of
Marshall, Roth & Gregory, PC. His practice encompasses all
forms of community association litigation and transactions. Please
do not hesitate to contact him (proth@mrglawfirm.com) or me
(lgregory@mrglawfirm.com) to receive more information on this topic or
to suggest topics for future editions of 'A Legal Moment'.
You may not rely on this content as legal advice for any specific
situation, but should instead contact an attorney for specific advice.
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