GUY, C.J.--In this case, petitioners Asghar
Sadri and Dorothy Grazul seek review of the Court of Appeals decision holding
that the respondent Shorewood West Condominium Association's (Association)
restriction on the leasing of condominium units was valid and could be applied
to them.1 We reverse.
We first hold that because the property rights
of individual condominium unit owners are creations of a condominium statute and
are subject to that statute, restrictions on leasing adopted after the owners
purchased their unit may be applied to such owners if the restrictions are in
accordance with the statute. Such leasing restrictions, if in accord with the
statute, may be applied to Sadri and Grazul. Nevertheless, we also hold that a
restriction on use which appears in a condominium apartment owners association's
bylaws but not in its declaration is not in accordance with the Horizontal
Property Regimes Act, RCW 64.32. The Association may not promulgate a
restriction on leasing in a bylaw without first amending its declaration. The
bylaw restricting leasing is invalid and this court may not enforce it.
Having decided this case by finding the lease restriction not in accordance with
the statute, we need not reach the further issues of how we should review
condominium association rules and whether the restriction on leasing was equally
applied. We leave for another day the question of whether to adopt a standard of
review for condominium association rules. We reverse the award of attorney fees
and award fees to Sadri and Grazul.
FACTS
The declaration establishing Shorewood West as
a condominium under the Horizontal Property Regimes Act dates from 1978. Clerk's
Papers at 24. The declaration contains this restriction on use: 'the property,
units and limited common areas as described herein are restricted and intended
to be utilized solely for residential purposes, and no rental or lease shall be
permitted for less than a 30-day term.' Clerk's Papers at 16. The units are
further restricted to single-family occupancy. Clerk's Papers at 16. In the
1990s the Association's Board became concerned about the devaluation of the
condominium units due to the percentage of units being rented. Clerk's Papers at
53. The Board received information from realtors and financial institutions that
having a high percentage of rental units in a condominium can adversely affect
the value of the units and affect the ability of prospective buyers of units to
obtain financing. Clerk's Papers at 86; see also Clerk's Papers 87-104. As a
solution to this problem, the Board recommended that the condominium owners pass
an amendment to the Association bylaws which would prohibit owners from renting
or leasing their units: 'Shorewood West
Condominiums are to be an owner-occupied development. Except for those units
leased as of August 11, 1994, no owner may lease a unit. Upon the sale of any
unit previously leased, it must be sold to an owner-occupant who will reside in
the unit. Thereafter the unit will not be leased.' Clerk's Papers at 79.
The
amendment and the rules implementing it allowed leasing for such exceptions as
sabbatical, job relocation, and other special circumstances. Clerk's
Papers at 83. On August 11, 1994, the amendment was approved by over 70 percent
of the interests in the condominium. Clerk's Papers at 146-47. The declaration
required only a majority of the percentage votes of the unit owners to approve
an amendment to a bylaw. Clerk's Papers at 18. The bylaws themselves required a
60 percent favorable vote of the percentage interests of the units to amend a
bylaw. Clerk's Papers at 77. Sadri and Grazul purchased Unit 7501 in Shorewood
West Phase II Condominiums for $150,000 in December of 1993. Clerk's Papers at
121. An important consideration in their decision to purchase the unit was that
they would be able to lease it if they decided not to reside in the unit.
Clerk's Papers at 122. When Sadri and Grazul heard of the proposal to amend the
bylaws to restrict leasing, they objected to the Association in writing and
voted against the amendment. Clerk's Papers at 139, 123. Because the price for
units in the Shorewood condominium had been declining, a restriction on leasing
would force Sadri and Grazul to sell in a bad market if they ever decided not to
occupy their unit. Clerk's Papers at 122.
In the spring of 1995, they moved out of their
unit and executed a lease in May with an effective date of July 1, 1995, nearly
a year after the bylaw had been amended to restrict leasing. Clerk's Papers at
123-24. On January 25, 1996, the Association, seeking a finding that the
amendment of its bylaws was proper and that Sadri and Grazul must remove their
tenants from their unit, filed a complaint for declaratory judgment and
injunction. Clerk's Papers at 3, 6. The trial court found that although the
Association had the authority to amend its bylaws to restrict leasing, the
amendment was only valid as to those persons purchasing units after August 11,
1994. Clerk's Papers 259, 262. The amendment was unenforceable against existing
owners, such as Sadri and Grazul. Clerk's Papers at 262. The trial court also
awarded Sadri and Grazul $1,180 in attorney fees. Clerk's Papers at 263.
The Court of Appeals reversed in Shorewood West
Condominium Ass'n v. Sadri, 92 Wn. App. 752, 754, 966 P.2d 372 (1998). Finding
that Washington had not yet adopted a standard to review condominium rules, the
court adopted a reasonableness standard. Id. at 754, 756. Applying the standard
to this case, the Court of Appeals held that the leasing restrictions were
reasonable, that the amendments may apply retroactively to existing owners, and
that 'grandfathering' existing rentals is reasonable. Id. at 759-61. Attorney
fees were awarded to the Association. Id. at 762. Sadri and Grazul petitioned
for review by this court.
ISSUES
(1) Under the Horizontal Property
Regimes Act, may a restriction on leasing adopted after owners of condominium
units purchased their units be applied to those owners?
(2) Is a restriction on use which
appears in a condominium homeowners' association bylaw but not in the
declaration in accordance with the Horizontal Property Regimes Act?
DISCUSSION
Sadri and Grazul claim that
amendments which seriously restrict property rights are not applicable to those
persons already owning the subject property. Pet. for Review at 9. In effect
they argue that owners are bound only by those restrictions present in the
condominium declaration at the time at which they purchased their unit.
All condominiums are statutorily
created. Lewis A. Schiller, Limitations on the Enforceability of Condominium
Rules, 22 Stetson L. Rev. 1133, 1135 (1993). In Washington, the statutory form
of condominium was first authorized with the passage of the Horizontal Property
Regimes Act. 2 Washington State Bar Ass'n, Real Property Deskbook sec. 41.5 (2d
ed. 1986). All condominiums created in this state after July 1, 1990 come under
another regime: the Condominium Act, RCW 64.34. RCW 64.34.010. Since Shorewood
West Condominium was created in 1978, it is governed by the older act.
Because condominiums are statutory
creations, the rights and duties of condominium unit owners are not the same as
those of real property owners at common law. McElveen-Hunter v. Fountain Manor
Ass'n, Inc., 96 N.C. App. 627, 386 S.E.2d 435, 436 (1989), aff'd, 328 N.C. 84,
399 S.E.2d 112 (1991). 'Central to the concept of condominium ownership is the
principle that each owner, in exchange for the benefits of association with
other owners, 'must give up a certain degree of freedom of choice which he {or
she} might otherwise enjoy in separate, privately owned property.'' Noble v.
Murphy, 34 Mass. App. Ct. 452, 456, 612 N.E.2d 266 (1993) (quoting Hidden
Harbour Estates, Inc. v. Norman, 309 So. 2d 180, 182, 72 A.L.R.3d 305 (Fla.
Dist. Ct. App. 1975)). The rights given up by the unit owners are determined by
the statute. RCW 64.32 makes all owners subject to the chapter and 'to the
declaration and bylaws of the association of apartment owners adopted pursuant
to the provisions of this chapter.' RCW 64.32.250(1). The chapter also states
that each owner 'shall comply strictly with the bylaws and with the
administrative rules and regulations adopted pursuant thereto, as either may be
lawfully amended from time to time . . . .' RCW 64.32.060.
The court in McElveen-Hunter
applied a statute similar to RCW 64.32 to a declaration amendment which
restricted leasing and which was being challenged by a plaintiff who had bought
her unit before the amendment was adopted. McElveen-Hunter, 386 S.E.2d 435. Like
the Horizontal Property Regimes Act, the North Carolina statute permits
restrictions to be imposed by the declaration or recorded instrument which
submits the property to the provisions of the chapter and allows the unit owners
to amend the declaration by following the procedures prescribed and makes the
rules adopted binding upon all owners. Id. at 436. The court found that the
amendment restricting leasing does not infringe upon any legal right of the
plaintiff's because she had notice before the units were bought that the
declaration was changeable. Id. Other cases have held that a duly adopted
amendment either restricting occupancy or leasing is binding upon condominium
unit owners who bought their units before the amendments were effective. See
Hill v. Fontaine Condominium Ass'n, 255 Ga. 24, 334 S.E.2d 690 (1985); Ritchey
v. Villa Nueva Condominium Ass'n, 81 Cal. App. 3d 688, 146 Cal. Rptr. 695, 100
A.L.R.3d 231 (1978); Seagate Condominium Ass'n v. Duffy, 330 So. 2d 484 (Fla.
App. 1976); Kroop v. Caravelle Condominium, Inc., 323 So. 2d 307 (Fla. App.
1975)
The property rights that owners of
individual condominium units have in their units are creations of the
condominium statute and are subject to the statute, the declaration, the bylaws
of the condominium association, and lawful amendments of the declaration and
bylaws. An association may apply a restriction on leasing, if adopted in
accordance with the statute, to current owners. The Sadri and Grazul deed
states that it is subject to the provisions of the Horizontal Property Regimes
Act. Clerk's Papers at 126. Their argument that the leasing restriction cannot
be applied to them fails because whatever property rights they have in their
unit are creations of the statute and are subject to amendment in accordance
with the statute. The amendment to the bylaws restricting leasing, if it is in
accord with the statute, may be applied to Sadri and Grazul.
Sadri and Grazul contend that even
if the restriction may be applied to them, the Association had no authority to
do so because its actions were not in accord with the statute. Pet. for Review
at 9-11. They argue that the statute requires that any leasing restriction must
be included within the declaration. Pet. for Review at 10. Since the Association
chose to amend its bylaws but not its declaration, the question before this
court is whether a restriction on leasing which does not appear in the
declaration is in accordance with the statute and enforceable.
The Horizontal Property Regimes
Act, RCW 64.32, requires that the condominium declaration contain a statement of
use restrictions: 'The declaration shall contain the following: . . . (7) A
statement of the purposes for which the building and each of the apartments are
intended and restricted as to use'. RCW 64.32.090. Amendments to the declaration
must be recorded in order to be valid. RCW 64.32.140. Amendments must receive
the consent of at least 60 percent of the apartment owners. RCW 64.32.090(13).
The Act does not state any voting or recordation requirements for bylaws.
In the Association's declaration
the statement of the purpose of use provides:
With the exception of the
guest rooms located upon Floors 1 through 5, which are common areas and
facilities, the property, units and limited common areas as described herein
are restricted and intended to be utilized solely for residential purposes,
and no rental or lease shall be permitted for less than a 30-day term. The
daily rental and the terms and conditions governing the use of the guest
rooms shall be determined by the Board of Directors in accordance with the
Bylaws. Each unit and limited common area is restricted to single-family
residential occupancy, and none of the common areas and facilities or
limited common areas shall be utilized other than in service for and
consistent with the units themselves and their stated purpose. Clerk's
Papers at 16.
Sadri and Grazul argue that RCW
64.32.090(7) requires that any leasing restriction must be included within the
declaration. Pet. for Review at 10. The Association does not dispute that the
provision requires all use restrictions to be in the declaration. The
Association contends instead that the general practice of courts around the
country is to allow restrictions on leasing to be in the bylaws as well as in
the declaration. Answer to Pet. for Review at 15. The declaration is supposed to
contain only the general outline of prohibitions with the specific prohibitions
being contained in the bylaws and rules and regulations. Answer to Pet. for
Review at 15. The Association's declaration's statement of purpose restricts the
use of units to residential use as opposed to commercial, office, or industrial
use. Answer to Pet. for Review at 16. However, a survey of the case law from
different jurisdictions indicates that it is the general practice to put
specific restrictions, not merely restrictions on broad use categories, into the
declaration, whether or not they may also be in the bylaws.
The following cases contain specific use
restrictions in the declaration: McElveen-Hunter v. Fountain Manor Ass'n, 386
S.E.2d 435 (North Carolina case involving condominium declaration amendment
restricting leasing); Apple II Condominium Ass'n v. Worth Bank & Trust Co., 277
Ill. App. 3d 345, 659 N.E.2d 93, 95, 213 Ill. Dec. 463 (1995) (Illinois case
involving condominium declaration amendment prohibiting leasing); Breene v.
Plaza Tower Ass'n, 310 N.W.2d 730 732-33 (N.D. 1981) (North Dakota case
involving prohibition of leasing in both declaration amendment and bylaw);
Hidden Harbour Estates, Inc. v. Basso, 393 So. 2d 637, 638 (Fla. App. 1981)
(Florida case in which restriction in declaration prohibiting improvements or
changes in exterior appearance without Board approval at issue where defendants
drilled a shallow well on their property); Worthinglen Condominium Unit Owners'
Ass'n v. Brown, 57 Ohio App. 3d 73, 566 N.E.2d 1275, 1276 (1989) (Ohio case
involving condominium amendment prohibiting leasing); Nahrstedt v. Lakeside
Village Condominium Ass'n, 8 Cal. 4th 361, 367, 878 P.2d 1275, 33 Cal. Rptr. 2d
63 (1994) (California case involving provision in declaration prohibiting pets).
Moreover, the Association's declaration itself contains specific use
restrictions beyond the general restriction of use to residential use only. It
limits residential use to single-family occupancy. Clerk's Papers at 16. It even
discusses leasing and implicitly permits it for terms of longer than 30 days and
explicitly allows daily rentals of guest rooms, subject to Board policy. Clerk's
Papers at 16. Therefore, one should read 'use' in RCW 64.32.090(7) to mean all
uses and not just general categories of use such as residential use or
commercial use. The provision requires that all restrictions on use should be in
the declaration's statement of purpose.
The Association also argues that it does not
matter whether the restrictions appear in the bylaws or in the declaration
because the statute requires Sadri and Grazul to be bound by both. RCW
64.32.250(1) states in part: 'All apartment owners . . . shall be subject to
this chapter and to the declaration and bylaws of the association of apartment
owners adopted pursuant to the provisions of this chapter.' (emphasis added).
RCW 64.32.060 contains a similar directive: 'Each apartment owner shall comply
strictly with the bylaws and with the administrative rules and regulations
adopted pursuant thereto, as either may be lawfully amended from time to time,
and with the covenants, conditions and restrictions set forth in the declaration
or in the deed to his apartment.' (emphasis added). The italicized phrases
indicate that the provisions are qualified in some way. We read them as
indicating that owners need comply only with those bylaws that are consistent
with or in accordance with this chapter. The proper procedure for amending or
adopting a bylaw must be followed; an association seeking to restrict a use in a
bylaw must first amend its declaration if the declaration allows the use. RCW
64.32.250(1) and 64.32.060 direct that owners are subject to and must comply
with only those bylaws which are in accordance with the chapter. Since use
restrictions must be in the declaration and any unrecorded amendments to the
declaration are invalid (RCW 64.32.140), use restrictions appearing in
unrecorded amendments to bylaws and not in the declaration are invalid. Sadri
and Grazul need not comply with the bylaw restricting leasing because it is
invalid. The statute does not allow an
association of apartment owners to restrict leasing in a bylaw where the
declaration itself permits leasing.
CONCLUSION
When
the Association promulgated a restriction on leasing in a bylaw without first
amending the condominium declaration, it did not act in accordance with the
Horizontal Property Regimes Act. The bylaw is invalid and this court may
not enforce it. Reversed. Attorney fees are awarded to Sadri and Grazul.
WE
CONCUR:
1 Although 'Shorewood West Condominium
Association' is the respondent in this case, respondent's briefs also use the
name 'Shorewood West Owners Association.' The two names seem to be
interchangeable, and our abbreviation ('Association') refers to either.