Can A Connecticut Condo Board Restrict Owners From Renting Their Units?
Paul of Plainville asks what appears to be a simple question; can a condo board of directors restrict owners from renting their units or do owners have the right to vote on this issue?
Unfortunately the answer is complex and could depend on the exact circumstances involved in each condo complex. The decision could have major ramifications on the value of a condo if investors were not permitted purchase a unit for rental properly. On the flip side, if too many units are renter occupied banks are unable to provide mortgages. Also, too many renters could change the environment of a complex.
Glastonbury condo attorney Patricia Ayars has her take on the issue, but she notes that other lawyers may disagree with her. What has been your experience at your complex?
From Atty. Ayars:
I have recently been at odds with another attorney regarding the power of the board to adopt restrictions on the number of renters. It is my opinion that the board does have certain powers to restrict the leasing of residential units to meet the underwriting requirements of institutional lenders. The power is contained in Section 47-261b(f) (3) of the Connecticut Common Interest Ownership Act. This relevant part of this subsection states:
(f) An association may adopt rules that affect the use of or behavior in units that may be used for residential purposes, only to:. . . .
(3) Restrict the leasing of residential units to the extent those rules are reasonably designed to meet underwriting requirements of institutional lenders that regularly make loans secured by first mortgages on units in common interest communities or regularly purchase those mortgages, provided no such restriction shall be enforceable unless notice thereof is recorded on the land records of each town in which any part of the common interest community is located. Such notice shall be indexed by the town clerk in the grantor index of such land records in the name of the association.
This Section is modeled on Section 3-120b(f)(3) of the Uniform Common Interest Ownership Act. The Section does apply to communities formed before the adoption of the Common Interest Ownership Act.
The underwriting requirements referred to in the Subsection are those of FHA, Fannie Mae, and Freddie Mac. FHA does not insure loans in condominium communities that have less than 50% of the units owned by owner occupants. Fannie Mae and Freddie Mac will not buy investor mortgage loans in residential condominium communities that have less than 50% of the units being owned by owner occupants. All three prohibit any one person (which includes related parties of some types) from owning 10% or more of the units in a condominium. Fannie Mae and Freddie Mac purchase the majority of residential mortgages written by lenders. Unless the lender maintains its own portfolio of loans, the lender uses the Fannie Mae and Freddie Mac requirements as part of the lender’s underwriting process.
Condominium Associations usually cannot adopt rules affecting the use of units unless specifically granted the power under Section 47-261b (f). The power to restrict leasing is one of the exceptions to the prohibition. Therefore, the Board must carefully follow the requirements of the Subsection. The Board must use the appropriate procedures to adopt the rule and record the rule on the land records. The recording on the land records provides notice to the purchasers and mortgage lenders that the restriction exists.
Subsection (f)(3) states that the restriction on rentals must be “reasonably related” to the underwriting requirements. The restrictions are very clear. If there is even one unit more than the 50% requirement, the mortgages will not be written in that community. Consequently, most boards restrict rentals to a percentage that is less than 50% Boards have restricted rentals to lesser percentages because there are certain conveyances over which they have little or no control. For example, a unit may be sold to an investor without the Association’s knowledge, a mortgage company may foreclose on a unit or take it by short sale or deed in lieu a foreclosure, the unit may be taken pursuant to a tax sale, or a purchaser may buy the unit at a foreclosure sale. Some Boards also like to hold a unit or two in reserve for hardship cases. If the Board has a reasonable basis for using a lesser percentage, the Courts will probably uphold the restriction.
This broad view of the powers delegated to the condominium’s board of directors is consistent with the principle “inherent in the condominium concept … that to promote the health, happiness, and peace of mind of the majority of the unit owners since they are living in such close proximity and using facilities in common, each unit owner must give up a certain degree of freedom of choice which he might otherwise enjoy in separate, privately owned property. Condominium unit owners comprise a little democratic sub society of necessity more restrictive as it pertains to [the] use of condominium property than may be existent outside the condominium organization.” Hidden Harbour Estates, Inc. v. Norman, 309 So.2d 180, 181-82 (Fla.App.1975).
Weldy v. Northbrook Condo. Ass’n, 279 Conn. 728, 738, 904 A.2d 188, 194 (2006)
Hartford Condo Atty. George Coppolo agrees that most likely boards can make this change:
I believe it can, but if the declaration already contains explicit restrictions the declaration would probably have to be amended first to prevent a possible conflict between the declaration and board action.
The issue is a little more unsettled if the declaration contains a minimum voting requirement that must be satisfied before such restrictions may be imposed by the association. Some attorneys differ on whether this type of procedural requirement in the declaration trumps the right of boards to adopt rules that impose restrictions on leasing units. This might need some legislative clarification.