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SCREENING,
REJECTING APPROVING AND
THE RIGHT OF FIRST REFUSAL
By
Eric Glazer, Esq.
Published
November 5, 2012
There's
no question that one of the subjects I get most often asked
about is whether or not the Board has the right to reject an
applicant for either a rental or a purchase in the community.
It would be great if there was some guidance, some statute, some
rule that I can point them to that tells them what criteria can
be used when determining whether or not to approve an applicant,
but there really is nothing to point to at all; another good
example of just how poorly drafted some of our community
association statutes are.
The only real mention of screening in the Florida Condominium
Act says:
No
charge shall be made by the association or any body thereof in
connection with the sale, mortgage, lease, sublease, or other
transfer of a unit unless the association is required to
approve such transfer and a fee for such approval is
provided for in the declaration, articles, or bylaws. Any such
fee may be preset, but in no event may such fee exceed $100 per
applicant other than husband/wife or parent/dependent child,
which are considered one applicant.
So the first step is to determine
if your governing documents allow the association to approve the
transfer. This is crucial. Many associations
incorrectly believe that they either inherently possess the
right to approve sales and leases or that they have the right
because the governing documents specifically state it.
Often times, the association only has a "right of first
refusal" which only allows the association the opportunity
to purchase or lease a unit on the same terms that the owner is
offering to a new buyer or lessee. It does not equate to
the association having the right to screen and/or reject an
applicant for purchase or lease.
Even if the governing documents allow the association the
opportunity to screen and reject proposed purchasers and
lessees, the documents may still be invalid as an illegal
restraint on the owner's ability to sell or alienate his or her
property. For example, in Aquarian Foundation, Inc. v.
Sholom House, 448 So.2d 1166 (3rd DCA, 1984) the court held
that since the declaration of condominium permitted the
association to reject perpetually any unit owner's prospective
purchaser for any or no reason, it is an obvious an absolute
restraint on alienation, and can be saved from invalidity only
if the association has a corresponding obligation to purchase or
procure a purchaser for the property from the unit owner at its
fair market value. Otherwise stated, if the association is
empowered to act arbitrarily, capriciously, and unreasonably in
rejecting a unit owner's prospective purchaser, it must in turn
be accountable to the unit owner by offering payment or a
substitute market for the property.
Interestingly enough, the court still reiterated the fact that
restrictions on a unit owner's right to transfer his property
are recognized as a valid means of insuring the association's
ability to control the composition of the condominium as a
whole. So, assuming your documents give the association
the ability to screen and reject, in order for the Board to
avoid the requirement that it procure a purchaser should the
Board reject the transfer, the Board better have reasonable
criteria in place which they will use to prove that they are
rejecting an applicant for cause.
Here are the four basic criteria the Board should use when
determining whether or not to approve an applicant:
1. credit
score: have strict guidelines. For example,
applicants must have a minimum score or they are rejected;
2.
criminal history: again, have strict guidelines.
For example, rejection is required if an owner has been
convicted of a felony;
3. applicant's
prior history of foreclosures or evictions;
4. The
applicant would automatically violate the governing documents:
for example, in a 55 and over community, the applicant makes it
clear that the unit will not be occupied by at least one person
age 55 or older.
Boards
take note. Failure to apply criteria even handedly across
the Board can get the association sued for tortuous interference
with contract and also face claims for discrimination.
Have strict procedures and guidelines in place, properly adopt
and publish the criteria and document your decisions.
Here's
another question though…………..some people don't want
their Board having the power to screen and reject. What's
your take on the subject?
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