Publications
Unfair Housing
Published March 13, 2004
Board must weigh options for restricting or eliminating leasing
Picture, if you will, a man running from building to building, looking for a place to live . . . you have now entered the “no rental zone” (with apologies to Rod Serling).
Leasing amendments for condominiums are all the rage. In the ‘70s and ‘80s, you could not get enough votes to adopt them; since the ‘90s, you cannot get them passed fast enough!
Where is this all going to lead?
Ultimately, a dramatic shortage of rental property if you consider that most multi-family buildings that are rental will convert to condominiums within their first 20 years and then those buildings will frequently amend the declaration to restrict or eliminate renters (sanctioned by the Illinois Appellate Court in Apple II Condominium Association vs. Worth Bank & Trust Co., 213 Ill.Dec. 463, 659 N.E.2d 93 (1995).
The purpose of this article is not to analyze the social issue at hand, but rather to outline the various approaches that can be used to eliminate a renter or absentee owner problem.
Consider no two associations are alike and each property has its own unique problems. Therefore, what may work for one association may not succeed at another. Here are some examples of the different options available to restrict or eliminate leasing:
1. Banning leasing outright (works best when there is none to begin with).
2. Setting a final date in the future (e.g., 12/31/06).
3. At the expiration of the lease (this works when there is only a minimal number of investor owners).
4. When that particular tenant moves out (this protects long-term residents, who have been good rule abiding, rent-paying tenants).
5. “Grandfathering” all current investor owners until they sell or the unit is transferred.
6. Minimum residency required prior to leasing (this grandfathers all current owners and future owners who start out as residents. It discourages new investor purchasers, e.g., you must reside in the unit for one year before you can rent it).
7. Quotas or minimum percentages. These are quite unwieldy and require a great deal of administrative and bookkeeping work to keep track of a “waiting list.”
8. If all else fails, the Apple II case as previously cited also stands for the proposition that a board that wants to eliminate leasing can do so by board-resolution and does not require owner approval. (Note: This is a risky approach because the legal test an association would have to withstand to support a resolution is very stringent and a future board can always revoke a resolution.)
Amendments to the declaration generally require super-majorities (2/3 or 3/4 of all owners) to pass them, often require certified mailing to mortgage holders and must be recorded in the office of the county recorder of deeds. All documents must be in proper format and the empowering authority by the owner (ballots, proxies, petitions, minutes, etc.) must be attached. As a result, it is essential that an attorney prepare these documents so that they are legally correct and enforceable.
Realistically, it requires a committed and dedicated cadre of volunteers to guarantee that enough people will support the amendment to get it passes. Owners will not just sign on the dotted line without hard work by the board or a committee.
Several additional issues worth noting are:
1) Contract Sales – In this age of low mortgage rates we do not see too many of these except in the instance of people with poor credit histories. A board of directors needs to be wary of a renter masquerading as an installment purchaser.
All of the elements of a contract sale need to be in place in order for it to be a bona fide transaction and not a sham to get around a “no leasing” policy.
2) Land Trusts – Another way to skirt a resident-owner only policy is for a crafty landlord to convey a minimal interest in a trust to a tenant. Carefully worded amendments can avoid this problem although investigating into rental income being paid between “owners” is a good test.
When a board is seeking to adopt an amendment by going door to door, you must make sure you are diligent and not take two years to get the requisite support. A court challenge will result in a defeat if the board did not get approval within a “reasonable period of time.”
Lastly, when budgeting for the cost of doing an amendment, always remember that it must be recorded, it does not take effect until the recording date and the recorder charges for each and every page. It will take 3-6 weeks to get back the original file stamped copy.
In conclusion, many associations blame their ills on too many renters and mortgage lenders will balk at making loans when an investor owner population starts to creep over 20%, but one way to minimize problems is to involve the renters in the community by making them aware of all rules governing conduct and including them in social activities. A board of directors must also know the community it represents, where one approach may work in some places, it will not work in others. By using a custom approach, the board of directors can accomplish its goals.