June 30, 2010

To Lease or Not to Lease - Rental Restrictions in Washington Condominiums

The right to lease a condominium unit is a valuable one, but this right can be restricted if limits appear in the condominium’s original declaration or if enough owners approve an amendment to that document. Condominium boards, owners, and prospective purchasers of units should ask two crucial questions with regard to leasing. First, is there currently a rental restriction in the declaration or an amendment to the declaration? Second, what percentage of owners is necessary to amend the declaration to restrict leasing in the future? The answer to the second question depends on when the condominium was created.

If a condominium’s declaration was recorded on or before July 1, 1990, it can be amended to restrict leasing with the approval of sixty percent of the owners unless the declaration or an amendment to that document specifies a higher requirement. If a condominium’s declaration was recorded after July 1, 1990, ninety percent of the owners (including all units that are being rented) is required to amend it to restrict leasing unless the declaration or an amendment to that document specifies a higher requirement. This thirty point gap is the difference between “possible” and “unlikely” in most associations.

Most rental restriction amendments contain hardship exceptions that permit leasing over rental caps in certain circumstances, but it is a gamble for owners to rely on such provisions. Many condominium boards strictly interpret hardship exceptions and deny most requests that are submitted to them. Even if the present board views hardship requests favorably, the next board may not.

June 18, 2010

Court Upholds Seattle Condominium Association's Default Judgment Against Insurance Company

In 2005, the Lakewest Condominium Owners Association in Seattle discovered that several of its buildings required major repairs due to rain damage. The Association filed and pursued claims against numerous insurers to pay for the damage, which culminated in lawsuits against some of them. The Association was granted a default judgment in the amount of 7.5 million dollars against Tokio Marine & Fire Insurance Company, Ltd. in October of 2007. A default judgment is entered when a person is served with a lawsuit and does not respond within the time allowed by law. Tokio argued to the court more than one year after the judgment (the applicable deadline) that the judgment should be vacated. The court agreed with Tokio, but this ruling was reversed on appeal in an unpublished decision issued earlier this month. The association's default judgment is thus valid and enforceable against the insurance company.

Washington condominium and homeowners association boards should not be hesitant to file claims with their insurance companies when serious property damage occurs, and they should encourage owners to proactively contact their insurers as well. This is sometimes the only way to avoid major special assessments. It is sometimes necessary to sue insurance companies if they will not respond or if they deny claims that appear to be covered by the policy. Such litigation can obviously turn out very well indeed for the association if the insurer drops the ball and is found in default. The Lakewest case demonstrates that default judgments have value and will be upheld by the courts in some circumstances.

June 9, 2010

Little Boxes, Big Disputes: Religious Observance Sparks Condo Debate

The King County Bar Bulletin published an article this month that was written by my office. The article discusses three disputes between condominium boards and Jewish unit owners over the display of a small object called a mezuzah on the units' exterior doorposts. It concludes that boards should consider permitting such religious displays subject to reasonable size restrictions. The full article appears on my office's website.

June 2, 2010

Goat Dispute Highlights Best Practices for Covenant Enforcement

A North Carolina couple has won a legal battle with their homeowners association to keep two Nigerian dwarf goats named Fred and Barney in their yard. The association’s covenants state as follows: "No animals, livestock or poultry of any kind shall be raised, bred or kept on any lot except that horses, dogs, cats and other pets may be kept provided they are not kept, bred, or maintained for any commercial purposes." Several neighbors complained to the board about the smell and noise caused by the goats, so the board ordered the owners to remove them. Litigation ensued, and a judge eventually ruled that Fred and Barney should be permitted to stay because they are pets.

As the cliché goes, life is not black and white. Gray is a popular color in the world of law. Many covenants can be reasonably interpreted in more than one way. Boards should make an effort to play devil’s advocate and view covenants from owners’ perspectives before issuing demands or initiating litigation.

Another lesson that can be gleaned from this story is that it is sometimes better to focus on minimizing the negative effects of a disputed behavior rather than attempting to end that behavior. For example, it may be possible to address the goat odor issue by requiring more frequent bathing and waste removal. It may also be possible to address the goat noise issue by restricting them to certain portions of the property. Boards should always be on the lookout for creative approaches that lead to win-win solutions.