Transfer Restrictions (Community Association Quarterly)

There is a great deal of community association litigation on the ability of homeowners’ and condominium associations to place restrictions on property transfers. Those who challenge restrictions on property transfers allege their right to transfer their property is being unreasonably restrained. Restrictions that unreasonably restrain the right of a property owner to transfer his or her property are known as unreasonable restraints on alienation. In Davis v. Geyer, the Supreme Court of Florida analyzed a property transaction in which property had been conveyed by warranty deed and simultaneously the parties executed an agreement containing a provision that no sale of the property would be made by the grantee until that sale was approved by the grantor. The Court noted that it had long been the law in Florida that a condition annexed to the grant or devise of land which prohibited the grantee or devisee from alienating that land was void. The Court stated that after an absolute conveyance in fee simple, a clause prohibiting the grantee from conveying without the consent of the grantor is repugnant and void, as is a condition to sell only to a particular person or persons.1
Courts in this line of cases determine the validity of transfer restrictions by measuring the duration of the restraint, the type of alienation precluded and the size of the class of persons prevented from taking the property interest. The court in Camino Gardens Ass’n v. McKim, states, “When determining the validity of restraints on alienation, courts must measure such restraints in terms of their duration, type of alienation precluded, or the size of the class precluded from taking.”2
A restrictive covenant found in a community association’s declaration is conceptually different from an arbitrary and absolute right of a grantor to approve a grantee’s subsequent purchaser. The difference is found in the public policies at issue. While the rule against restraints on alienation is meant to further the public policy in favor of fostering economic and commercial development, in the context of community associations there is a competing public policy in favor of protecting the right to self-determination of the community association, and protecting the welfare and property values of the community as a whole. Florida courts recognize the right of community associations to screen prospective purchasers and tenants. The most common screening procedure is a simple criminal history background check to ensure the community is free from those who may pose a threat to the health and safety of the other residents. Communities may also curtail owners’ right to lease altogether by imposing minimum lease durations and restrictions on the number of times an owner can lease in a given period. The purpose of this type of restriction is to discourage an environment of transiency, where the short term occupants have little investment in preserving the quality and character of the community.
In an effort to balance competing public policies, Florida Courts have adopted and applied a reasonableness test with respect to restraints on alienation. In determining the validity of a condominium association’s leasing restrictions, the court in Seagate Condo. Ass’n v. Duffy applied the reasonableness test by analyzing the leasing restriction within the context of the uniqueness of community association living. The dispute in this case arose over the adoption of a leasing restriction that was approved by ninety-six percent of the unit owners. The restriction prohibited “the leasing of units to others as a regular practice for business, speculative, investment or other similar purposes.” The provision detailing the restriction allowed the board under special circumstances, and to avoid undue hardship, to approve leases of at least four consecutive months but no more than twelve consecutive months. The court examined the leasing restrictions and considered whether the “restriction is reasonable given the context in which it was promulgated, i.e., the condominium living arrangement.” The court also asked whether the restriction, as a restraint on alienation, was valid in terms of duration, “type of alienation precluded, and the size of the class precluded from taking.”3
The court in Seagate Condo. Ass’n v. Duffy concluded that the restriction was reasonable in that courts recognize the problems of condominium living and the need for a greater degree of limitation upon the rights of the individual owner. The court cites to Hidden Harbour Estates v. Norman for the proposition that “inherent in the condominium concept is the principle 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…”4
The court reasoned that given the unique problems of condominium living in general and the special problems associated with living in a tourism community in South Florida in particular, the association’s objective of inhibiting transiency to foster a residential atmosphere in their community is entirely reasonable. “The attainment of this community goal outweighs the social value of retaining for the individual unit owner the absolutely unqualified right to dispose of his property in any way and for such duration or purpose as he alone so desires.”5
The court also determined the leasing restriction was neither an unlimited nor an unreasonable restraint on alienation. The court reasoned that the restriction is not unlimited for several reasons. It prohibits only a specific form of alienation, i.e., leasing. Additionally, the condominium association will consider its hardship cases. Finally, the restriction can be terminated at any time by a vote of the condominium unit owners.6 Keep in mind, following this ruling, the Florida Legislature adopted Fla. Stat. § 718.110 (13), which provides that amendments prohibiting owners from renting their units, setting minimum or maximum rental terms, or limiting the number of times a unit can be rented during a period, are only effective against owners who consent to the amendment and owners who acquire title after the effective date of the amendment.7
Both Chapter 720 and the Condominium Act recognize an association’s ability to approve or disapprove a lease or other transfer. Chapter 720 mentions it in passing in discussing the association’s obligation to maintain official records, stating that notwithstanding the association’s obligation to maintain official records and make them available for inspection and photocopying by members, the association may not allow access to “Information obtained by an association in connection with the approval of the lease, sale, or other transfer of a parcel.”8 The Condominium Act provides an additional statutory ground for denial of a prospective lease for associations authorized by their declaration or bylaws to approve or disapprove a proposed lease of a unit. Fla. Stat. § 718.116 states that an association may disapprove a proposed lease if the unit owner is delinquent in the payment of an assessment.9
The Condominium Act also sets forth certain regulations regarding covenants on leasing and transfer. As stated above, the Condominium Act does not allow the association to impose a restriction prohibiting rentals, and restrictions on lease terms, against owners who do not consent, unless the owner purchased the unit after the effective date of the restrictions.10 In addition, the association may not make any charge in connection with a lease, mortgage, or transfer unless the association is required to approve the transfer and the fee is provided for in the governing documents. Any such fee may not exceed $100 per applicant. A husband and wife is considered one applicant, as is a parent and child. The association may not charge for approval of a lease renewal. If permitted by the declaration or bylaws, the association may require the tenant to place a security deposit into an escrow account maintained by the association in an amount not to exceed one month’s rent. Disputes regarding this deposit are governed by the Florida Residential Landlord and Tenant .11

(Endnotes)
1 Davis v. Geyer, 51 Fla. 362, 370, 9 So. 2d 727, 730 (1942).
2 Camino Gardens Ass’n v. McKim, 612 So. 2d 636, 639 (Fla. 4th DCA 1993).
3 Seagate Condo. Ass’n v. Duffy, 330 So. 2d 484, 486 (Fla. 4th DCA 1976).
4 Hidden Harbour Estates v. Norman, 309 So. 2d 180, 181-82 (Fla. 4th DCA 1975).
5 Seagate Condo. Ass’n v. Duffy, 330 So. 2d 484, 486 (Fla. 4th DCA 1976).
6 Seagate Condo. Ass’n v. Duffy, 330 So. 2d 484, 486 (Fla. 4th DCA 1976).
7 Fla. Stat. § 718.110 (13) (2012).
8 Fla. Stat. § 720.303 (5) (C) (2) (2012).
9 Fla. Stat. § 718.116 (4) (2012).
10 Fla. Stat. § 718.110 (13) (2012).
11 Fla. Stat. § 718.112 (2) (i) (2012).