HOA Leasing Restriction Update   19 comments

Early in December 2009, the Georgia Court of Appeals handed down an opinion in Charter Club on the River Home Owner Association v. Walker, 2009 WL 4351908 (Ga. App.) that has caused a great deal of consternation among homeowners associations, their managers, and their attorneys. This opinion brought to a head the wave of disputes regarding leasing rights popping up in homeowners’ associations around Metro Atlanta.

It is important to pay attention to the specific facts in the case of Charter Club on the River Home Owners Association, Inc. (the “Association”) to understand where things are today. The Declaration of Protective Covenants for Charter Club on the River, as recorded in Deed Book 10455, Page 0014, et seq. on June 29, 1994 in the records of the Clerk of Superior Court of Gwinnett County, Georgia (the “Declaration”) originally permitted owners to lease their residences. On September 23, 2004, Constance Walker purchased a residence in the Charter Club on the River Subdivision and then she leased the residence to four students. Meanwhile, the Association passed an amendment to the Declaration to prohibit leasing residences within Charter Club on the River, which prohibited leasing except in limited situations, on May 11, 2005. This leasing restriction contained relatively common provisions, grandfathering in then-existing leases and allowing owners to lease residences in the case of hardship.

After Mrs. Walker had replaced her “grandfathered lease” with a new one, the Association assessed fines against Ms. Walker pursuant to the leasing restriction. Ms. Walker then sued. The Association filed an answer and counterclaimed requesting that the court force Walker to pay fines and evict the tenants. The parties then filed cross motions for summary judgment and the Association sought a temporary restraining order as well as an interlocutory injunction. The trial court denied the Association’s motions and granted Ms. Walker’s motion as to the counter claims filed by the Association. The Association then appealed the trial court’s motion and the Appellate Court affirmed.

Before going any further into the analysis of this case, it is important to note that Charter Club on the River is a common law homeowner’s association. It is subject to neither the Georgia Property Owners Association Act (O.C.G.A. § 44-3-220 et seq.) nor to the Georgia Condominium Act (O.C.G.A. §44-3-70, et seq.). Both the trial court and the appellate court in the Walker case limited their rulings to the facts at hand and it appears that if either Act were applicable the case result would have been different.

The case turns on the construction of O.C.G.A. §44-5-60(d)(4) which provides that no change in covenants to impose “a greater restriction on the use or development of land will be enforced unless agreed to in writing by the owner of the affected property at the time of such change is made.”

The trial court, as affirmed by the appellate court, ruled that application of O.C.G.A. § 44-5-60(d)(4) rendered the Association’s amendment inapplicable to Walker because Walker did not consent to the amendment which contained a greater restriction on Walker’s use of her land at the time it was made. The result, in this case, is a limitation on the rights of common law homeowners’ associations to change use restrictions – to be effective, amendments to covenants and use restrictions that further restrict the use of an owner’s property will require 100% owner consent to be fully enforceable. The bottom line is that now more than ever, common law homeowner’s associations should seriously consider subjecting themselves to the provisions of the Georgia Property Owners Association Act. The statutory authority it gives associations will be even more useful to help associations adopt amendments that address the current state of the subdivision.

By: Amy H. Bray, a partner in our Commercial Real Estate & Banking Department

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19 responses to “HOA Leasing Restriction Update

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  1. I in implication enjoyed reading your blog and forge it both illuminating and interesting. I will-power be certain to bookmark it and upon it as oft as I can.

    Thanks

    Bernice Franklin

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  2. Why is it that the attorneys always seem to be on the side of taking away member rights and giving them to the board so that the board can restrict the owners?

    Please explain why this is so beneficial to me as a member.

    Mike Hord

    • I probably can not give you a quick and satisfying answer to that question.

      Lawyers are hired to help association boards accomplish their goals within the structure that is already in place (or in some cases, to create that structure). Our job, as I see it, is to provide advice and suggest options based upon our experiences in other community associations.

      The bottom line for me is trying to strike the balance between telling my clients what’s legal and pointing out the real-world ramifications of their actions (where they can be anticipated). I try to inject reasonableness and consideration for the situation into my advice. After all, people in community associations are members and have to live with the results of their actions in a very immediate way.

      But my idea of what the neighborhood wants is not what matters. It’s the board’s decision and my job is to try to help them do it in a way that is enforceable.

      That said, the board has the authority to determine and carry forward what they believe the members want. Just like in our government, if you do not like what the board of directors is doing campaign to replace them at the next election. Make sure they follow the rules that have been set up. Try to find productive and positive ways to address the restriction before it is adopted. Typically, a restriction is not going to be imposed without a vote. That vote is not the voice of the board, but the voice of the members. The members, as a group, have the power here.

      So at the end of the day, I’m not sure I answered your question. It may be that the reason it seems that “attorneys always seem to be on the side of taking away member rights” is that the associations hire attorneys to help them try to accomplish their goals and members are not hiring attorneys to look at what’s being done. If you have a question about what’s being done in your own association I urge you to find an attorney with experience dealing with community associations and consult them for advice.

  3. have a good time,i like your blue blog colour.

  4. As a retired atty. in Louisiana, I’m trying to give free legal advice to condo. assn. concerning leasing restrictions on leasing of condos. Do you know of any HUD, FHA, Convention Mtg. restrictions on numbers of leased condos effect purchaser’s financing of condos? Has this been used as basis for limiting rentals?
    Any advice?

    • There definitely are guidelines out there and they have been used as the basis for limiting rentals. Check out http://www.eFannieMae.com for the selling and servicing guides to find the current leasing requirements for condominiums. HUD also has a helpful website, http://www.HUD.gov that you can search for their requirements. In any leasing restriction, you really need to consider the balancing of interests — both the benefit from limiting the rentals and the need of owners to rent. In Georgia there are parameters that should be considered when drafting and considering a restriction regardless of whether you’re talking about a condominium or a homeowners association.

      Of course, my caveat is that you need to make sure you’re looking at the most current version (sometimes the online information lags behind the updates) and that you’re looking at its interaction with local law.

      Another caveat, although not specifically directed at you in any way, shape, or form, is that sometimes I’ve been asked questions like this and it turns out that the development/subdivision is not a condominium after all. So for anyone reading this post, please do not assume things. . . check it out and get help if you’re not familiar with this area of the law.

  5. Is it your judgement that this law just applies to Condos in an Association?

    • To start, we would need to re-define your terms before I could answer that question and I hesitate to do so, as I think you really need to find an attorney, hire them, and work through the issue you’re trying to solve.

  6. I have a question. Here is a little background first. I am a Landlord in a condo complex located in Missouri ran by a resident-owner board. I purchased condos in the complex from 2002-2005 and titled them in my name personally. The board got a rental restriction passed in 2006 grandfathering my units. In 2008 I refinanced all of my portfolio with another bank who would only do the loan if I put the condos in an LLC. I put all of my portfolio into a LLC that I own 100% of. Jump to late 2010….I get a letter from the Board’s Attorney stating that because there was a transfer of ownership in all of my properties after the lease restriction being passed that I am no longer allowed to rent my units. I cannot locate any prior caselaw with the same fact pattern determining how to proceed.

    • I am not familiar with Missouri law on this subject, nor am I licensed in that state. The law — and your options — can vary fairly widely from state to state. It sounds to me like a good idea to consult with an attorney licensed in Missouri, who is familiar with condominiums, leasing restrictions, and general real estate to figure out your rights.

  7. You write that “Both the trial court and the appellate court in the Walker case limited their rulings to the facts at hand and it appears that if either Act were applicable the case result would have been different.”

    Why would the “Georgia Property Owners Association Act (O.C.G.A. § 44-3-220 et seq.)” make a difference when the O.C.G.A. §44-5-60(d)(4) contains the sweeping language “Notwithstanding any other provision section or any covenants with respect to the land.” Would that language not cover directly or indirectly the “Georgia Property Owners Association Act (O.C.G.A. § 44-3-220 et seq.)” ? Does the the “Georgia Property Owners Association Act (O.C.G.A. § 44-3-220 et seq.)” have a provision that expressly negates effect of O.C.G.A. §44-5-60(d)(4)?

    • I encourage you to hire an attorney to help you with the interpretation of the Act in connection with what ever issue you are trying to analyze. However, yes, the Georgia Property Owners Association Act has a provision that specifically states that subsections of O.C.G.A. Section 44-5-60(d) do not apply to instruments submitted to the Act (see O.C.G.A. Section 44-3-234).

  8. I am in a HOA that recently adopted the provisions of the Georgia Property Owners Association Act. I know through letters that this was done to limit my practice of renting to vacationers. All other forms of leasing are specifically grandfathered when applying the new more restrictive rules. Do you think i can get a perm injunction to allow me to continue my practice? Without short term rentals I will not be able to keep the home and I want to move back into the home eventually.

    • To be honest, I simply can’t answer that question in this forum. There are too many details that could affect the answer I give. . . and I do not want to give half-baked answers. To me it sounds like you need to go find an attorney that knows this area, who can look at the documents and what you are trying to do, and get the targeted, specific advice you need.

  9. Wouldn’t amending an HOA declaration to submit to the POA act and to include a restriction to leasing be a new restriction to land use that, if an HOA member doesn’t agree to, shouldn’t be held to?

  10. Hi Amy,
    My wife and I are the original and current owners of a property in GA, which is part of a Community Association. It is a single family unit housing community as opposed to a condominium dwelling. The property was purchased in 2003. We resided there until we moved in 2011.

    Still being the original and current owners, we are up to date on the HOA dues and keep the property maintained per the Bylaws as we have a vested interest in the property and community for we have intent to ultimately sell the house when the housing market improves. Since the house did not sell at our ask price and we did not want to take a loss, we found a tenant to lease the house.

    The community’s original HOA Bylaws is not subjected to the provisions of the Georgia Property Owners Association Act (O.C.G.A. § 44-3-220 et seq.) nor to the Georgia Condominium Act (O.C.G.A. §44-3-70, et seq.). It has no lease capacity restrictions indicating the number of homes that can be leased. It states that the lots may be leased for residential purposes. The Bylaws do contain formal procedure to make amendments.

    I have now come to know that the HOA is looking to formally propose an amendment to introduce lease capacity restrictions into the Bylaws.

    We are invoking our right as described in Section 44-3-226 of the Georgia Code; hence, we are making a formal objection to the proposed amendment to introduce lease capacity restrictions Bylaws and stating our concerns.

    Question #1
    Per the case you described above, and with the information I provided, is it legal for the HOA to alter the Bylaws with an amendment to introduce lease capacity restrictions (for example a 10% leasing capacity)?

    Question #2
    As home owners do we have to comply with the amended lease limits if the new Bylaws restrict our ability to lease out this property and since our intent is to ultimately sell the lot in a good market.

    Question #3
    What is the legal objective that we are achieving in making a written formal objection to the proposed amendment within the 30 day window of being notified that an amendment is being proposed?

    Regards,
    Concerned GA Home Owner

    Concerned GA Home Owner
    • Concerned GA Home Owner, I hate to tell you the same thing I told Chris, but it would be in your best interest to find an attorney that is knowledgeable in this area and have a private consultation, following the attorney performing their required conflict checks, etc., that focuses on your rights in this situation. Every situation is different and even small facts can change an outcome. I would not want to a) provide you advice that you decide rely upon, without ever having spoken to you or met my ethical responsibilites under the Bar rules or b) create a public record of your conversations regarding your personal situation and rights. It is not in your best interest (or mine).

  11. For clarity of my last post, would an amendment to the declaration that included both a submission to the POA Act and to include leasing restrictions be unenforcable to current owners?

    • Chris, to the extent that you’re asking me to provide a legal opinion about the situation or some conclusion of law applicable specifically to your situation, you instead need to find an attorney that is knowledgeable in this area of the law and have a private consultation (as opposed to a conversion in a public forum, that by necessity tends to leave out important details). It sounds like you need an attorney that has performed a conflict check on the parties involved (fulfilling the attorney’s ethical obligations) and can really help you work through the issue to help you determine your rights.

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