For over a year, it would appear from the outside that the only issue Florida community associations have been dealing with is the pandemic. Those of us who work with, live in, or manage condominiums know this is not the case. However, it did seem that COVID-19 issues superseded all other issues for some time.
Now that it seems we may be seeing some light at the end of the pandemic tunnel, it might be a good time to touch on one of the issues that is most commonly misunderstood in condominiums: Rights to restrict leasing. It is impossible to cover in one article all the considerations that associations should take into account with respect to leasing restrictions.
It is not unusual for condominiums to require that renters be approved prior to moving in. This process usually involves the condominium asking prospective renters to complete an application, submit an application fee, and sometimes be available for a personal interview prior to approving the lease. Also, once the lease is approved, it is common to ask for a security deposit.
Many associations take these actions because they believe the Florida Condominium Act gives them the right to do so. This is not the case. The Florida Condominium Act addresses some of these issues, but the references in the Act are dependent on the rights to actually approve or disapprove, existing in the association’s governing documents. Similarly, the governing documents must provide for most of the things condominiums usually demand during the lease approval process (like the application fee or the security deposit) before the association can legally require them.
Because each association’s documents are different, managers and boards of directors need to make sure that their governing documents specifically support the demands they are making on prospective renters and unit owners.
RIGHTS OF FIRST REFUSAL
One of the most common misunderstandings I see is confusing the right of first refusal with a right of approval or disapproval. Many older condominium documents have language that requires the owner that desires to rent his or her unit to notify the association and give the association the right of first refusal to rent the unit on the same terms and conditions as the terms and conditions that a prospective renter has agreed to. Most of these provisions do not allow the association to simply disapprove the lease.
Instead, the association can either accept the lease and the prospective tenant, or it must exercise the right of first refusal to either rent the unit itself or appoint an approved designee to do so. Often, the exercise of the right of first refusal requires unit owner approval. This is a far cry from a straightforward right of the association to approve or disapprove a lease. While some governing documents contain both a right to approve or disapprove a lease, as well as a right of first refusal, associations that only have the right of first refusal should not assume they can simply disapprove a lease or a prospective renter and take no further action. It is just not the same.
Associations must also be sure to take whatever actions are authorized regarding leases within the time specified in the documents or governing law. The governing documents and/or local ordinances may require a decision within a particular timeframe for the association to communicate its decision. Failure to act within the specified time frame often bars the association from disapproving the lease.
Information related to the approval or disapproval
Part of the application process usually involves review of the documents submitted in support of the application. Care should be taken to guard the privacy of these documents. Not only does the Florida Condominium Act expressly exclude information obtained by an association in connection with the approval of the lease from the official records of the association that unit owners may review, but these documents usually include all sorts of personal identifying information that is also supposed to be excluded from reviewable official records of the association.
As a result, the documents should be kept in a secure and separate location to avoid inadvertent disclosure. Moreover, the information contained therein should only be shared with the board of directors and/or those involved in the review process and used for the limited purpose of deciding on the approval or disapproval.
What most associations call the application fee is what the Florida Condominium Act calls a “transfer” fee. Aside from the Act expressly requiring that such a fee be authorized in the association’s governing documents, there are also limitations in the Act as to how much an association may charge, depending on the number and relationship between the prospective tenants. The association should be mindful of its limitations.
In the event the board of directors has the right to approve or disapprove a lease, it must base its decision on proper non-discriminatory rationale. Many documents set out the objective reasons for which a lease may be disapproved (e.g., the lease is shorter than the minimum lease term required in the governing documents or the unit is delinquent in its assessments). Some are less clear. In these cases, the association should consult with its attorneys to discuss potential amendments to clarify the expectations for owners and prospective tenants.
In addition to the governing documents, however, federal and Florida Fair Housing and other laws apply. Associations should tread carefully in disapprovals and ensure they have sought legal advice prior to exercising the right to disapprove a lease to make certain their actions are compliant with applicable laws. It goes without saying, of course, that no prospective tenant should be disapproved because of any protected class (e.g., race, religion, sex, etc). Given the potential complexity associated with housing, however, associations should review their documents and applicable laws with their attorney to understand how to best navigate this process.
Assuming the lease is properly disapproved pursuant to the association’s governing documents and governing law, it must take whatever actions are required in the governing documents for communicating this disapproval. However, it is important to also verify if there are any local regulations that require any particular notice to the tenant or owner regarding the disapproval.
If associations find their governing documents are not quite as clear in describing the association’s and unit owners’ relative rights related to leasing and lease approvals, they should consider amending their documents. Aside from clarifying rights, associations might want to change the restrictions they have because they no longer suit the community. Especially in the case of communities established in the 70s and 80s, the population of a building drastically changes over time, and the original documents can be too restrictive or too permissive regarding leasing. In either case, this can be remedied to reflect the will of the current population by amendment.
Keep in mind that in addition to whatever your association’s governing documents provide regarding the approvals needed for amendments to the leasing provisions, the Florida Condominium Act also has certain limitations on amendments that can be made to leasing provisions. Associations considering modifying their leasing restrictions should discuss with their attorneys the pros and cons to different types of restrictions and the approvals required to achieve these.
Of course, there are many more considerations that associations should take into account with respect to leasing restrictions than can fit into this article. An evaluation of your current practices and your current documents should be followed by a conversation with your association attorney to determine whether and what kinds of changes are needed.
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Lilliana Farinas-Sabogal is a Board Certified Specialist in Condominium and Planned Development Law and a shareholder in Becker’s Community Association and Business Litigation practice groups. In addition to her experience assisting community associations with day-to-day management and operation of governing their communities, she advises Boards of Directors, unit owners, and community association managers on how best to resolve their contractual and transactional disputes and issues. To learn more about Lilliana, please click here.