In 2017, the Washington Supreme Court issued a significant decision related to restrictive covenants affecting condominium units. It reaffirmed the importance of timely challenging of an amendment to condominium covenants, in particular for a restrictive covenant imposing a rental cap restriction. However, the Supreme Court also left unanswered some questions regarding the percentage approval necessary for a condominium association to pass such a restrictive covenant.
Restrictive covenants have an important impact on the use and value of property. Yet they are often ignored altogether or not considered until the end of the due diligence period before purchasing real property. Whether property is purchased for residential use or commercial use, it is important for one to evaluate what restrictions and obligations are tied to the property through its restrictive covenants.
A common restrictive covenant in condominium settings places certain restrictions on when and how your condominium may be leased. For example, some restrictive covenants place a limit on the number of renters allowed in a condominium association at any given time. If you own a condominium unit with a rental cap restriction and the rental cap has been met, you may be precluded from renting your unit until your turn comes up on the wait list.
The Washington Supreme Court issued an important ruling this year related to rental cap restrictions in its Bilanko v. Barclay Court (2017) decision. In Barclay Court, the condominium association had passed and recorded a rental cap amendment in 2008. The Washington Condominium Act, RCW 64.34.264(2), establishes a one-year statute of limitations for challenging an amendment to a condominium declaration. Accordingly, the Supreme Court dismissed a challenge to Barclay Court’s rental cap amendment as untimely since it was not challenged within one year of the date the amendment was recorded.
Notably, the Supreme Court did not examine whether a rental cap amendment must be approved by 67% or 90% of a condominium association’s voting members under RCW 64.34.264. In Filmore L.L.L.P. v. Centre Pointe Condominium (2015), the Supreme Court previously ruled that Centre Pointe’s rental cap required 90% approval under the terms of Centre Pointe’s declaration, rather than 67% approval. While the Supreme Court did not interpret whether 67% or 90% approval is required for a rental cap amendment under the Condo Act, this created concern for associations that passed their rental cap amendment with only 67% approval (assuming the association’s declaration only required 67% approval). In Barclay Court, the Supreme Court did not have to reach the issue because it dismissed the case for having been filed too late. But the Barclay Court decision goes a long way towards protecting those condominium associations that passed a rental cap amendment with only 67%, so long as they recorded it at least one year prior to any challenge.
The Supreme Court’s decision did not overrule the Court of Appeals’ Club Envy of Spokane v. Ridpath Tower Condo (2014) decision. In Club Envy, a developer fraudulently recorded an amendment that reduced owners’ voting rights. Owners sued to invalidate the amendment, but filed suit more than one year after the amendment was recorded. The developer argued the lawsuit was brought too late and should be dismissed. But the Court of Appeals disagreed, ruling that the one-year limit for challenging a declaration amendment did not apply to an amendment that had been recorded under such circumstances. The Supreme Court’s decision treats the Club Envy decision as carving a very narrow “fraud/unauthorized act” exception to the general rule requiring a rental cap lawsuit to be filed within one year. Fraud of the type present in Club Envy is very rare, so the Barclay Court general rule is likely to prevail in most challenges to declaration amendments.