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  • Inside Track
    March 27, 2009

    Condo association bylaws may restrict property rights, Wisconsin Supreme Court holds

    When a property right is not expressly protected at the formation of a condominium association, it may be altered with a bylaw, the Wisconsin Supreme Court said in a dispute over the right to rent a condo unit.
     
    March 27, 2009 - A right to rent or otherwise use a condominium unit may be curtailed by association bylaws without affecting the marketability of title, the Wisconsin Supreme Court held March 27 in Apple Valley Gardens Ass’n, Inc. v. MacHutta, 2009 WI 28.

    The court also clarified that a prohibition on the rental of condo units can be achieved through bylaws that govern the administration of a condominium complex rather than an amendment of the declaration, an instrument setting out the purpose and restricted use of the property, so long as the bylaws do not contradict the instrument.

    Reaching its decision, the court had to conclude that this case did not present a conflict between bylaws and the declaration. In dissent, Justice David T. Prosser found such a conflict.

    Gloria MacHutta attempted to rent a condo unit in 2004, two years after the condominium association had adopted a bylaw to prohibit such rental agreements. MacHutta disputed the enforceability of the bylaw, citing the superseding authority of the declaration. Within the declaration, MacHutta argued, a right to rent was contained in the text: “Any lease or oral or written rental agreement shall not relieve an owner from his obligation to pay common expense or any other obligations imposed upon unit owners by this Declaration.”

    Writing for the majority, Justice Michael J. Gableman discounted this language as merely a “neutral contemplation of unit rentals” that did not amount to “a positive right to lease one’s unit.” Read in context, the court concluded, this sentence only emphasizes “the unyielding nature of the owners’ financial obligations whether a unit owner rents or occupies his or her unit.”

    But Prosser accused the majority of being “insufficiently attentive to the facts and the law that govern this case.” Prosser agreed with MacHutta that the cited language in the declaration recognized a right to rent. Prosser further argued that under general principles of real property law applicable to condominiums, the right to rent is inherent in “exclusive ownership,” and there is no need for the declaration to set out express permission for a unit owner to rent her property. If there is any ambiguity as to whether the declaration contains a right to rent, Prosser said that the law’s bias in favor of the free use of property should resolve any doubt in favor of MacHutta.

    Prosser noted that MacHutta’s husband, Steven, developed the Apple Valley Gardens condominium complex in 1979 and drafted the declaration in question. Commenting that Steven’s “unbroken practice since the filing of the declaration was to rent some of the condominium units,” Prosser wrote that the author of the declaration clearly did not desire or intend to place a restriction on leasing or renting in the document.

    Bylaws may restrict use

    The court majority recognized that declarations must include information regarding the usage of condo units. But state law does not require a declaration to include all restrictions on use. Wis. Stat. § 703.10(3) expressly authorizes placement of additional use restrictions in condominium bylaws so long as they do not contradict the declaration or any state or federal law, the court found.

    In dissent, Prosser argued that “some condominium use restrictions are so fundamental that experts in the field prefer to see them placed in the declaration.” Prosser cited Jesse S. Ishikawa and Brian W. Mullins, co-authors of Drafter’s Guide to Wisconsin Condominium Documents, who argued that inclusion of these important provisions into the declaration -- a recorded instrument with priority over any lease -- would provide record notice to any potential tenant.

    The court majority was unpersuaded. The majority referred to a later edition of the Drafter’s Guide by Ishikawa and Mullins which remarked that “[u]se restrictions often appear in the declaration, but they can just as easily be placed in the association's bylaws or rules and regulations."

    “If lenders and purchasers wish to know whether and under what conditions a condominium unit may be rented out, they may easily inquire of both the declaration and the bylaws,” the court said.

    Title unaffected with bylaw barring rentals

    MacHutta argued that the rental prohibition went too far, rendering the title unmarketable in violation of Wis. Stat. § 703.10(6). Loss of the right to rent reduces the pool of potential purchasers of the condo units, MacHutta contended.

    But the court said that “marketable title” is one that can be held without fear of litigation to determine its validity. “It is plain that the rental prohibition bylaws amendment does not render Gloria MacHutta’s title to her condominium unit unmarketable because it in no way affects her ability to convey her interest in the unit,” the court ruled, adding that MacHutta retains the same quality of title she possessed prior to the adoption of the bylaws amendment.

    Subsequent to the purchase of a condo unit, the court observed, bylaws may be amended to restrict a prior right to use the property. The court said the resulting economic frustration of the affected unit owner has no remedy at law. “Condominium ownership is a statutory creation that obligates individual owners to relinquish rights they might otherwise enjoy in other types of real property ownership,” the court said.

     

    Alex De Grand is the legal writer for the State Bar of Wisconsin.

     



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