4.02 Rental Restrictions

• Library: South Carolina Community Association Law: Condominiums and Homeowners Associations (SCBar) (2019 Ed.)

4.02 Rental Restrictions⁷⁶

The only rules that must be specifically included in the master deed or lease are "restrictions or limitations on the lease of a unit, including, but not limited to, the amount and term of the lease."⁷⁷ While rental restrictions have generally been upheld, it could be argued that under the quoted provision of the SCHPA, a master deed may restrict or limit, but not preclude renting of apartments. Moreover, if the governing documents specifically address leasing, courts may find an implied right to lease and rule that the governing board cannot further restrict leasing.⁷⁸

A complete prohibition on leasing was approved in Seagate Condominium Ass'n v, Duffy.⁷⁹ The declaration in Seagate provided that:

. the owner of each unit of Seagate Towers Condominium shall occupy and use such unit as a private dwelling for himself and his immediate family, and for no other purpose including business purposes. Therefore the leasing of units to others as a regular practice for business, speculative, investment or other similar purposes is not permitted.
To meet special situations and avoid undue hardship or practical difficulties the Board of Directors may grant permission to an owner to lease his unit to a specified lessee for a period of not less than four consecutive months nor more than twelve consecutive months.⁸⁰

This was challenged as unreasonable and a restraint on alienation. The court found no restraint on alienation because the restriction prohibited only a specific form of alienation, leasing, and not under unlimited circumstances.⁸¹ Concerning the restriction's reasonableness, the court said:

Given the unique problems of condominium living in general and the special problems endemic to a tourist oriented community in South Florida in particular, appellant's avowed objective — to inhibit transiency and to impart a certain degree of continuity of residence and a residential character to their community — is, we believe, a reasonable one, achieved in a not unreasonable manner by means of the restrictive provision in question. The attainment of this community goal outweighs the social value of retaining for the individual unit owner the absolutely unqualified right to dispose of his property in any way and for such duration or purpose as he alone so desires.⁸²

Generally, courts uphold rental prohibitions that are properly enacted.⁸³ An Indiana court, however, held that a restrictive covenant that banned all rentals had a disparate racial impact and, therefore, violated the federal Fair Housing Act.⁸⁴ The decision was affirmed on appeal. The appellate judges agreed that the association had a bona fide and legitimate justification for its covenant prohibiting leasing, but said the plaintiff produced evidence of disparate impact and less discriminatory options were available. While the court declared it didn't intend to imply that all restrictive covenants that prohibit leasing will violate federal law, one would probably find the same sort of statistical evidence of disparate impact that persuaded the Indiana court in many other common interest communities.⁸⁵

More specific rental restrictions have also been upheld. A provision prohibiting an owner from renting a unit more than once during the period of ownership was found to be reasonable.⁸⁶ A restriction on the number of days per year that a unit may be leased has also been upheld,⁸⁷ and so has a minimum lease term requirement.⁸⁸ A restriction on rental of a unit to any student currently enrolled in a college, institute, or university was upheld.⁸⁹ It has been held reasonable for an association to withhold approval from an owner in default of monthly assessments where the declaration or master deed requires the unit owner to receive approval from the association before renting.⁹⁰ Generally, the way associations monitor leasing is to require that any proposed lease be in writing and be submitted to the association for approval.⁹¹

An association has also been permitted to restrict the use of common areas to owners, thus preventing renters from using common facilities.⁹² A restriction on use of the common elements may not be possible under the SCHPA. South Carolina Code Ann. § 27-31-120 states that "[A]ny conveyance or lease of an individual apartment is deemed to also convey or lease the undivided interest of the owner in common elements, both general and limited, appertaining to the apartment without specifically or particularly referring to same." While the word "lease" may have been intended to refer to a master lease,⁹³ a good argument could be made that the literal language of the statute prohibits either the apartment owner or the council of co-owners from restricting a lessee's use of the common elements unless the lease specifically provides for such a restriction. It might also be contended that such restrictions may not be included in leases under the statute. The South Carolina Court of Appeals evidently agrees. In Windsor Green Owners Ass'n v. Allied Signal, Inc.,⁹⁴ the court said that under the statute: "the lease of an individual condominium unit serve[s] to also lease the owner's undivided interest in the common elements to the lessee, whether or not use of the common elements is addressed in the lease. Thus, a lessee has the same right to use the common areas of the condominium complex, such as the hallways, the stairways, etc., as has the owner."⁹⁵

Other restrictions, particularly those that appear discriminatory, have been invalidated.⁹⁶ A deposit requirement on owners of rented units was found unenforceable because it created a "special class" of owners from whom extraordinary payment was required.⁹⁷ Similarly in Thanasoulis v. Winston Tower 200 Ass'n,⁹⁸ the association was precluded from assessing a parking fee of $75 on tenants of non-resident owners while charging only $25 to resident owners. Discrimination may also be precluded by federal or state law. For example, a regulation of the South Carolina Human Affairs Commission proscribes discriminatory housing practices, specifically prohibiting: "Denying or delaying the processing of an application made by a purchaser or renter or refusing to approve such a person for occupancy in a cooperative or condominium dwelling because of race, color, religion, sex, handicap, familial status, or national origin."⁹⁹

Addressing the misconduct of renters can be difficult for associations. A declaration clause that grants the association the right to evict a tenant who violates the documents or the association rules can be helpful.¹⁰⁰ However, one association was denied the right to evict a tenant whose behavior it found unsatisfactory, though in dicta the court noted that injunctive relief would have been...