Monday, May 31, 2010
Adapting your community’s restrictions to today’s new reality
Last week a client asked me if they could or should overlook an amendment to their Declaration that was passed several years ago. That amendment placed a cap on the number of rentals that the Board could approve in the community; it was a restriction that was wholeheartedly supported by the membership at that time. Here’s the rub: that cap has now been achieved and there are several owners who are currently in danger of losing their units to foreclosure if they cannot rent out their units.
What should the board do in this instance? Amending the rental cap restriction at this time is not really an option for this community. If the board ignores the rental cap restriction in their governing documents do they risk a breach of fiduciary duty claim and/or do they risk being able to once again enforce this restriction when market conditions stabilize in the future?
My advice to this board was to weigh the pros and cons of rigidly enforcing a declaration restriction which does not really fit in with today’s new reality. The unique fact pattern surrounding owners who might lose their home to foreclosure might insulate the board from a selective enforcement argument in the future when foreclosure isn’t the issue and owners wanting what they want is. Moreover, the board can also republish the rental cap restriction in the future when market conditions no longer merit overlooking that cap.
If this situation teaches a community anything it is that every documentary restriction should contain a hardship exception to give the board the flexibility it needs to deal with changing membership needs and market factors beyond the board’s control.