Are your Declaration’s lease and sale approval provisions enforceable?

Clinton Morrell

Clinton Morrell

Two of the fundamental purposes of a community association are to provide an enjoyable place for its members to live and to protect the value of its members’ properties. In furtherance of these goals, many community associations’ declarations include provisions limiting or requiring pre-approval from the association before a member may lease or sell his unit, so that the prospective purchasers or tenants can be screened to ensure compatibility with the community. While these provisions are generally “recognized as a valid means of insuring the association’s ability to control the composition of the [community] as a whole,” Aquarium Foundation, Inc. v. Sholom House, Inc., 448 So.2d 1166, 1167 (Fla. 3d DCA), in some cases Florida courts have refused to enforce them as an “unreasonable restraint on alienation.”

A restraint on alienation of property is a provision in a statute or contract, such as a community association Declaration, which places limits on a property owners’ ability to sell or lease his or her property. Although generally permissible, Florida courts will not enforce an “unreasonable” restraint on alienation, based on the premise that such restrictions impede economic growth and commercial development. Id. “When determining the validity of restraints on alienation, courts must measure such restraints in terms of their duration, type of alienation precluded, or the size of the class precluded from taking.” Camino Gardens Ass’n, Inv. v. McKim, 612 So.2d 636 (Fla. 4th DCA 1993). The rule against unreasonable restraints on alienation precludes only restraints which are “unlimited or absolute.” Seagate Condominium Ass’n, Inc. v. Duffy, 330 So.2d 484 (Fla. 4th DCA 1976).

In the community association context, Florida courts have refused to enforce, as unreasonable restraints on alienation, provisions providing an association with the right to reject a prospective purchaser for any or no reason, Aquarium Foundation, Inc., 448 So.2d at 1166, allowing only existing members to purchase units, Camino Gardens Ass’n, Inc. v. McKim, 612 So.2d at 636, and granting an association the right to purchase properties in foreclosure by satisfying the mortgages thereon (as opposed to paying full fair market value). Id.  Notwithstanding the rule against unreasonable restraints on alienation, “[W]here a restraint on alienation, no matter how absolute and encompassing, is conditioned upon the restrainer’s obligation to purchase the property at the then fair market value, the restraint is valid.” Aquarium Foundation, Inc., 448 So.2d at 1168-69.

The cases cited above demonstrate that the reasonableness determination is made on a case by case basis in light of all aspects of the restraint. In order for restraints on alienation in a community association Declaration to be enforceable, it is critical that such restraints be structured in a way most likely to satisfy the test of reasonableness established by Florida courts. The assistance of counsel can be invaluable in assisting your community association to draft or amend such provisions. If you have concerns about the enforceability of existing or proposed provisions in your community association’s governing documents regarding sales or leasing, the community association practice group of Shumaker, Loop & Kendrick, LLP, is pleased to provide an initial review of such provisions on a complimentary basis.