Jim Slaughter

When Is an HOA/Condo Rental Amendment Unreasonable?

When it comes to declaration amendments, our firm is most often asked about restrictions on rentals, whether complete or percentage bans, restrictions on short-term rentals, or limiting corporate rentals. (See HOA/Condo Rental Restrictions, Corporate Owners & Institutional Investors and Short-Term Rentals in North Carolina and South Carolina HOAs and Condominiums)

In a decision issued this week (February 21, 2024), the North Carolina Court of Appeals struck down a condominium rental amendment as unreasonable. While not really creating any new law, associations considering a declaration amendment, particularly as to rental restrictions, should be aware of the case.

Mileview LLC et al v The Reserve II at Sugar Mountain Condominium Owners Association (“The Reserve II”) is an “unpublished opinion,“ which means the decision is not controlling legal authority and should not be cited in other cases. However, even unpublished opinions give a sense of the Court’s thinking as to specific issues and how subsequent courts may rule.

In The Reserve II, the owners in a condominium association amended their Declaration in July 2021 to provide that there could be no rentals of less than 30 days from November 1 through March 31 of each year.  Numerous owners opposed and then filed suit over the adopted amendment on the basis that it was “unreasonable.”

All amendments to declarations must be reasonable. However, that’s hard to universalize and tends to be a “know it when you see it” judgment call based on the specific facts. In The Reserve II, the Court noted that this particular vacation type location and association had a history of unrestricted rentals. The Court even noted that “short-term rentals were commonplace at the complex” and that “not only does the original declaration not restrict owners’ ability to lease the property . . . but its definition of ‘Occupant’ expressly contemplates that rentals will occur through its reference to lessees.” As a consequence, an amendment that reversed the practice and suddenly put numerous owners in violation of the Declaration was unreasonable as too broad.

The fact that this dispute involved a vacation resort attempting to restrict rentals was particularly pertinent to the Court, as a significant NC Supreme Court case from 2008 (Armstrong v Ledges) noted that facts matter. “For example, it may be relevant that a particular geographic area is known for its resorts, retirement, or seasonal ‘snowbird’ population. Thus, it may not be reasonable to retroactively prohibit rentals in a mountain community during ski season or in a beach community during the summer.” In other words, the facts in this case attempted to do exactly what the Supreme Court earlier questioned as inappropriate.

Appellate cases are detailed and fact specific. For instance, this decision is 15 pages! However, here are some short takeaways:

(1) Declaration amendments need to be reasonable. What is reasonable in a specific situation can vary based on the specific circumstances of the amendment as well as the nature and character of the community.

(2) What efforts can be made to make any amendment more palatable? Here, numerous owners were willing to vote against the proposed amendment and then hire lawyers to fight the adopted amendment. Most associations don’t want that kind of trouble. As result, an association considering a possible declaration amendment should consider wording the amendment in a way to make the amendment more reasonable both legally AND politically. If there is too much opposition, an amendment will never be adopted. If there is strong opposition, the association may simply be buying itself a lawsuit. Changes to a proposal to make the amendment not take effect until some future date or possibly not applying to certain owners or “grandfathering” the amendment in some way may make the amendment more likely to be adopted and less likely to lead to another appellate decision. For instance, we recently had a rental amendment with focused wording that was adopted within two weeks by a 100% vote of members. Not only did no one oppose the amendment in the vote, but there are no upset owners to challenge it legally. While such conditions might not work or be appropriate in every situation, it is part of the “reasonableness” that any association proposing a declaration amendment should consider.

With any decision, it’s always best to read the actual case if you want to know how it might impact a specific association. And then talk to an experienced community association attorney about your specific circumstances. The Reserve II decision can be found here: https://appellate.nccourts.org/opinions/?c=2&pdf=43152.

HOA & Condo Associations Real Estate