A condominium
association’s right to approve sales or leases is almost
mythical. Most people believe associations have an inherent
right to approve sales or leases, but that is not the case.
Authority to approve sales or leases must be provided in the
declaration of the condominium. Section 718.104 (5) Florida
Statutes provides that a declaration of condominium, as
originally recorded or as amended, may include restrictions
concerning use, occupancy and transfer of units.
That means the declaration of a condominium must be read to
see if association approval is required, and if so,
limitations on the association’s power. The statute
recognizes the importance of maintaining a community in
multi-unit housing, but confirms the Association’s power to
regulate transfers must be accepted by the owners before it
can be exercised. A person buying a condominium unit buys
with actual or constructive knowledge of provisions of the
declaration and is bound by them. That makes it important to
review any limitations on sales or rentals, especially if a
buyer is purchasing and plans on renting the unit.
Rules can be changed by unit owners voting to amend the
declaration. Changing rental rules were addressed by
Florida’s Supreme Court in the 2002 case of Woodside Village
Condominium Association v. Jahren. That case started when an
investment group bought a condominium and the owners in the
condominium later amended the declaration to limit rentals.
The investment group argued the amendment was a violation of
their property rights. The trial court disagreed and
explained the investment group bought knowing unit owners
could amend the declaration at any time. The investment
group appealed and was successful, with the appellate court
ruling that the change was a deprivation of property rights.
The case ended up at the Florida Supreme Court and the
Justices agreed with the trial court, leaving the investment
group with a condominium unit they could no longer rent as
intended.
The legislature was apparently aghast and shortly after the
Supreme Court’s decision amended Florida’s Condominium Act.
The Act now provides that an amendment limiting an owner’s
right to rent a unit applies only to unit owners who consent
to the amendment and unit owners who acquire title after the
effective date of the amendment. That did not retroactively
protect the investor group in the Jahren case, but protects
owners now.
The Condominium Act does not merely address rental
limitations. It also provides that condominium associations
may charge a fee for approval of leases or sales, as long as
the fee is provided in the declaration, articles or bylaws.
The fee may not be more than $100 per applicant and a
husband/wife or parent/dependent child are considered one
applicant. Renewal of lease or sublease with the same tenant
cannot be charged a fee. The association can also charge a
security deposit in connection with approval of a lease, not
to exceed the equivalent of one month’s rent, but only if
the authority to do so is in the declaration or bylaws.
When someone buys a condominium, the buyer inherits
liability for assessments unpaid by the prior owner and
those coming due after the buyer becomes the owner. To avoid
surprises, buyers request condominium associations provide a
letter confirming the status of assessments. Those letters
are known as estoppel letters for years, most associations
charged $100 for an estoppel letter. A few greedy condos,
mostly in the Miami area, charged five and even ten times
that amount. To reign in that abuse, the 2017 legislature
again amended Florida’s Condominium Act to cap the fee for
estoppel letters at $250. That reduced the fees charged by
the greedy, but almost every other condominium association
quickly increased their estoppel fee to $250. The statute
does not limit estoppel fees to condos with such authority
in their governing documents so every Florida condominium
can charge the fee unless its governing documents prohibit
it.
The Board of Directors of many condominium associations
takes their approval responsibility seriously, and they
should. The board has a fiduciary obligation to those in
their condominium community to protect the community.
However, that authority cannot be exercised unreasonably.
When a condominium association unreasonably denies approval
of a lease or sale, the association can be subjected to a
claim for damages and board members might even be personally
liable, notwithstanding substantial protection for
condominium board members found in Florida’s Condominium Act
and Not-For-Profit Corporations Act.
Court cases have held that when an association has the
unfettered right to disapprove a sale, such unlimited
authority can be unenforceable as an unreasonable
restriction on the ability of an owner to sell. Some experts
have gone so far as to state an association must buy a
condominium unit when it refuses to approve a sale. I am not
so sure that is law in Florida, since there could be very
good reasons to disapprove a buyer that should not trigger
for purchase by the association. What might those be? Most
experts agree that the conviction of a violent felony might
be sufficient or a history of refusing to follow the rules
where the proposed new owner has lived.
Some associations believe the financial history of a buyer
is important. Many associations make a credit report part of
the approval process, and one local association went so far
as to require tax returns be submitted. The prospective
owner in the latter case went to court and the judge ruled
insisting on tax returns was overreaching and unenforceable.
Most agree that the financial records for a tenant are
almost irrelevant since it is the unit owner who is
responsible for paying the association. However,
condominiums can refuse to approve a transfer when the unit
owner is delinquent in amounts due to the association.
What happens when an association wrongfully refuses to
approve a transfer? In Barnett and Klein v. The President of
Palm Beach, a Condominium, an owner recovered damages for
tortious interference with a contractual relationship when
the association denied his effort to rent relying on a rule
adopted by the board instead of a limitation in the
declaration. The rule was held beyond the board’s authority.
In Phillips v. Hunter Trails Community Association, the
rejected buyer recovered almost $200,000 in damages even
though the association exercised a right of first refusal.
In that case, the purchaser was African American and
established that he was denied approval because of his race.
Condominiums are on a slippery slope when exercising
approval authority. They must act reasonably. The reason for
disapproval must also meet the requirements of statutes.
Many federal laws provide protection to people who could
have been denied approval in the past. The Fair Housing Act
includes familial status (children) as a protected class.
Those with disabilities are similarly protected.
Condominiums must apply approval procedures with an even
hand. When an association fails to do so, the result can be
an expensive education for the Board of Directors and
owners.