Daily Development for Wednesday, January 9, 2002

By: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
prandolph@cctr.umkc.edu

CONDOMINIUMS; VESTED RIGHTS; UNIT LEASING: Florida Supreme Court upholds the ability of condominium unit owners to amend a Declaration of Condominium, in accordance with the required provisions. to restrict unit owner leasing. No vested rights recognized.

Woodside Village Condominium Ass'n, Inc. v. Jahren, No. SC00-1030, 2002 WL 5483 (Fla. Jan. 3, 2002). (note that this opinion has not been released for publication and, until released, it is subject to revision or withdrawal; however, it provides insight into how the Florida Supreme Court intends to resolve a conflict within the lower courts).

The original 1979 Declaration of Condominium for Woodside Village included a leasing provision that allowed the lease of a unit for any period of one year without association consent. A lease having a term in excess of one year was subject to approval by the Woodside Association. These leasing provisions were amended several times over the years.

In 1997, several unit owners became concerned that units were increasingly becoming non-owner occupied and that such a condition would have a negative impact on the quality of life in Woodside Village and on the market value of units. In response to these concerns, the Declaration of Condominium was amended to limit the leasing of units to a term of no more than nine months in any twelve-month period. A provision was also added prohibiting owners from leasing their units during the first twelve months of ownership. These amendments ("1997 Amendments") were adopted by a vote of at least two-thirds of the unit owners as required by the Declaration of Condominium.

One year later, two unit owners, Jahren and McClernan ("Respondents") were notified in writing that their respective units were not in compliance with the Declaration's leasing provisions. Jahren, a unit owner in Woodside Village since 1979, owned four units that were purchased prior to adoption of the 1997 Amendments. McClernan was a unit owner in Woodside Village since 1996, when he purchased two units. Neither Jahren nor McClernan resided in their respective units.

When Respondents failed to come into compliance with the leasing restrictions, the Association filed suit seeking injunctive relief to enforce compliance with the Declaration as amended. Respondents filed essentially identical answers admitting notice of their failure to comply with certain Declaration provisions, but denying that compliance could be mandated under Florida law. Additionally, Respondents filed counterclaims for declaratory and injunctive relief asserting that the lease restriction was unreasonable, arbitrary and capricious, and had no purpose other than to effectively ban all leasing of units. Respondents also asserted the lease restriction was confiscatory and deprived them of lawful uses which were permissible at the time of purchase. Accordingly, Respondents sought an injunction prohibiting the Association from enforcing the lease restriction or, alternatively, requiring the Association to compensate Respondents for the fair market value of their units.

Following a hearing on the Association and Respondents' separate motions for summary judgment, the circuit court granted summary judgment in Respondents' favor. Although the circuit court acknowledged that the Association has the authority to pass an amendment restricting the leasing of units, it concluded that the lease restriction at issue impermissibly "creates more than one class of ownership because it cannot be applied retroactively against unit owners who purchased their unit prior to the date of the amendment." The court further determined that the Association would be required to purchase respondents' units if it decided to enforce the nine-month lease restriction retroactively.

On appeal, the Second District Court of Appeal affirmed the trial court's final summary judgment and held that the lease restriction could not be enforced because it was adopted after the Respondents acquired their units and no significant lease restrictions existed when respondents purchased their units. The court acknowledged that the lease restrictions would be valid if they predated the Respondents' purchase of units. As part of its analysis, the Second District rejected the reasoning of Flagler Federal Savings & Loan Ass'n v. Crestview Towers Condominium Ass'n, 595 So. 2d 198 (Fla. 3d DCA 1992), and distinguished Seagate Condominium Ass'n, Inc. v. Duffy, 330 So. 2d 484 (Fla. 4th DCA 1976). In those decisions, the Third and Fourth District Courts of Appeal had upheld the validity of amendments to condominium declarations imposing additional lease restrictions on existing unit owners. The Second District Court also cited an accommodation for leasing that Woodside Village made in a discrimination lawsuit on behalf of the handicapped as additional support for its holding.

The Florida Supreme Court began its analysis of this conflict by reviewing the history of court interpretations of the condominium form of ownership and went on to analyze the cases with which the Second District opinion conflicted, as well as other court decisions. This analysis acknowledged that the condominium form of ownership is "strictly a creature of statute" created upon the recording of a declaration of condominium in the public records of the county where the land is located. This document is generally seen as the condominium's "constitution" which strictly governs relationships among the condominium unit owners and the condominium association. In order to preserve this regime, courts have acknowledged that "increased controls and limitations upon the rights of unit owners to transfer their property are necessary concomitants of condominium living" and that restrictions contained within a declaration of condominium should be clothed with a very strong presumption of validity when challenged. Also, courts have repeatedly recognized that condominium living is unique and involves a greater degree of restrictions upon the rights of the individual unit owners when compared to other property owners. Furthermore, Chapter 718 provides broad authority for amending a declaration of condominium.

Based on its understanding of the condominium form of ownership created by Florida statute, the Supreme Court stated that condominium unit owners have the authority to amend the declaration on a wide variety of issues, including restrictions on leasing. In the instant case, the Supreme Court concluded that Respondents were on notice that the provisions at issue within the Declaration could be amended and under what circumstances such an amendment would be valid. While acknowledging that a better amendment might have been crafted, the Supreme Court refused to accept Respondent's claim that the 1997 Amendments violated public policy. These amendments were intended to promote owner occupancy of the condominium units, a goal the Supreme Court felt was consistent with the concept of condominium living as originally contemplated by the legislation authorizing the condominium form of land ownership. Because restrictions on ownership are such an integral part of the condominium regime and because the Respondents were on notice that the restrictions they purchased under could change, a reasonable restriction adopted in compliance with the Declaration's requirements is valid and enforceable. "Given the unique problems of condominium living in general and the special problems endemic to a tourist oriented community in South Florida in particular, appellant's avowed objective--to inhibit transciency and to impart a certain degree of continuity of residence and a residential character to their community--is, we believe, a reasonable one, achieved in a not unreasonable manner by means of the restrictive provision in question. The attainment of this community goal outweighs the social value of retaining for the individual unit owner the absolutely unqualified right to dispose of his property in any way and for such duration or purpose as he alone so desires. "

The Second District also had spoke to the "Abilities Amendment" that granted an exemption from the 1997 Amendments to Abilities of Florida, Inc. ("Abilities"), a non-profit corporation that obtains financing through the U.S. Department of Housing and Urban Development ("HUD"). Abilities is in the business of purchasing condominium units and then leasing them to handicapped persons. An exemption from the 1997 Amendments was granted to Abilities so that it could meet a HUD financing requirement and provide lease terms in excess of nine months. The Florida Supreme Court rejected the opinion of the Second District, holding that the Woodside Village declaration did not impermissibly create two classes of ownership - one that could not lease for terms in excess of nine months and one that could. Specifically, the situation was rather one that directly related to providing reasonable accommodations to enable handicapped persons an equal opportunity to use and enjoy a unit in the complex through the assistance of Abilities than an instance of creating two classes of ownership among similarly situated individuals.

In summary, the Supreme Court found that the condominium form of ownership is, by definition, restrictive and unit owners who are on notice of such restrictions and how they may be amended cannot avoid once that are properly amended.

Reporter's Comment 1: The court's decision has protected the condominium form of ownership by acknowledging the mechanism of amendment which allows a majority or supermajority of unit owners to uniformly modify existing restrictions in response to perceived changing needs.

Reporter's Comment 2: It is interesting that despite its endorsement of the condominium regime, the opinion, appears to contain a suggestion that the Florida Legislature should amend Chapter 718 to limit "how far can two-thirds of the condominium owners [can] go in restricting leasing rights in the condominium units." Justice Quince expressly forwards such a suggestion in her special concurring opinion that urges the Legislature to "seriously consider placing some restrictions on present and/or future condominium owners' ability to alter the rights of existing condominium owners."

Editor's Comment 1: The court, uh, "overlooked" the editor's contribution to this area of the law: "Changing the Rules: Should Courts limit the Power of Common Interest Communities to Alter Unit Owners' Privileges in the Face of Vested Expectations?" 38 Santa Clara Law Rev. 1081 (1998), where the editor deals extensively with the precedent on this question, and concludes, ultimately, that the right to amend the Declaration to enact leasing restrictions has to be upheld, despite the unfairness to individuals who have "bought in" on the expectation that they can lease at will. The editor suggests that courts in appropriate circumstances might withhold injunctive relief to terminate leasing activities in cases of particular unfairness. The situation in this case might call for that, in the editor's view. The owners who had invested in their condos as rentals ought to be given a reasonable period of time within which to dispose of their properties, and should be able to rent during that sale period.

Editor's Comment 2: There are cases that deny the power to amend Declarations in ways that alter the fundamental character of the Condominium - such as changing the interests in voting or realigning common elements. The editor might also apply such an analysis to a leasing restriction in the proper case - such as where the condominium was originally designed and marketed for temporary vacation homes that could be leased. Ski condominiums are a good example. We're likely to see this issue arise more and more as America "grays" and what once were temporary vacation homes become permanent retirement residences. Once the old folks take permanent residence, they tend to want to protect themselves from the noise and bother of vacation renters, and, of course, resident owners are far more active in association politics.

Editor's Comment 3: Note that this was an amendment of a declaration. Some courts and commentators have drawn distinctions between these kinds of alterations in practice and changes in rules enacted by the Board of Directors or a Building and Grounds Committee. Courts are more likely to apply "reasonableness" restrictions to those types of changes, and it may be viewed as "unreasonable" to frustrate vested expectations.

Editor's Comment 4: No state action here. Hence, no "taking." But it is interesting to compare this case to Cwynar v. City & County of San Francisco, 109 Cal. Rptr. 2d 233 (Cal. Ct. App. 2001), review denied,

2001 Cal. LEXIS 6617 (Cal. Sept. 26, 2001), the DIRT DD for 12/27/01, where the court found a taking when a city ordinance significantly limited the rights of owners of rental property to turn out existing tenants in order to occupy the property themselves or to permit occupancy of the property by relatives. The court concluded that the ordinance substantially limited the "ownership expectations" of the apartment owners when it limited their right to possess and occupy their property. Could the same be said here?

Editor's Comment 5: Should the court have analyzed the restriction on renting as a restraint on alienation? If the jurisdiction has authority holding that a landlord cannot unreasonably withhold consent to an assignment or sublet, despite language in the lease granting such a right to restrict, wouldn't that analysis be relevant here? The Declaration is no less than a contract, but it certainly is no more, and ought to be subject to restraint on alienation analysis.

The Reporter for this case was Robert Freedman of the Florida Bar

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