Guidance for Condominium Associations That Want to Amend Their Rental Restrictions

In Washington, the law does not automatically impose rental restrictions on condominium unit owners. This is something that is commonly done through a condominium association’s declaration when, or after, a condominium association is incorporated.

Deciding whether and to what extent rental restrictions are right for a specific condominium association are very important decisions for an association to make. Often, condominium associations choose to impose rental restrictions because some lenders (e.g., FHA) require certain levels of owner-occupancy in condominium complexes before they will extend funding to prospective buyers. This means that if there are too many rented units in a condominium complex, prospective buyers would have limited funding options. On the other hand, some condominium associations may not want rental restrictions because these restrictions can decrease the demand for condominium units and lead to depressed unit prices. It would be prudent for an association to speak with its advisors and carefully determine which restrictions would best serve its long-term goals before moving forward with rental restriction amendments.

If a condominium association decides that amending its rental restrictions is in its best interests, an association should take care in how it proceeds with such an amendment. Ordinarily, for condominium associations created after July 1, 1990, an association must acquire at least a 67% vote of their members to amend its declaration. However, if such an association is attempting to change the “uses to which any unit is restricted,” then the law requires the association to acquire at least a 90% approval vote before making the change.

The applicable condominium statutes do not define what constitutes “uses to which any unit is restricted” or whether rental restrictions would considered “uses” in this context. The distinction is important because, if rental restrictions are part of a unit’s restricted “uses,” then it will be much harder to adopt changes to rental restrictions given the 90% approval vote requirement. If an association adopts an amendment without the proper number of approval votes, that amendment could be deemed null and void.

In a recent decision, the Washington Supreme Court has provided some guidance for condominium associations looking to amend their rental restrictions. In Filmore LLLP v. Unit Owners Ass’n of Centre Pointe Condominium, the Supreme Court found that an association’s proposed amendment that would affect its rental restrictions required a 90% approval vote when the declaration expressly referred to lease restrictions under a section addressing “Permitted Uses.” Although the Supreme Court constrained its decision to the facts of that case, the Court’s decision provided several important takeaways for condominium associations created after July 1, 1990. If an association’s declaration discusses lease restrictions alongside a unit’s potential “uses,” the association should take care to get at least a 90% approval vote before adopting an amendment affecting rental restrictions.

In addition, even if the declaration does not discuss lease restrictions in conjunction with a unit’s potential “uses,” it would still be wise for an association to require a 90% approval vote to pass a rental restriction amendment. In its decision, the Court noted that the term “use” had a broad definition that included “the legal enjoyment of property that consists in its employment, occupation, exercise, or practice.” Given such a broad definition of “use,” there is a good chance that rental restrictions constitute “uses to which any unit is restricted” under the condominium statutes. Therefore, it is likely that rental restriction amendments require a 90% approval vote under the relevant statutes, even if the declaration does not mention rental restrictions.

If you’re thinking about amending your association’s rental restrictions, make sure to consult an attorney first. There is a strong chance that you will need a 90% approval vote to make the changes. If you make the changes without getting the required 90% vote, a court could ultimately deem those changes invalid. Please contact me at sechastain@levy-law.com if you are considering amending your association’s rental restrictions.