N.Y. Court Says HOA “Rules” Limiting Rentals Were Unenforceable

Appellate Division of the Supreme Court of New York decision (March 9, 2017).

This case involved a dispute between a homeowners’ association (“Association”) and homeowners (“Homeowners”) over the enforceability of rules adopted by Association concerning the renting of condominium units by Homeowners.

In March of 2014, Association’s board of directors informed Homeowners that they had approved “Rules and Regulations” that included the following limitations and restrictions concerning the rental or leasing of units by Homeowners:

·         A requirement that no unit could be rented for a period of less than two weeks.

·         A prohibition that barred renters from access to a common area facility.

·         A limitation on the rights of renters relative to guests and pets.

·         A requirement for the payment of rental and administrative fees to Association.

·         Owners who failed to comply with the rules were subject to fines and penalties.

Homeowners challenged the validity of the new rules adopted by Association that placed the above limitations and restrictions on their ability to rent or lease their units. Homeowners contended that the new “Rules and Regulations” were inconsistent with, and violated, the provisions contained in Association’s bylaws which stated that owners could convey or lease their units “free of any restrictions” – so long as assessments against the subject unit have been paid.

The lower court entered a judgment in favor of Homeowners after finding that Association’s directors had exceeded their authority by adopting and imposing the rental restriction rules without having first amended the relevant provisions contained in Association’s bylaws. Association then appealed the lower court’s decision.

On review, the appellate court stated that Association could adopt reasonable rules and regulations relative to the business and/or property of Association – so long as such rules and regulations do not conflict with or purport to impair a right granted to Homeowners by the relevant bylaws. Because Association’s bylaws granted Homeowners the right to lease their properties free of restrictions, to the extent that Association wanted to impose rules relating to the leasing of properties, those rules could not conflict with the rights and privileges granted to Homeowners by the Association’s bylaws. The court commented that, if the impact of the short term rentals was injurious to Association as alleged, the directors’ task was to persuade the required percentage of Association’s owners  as to the merit of their position and convince the owners to adopt an appropriate amendment to the bylaws. Absent such an amendment to the bylaws, the “Rules and Regulations” that had been adopted by Association were invalid as an impermissible exercise of Association’s powers. Accordingly, the lower court’s judgment was affirmed.

See case decision: Olszewski v. Cannon Point Ass’n. Inc.