To Lease or not to Lease: New changes to Condo and HOA laws

The Uniform Condominium Act and the Uniform Planned Community Act are sister statutes that govern and restrict the ownership rights of people who choose to live in either a condominium association or within a planned community.

In April of this year, Gov. Wolf signed HB 1340 into law, changing two important aspects of both of these acts. One of the changes affects the rights of the associations to collect past-due items, while the other affects the rights of the individual property owners to lease their homes.

Oftentimes, the homeowners' associations, which are responsible for managing condominium associations or planned communities, want to restrict homeowners' rights to convert their property into rental units. One motivation behind this restriction is the belief that having too many rental units within the association or community would depress values of the other units. Another reason for this prohibition stems from lenders' refusal to fund certain FHA mortgage loans.

If the rate of rental units to owner-occupied houses exceeds the baseline established by the government, FHA loan products may not be available for future buyers. Sometimes, prohibitions against leasing units are included in the governing documents when the association is created. When such prohibitions or restrictions are omitted, however, how does a homeowners' association effectively implement such restrictions at a later time?

Prior to signing HB 1340 into law, if an association wanted to amend the declarations, and such amendments changed "uses to which any unit is restricted," then unanimous approval of the owners is required. Obtaining unanimous support from the owners is difficult under the best of circumstances; some associations have several hundred, even thousands, of property owners. It only takes one person to defeat unanimity, thereby blocking any change to the declarations that would place restrictions on leasing units. Prior to the amendments, however, the language in both acts was (arguably) ambiguous.

Some have argued that the phrase "uses to which any unit is restricted" does not trigger the unanimity requirement because the unit continues to be used as a residence, albeit by a tenant. On the other hand, the owner's use of the unit or home would convert from owner-occupied residential use to a commercial-investment property use. Because of this perceived ambiguity, an association that attempted to amend the declarations to restrict leasing units without unanimous support of the owners risked a costly court battle that could result in the amendment being stricken. Associations and communities are understandably reluctant to take such risks.

HB 1340 resolves any ambiguity by specifically providing that the phrase "uses to which any unit is restricted" does not apply to property owners leasing their units. As a result of this change, amending declarations to restrict owners' rights to lease their units would only require a two-thirds super majority vote (unless a greater number of votes is required through the bylaws provisions).

The second change addresses and clarifies an association's right to file a lien against the property of an owner who has not paid required assessments. Prior to the amendment, if an association wanted to secure a debt owed by a property owner, it was required to attach a lien to the property within three years of the assessment becoming due. Under the new law, the statute of limitations is extended to four years and association's rights for collecting debts owed to it by property owners has (arguably) been extended to include the right to file actions or initiate suit against homeowners to recover such sums, rather than being limited to filing a lien against the property.

Whether you are representing buyers or sellers, managing an association or are a resident in a condominium or planned community, you should be aware of these very important changes that may affect you, your clients and your business.