Case Update: Condo Leasing Restrictions & Alleged Fair Housing Act Violations

On June 18 of this year, the Georgia Court of Appeals ruled on the case of Bailey v. Stonecrest Condominium Association, Inc., 2010 WL 2472501 (Ga.App.). This case arises out of the attempted adoption of a leasing restriction in a condominium and problems arising out of the reasons for which it was adopted. At its core, the case turns on the question of whether the leasing restriction was adopted to allow the exclusion of African Americans from residency at the condominium as tenants.

A unit owner from the Stonecrest Condominium (“Bailey”) filed suit against Stonecrest Condominium Association, Inc. (the “Association”) and the members of the Association board, for compensatory damages, punitive damages, and attorney fees, based upon the claim that the Association adopted amendments restricting leasing of units constituted racial discrimination in violation of the Fair Housing Act (FHA). Bailey further alleged that the board breached its fiduciary duties in proposing those amendments. The trial court granted the Association’s motion for summary judgment and Bailey appealed. The Court of Appeals vacated the summary judgment and the case has been remanded to the lower court for hearing.

The Court of Appeals held that: (1) Bailey failed to present direct evidence of intentional racial discrimination; (2) Bailey’s circumstantial evidence established a prima facie case of racial discrimination; (3) nondiscriminatory reasons proffered by board for adopting amendments satisfied board’s burden of production under McDonnell Douglas framework; (4) a factual issue remained as to whether board’s non-discriminatory reasons were pretext for unlawful discrimination; and (5) factual issues remained as to whether boards’ decision to adopt amendments was arbitrary and capricious, precluding summary judgment in action for breach of fiduciary duty.

An Association board member allegedly made comments to Bailey that the amendments were proposed because Bailey leased her unit to an African-American tenant. Another unit owner also allegedly made racial epithets and other racially discriminatory comments before and during the Association’s annual meeting, including stating that she did not want minorities living at the condominium. However, the Association presented evidence that it had (facially) non-discriminatory reasons for adopting the amendment that passed the current legal standards for evaluating such purposes.

While the Court determined that these comments were not direct evidence of intentional racial discrimination by the Association, they did determine that there were genuine issues of material fact as to whether the non-discriminatory reasons for the Association’s passage of the amendments were a pretext for unlawful discrimination. Because these issues remained, permitting the summary judgment to stand would be improper, as these issues need to be heard and determined in court.

What does this mean for condominium associations? It merely means that even in condominiums, care should be taken in the process of deciding to adopt amendments, having a proper/lawful purpose for adopting those amendments, and documents those reasons. It also means that Association board members need to be aware that anti-discrimination laws do apply to their actions and that they need to consider those laws in fulfilling their service on the Association’s board. Of course, it also helps to get guidance from a community association attorney when issues arise and before an amendment is contemplated to help ensure that the Association does things properly!

Stay tuned, as the case is not over yet. . .

By: Amy H. Bray, a partner in our Commerical Real Estate Department.