Considering Rental Restrictions, Part Two: Who, Where, When, and How? By Matt Drewes, Thomsen & Nybeck, P.A., Attorneys
This is the second in a two-part series discussing rental restrictions. Part one can be found in the July/August issue of Minnesota Community Living magazine. You may recall that in the first installment of this pair of articles I discussed one of the reasons that a community association may want to amend its declaration. The focus of that discussion was on rental restrictions and whether, and to what degree, an association might wish to consider implementing them (the what and the why). There are many other reasons an association might wish to amend its declaration, as well. No matter what the reason, you’ll need a guide through the process. This is a brief roadmap covering some of the most typical issues your association may face, including who’s involved, where each party’s involvement is needed, and when to get them involved. First, however, there is an important caveat about the procedures discussed in this article. I have tried to cover many of the typical variations I’ve seen. There can always be outliers. It’s always best to get advice about who must approve your amendment, and how best to get that approval.
WHO The Board of Directors The board of directors steers the association in its day-to-day and month-to-month functions, but also provides policy initiatives. Although the board is not authorized to pass an amendment on its own, it has to take some initiative if an amendment will pass. It will have to approve the language that will comprise the amendment that is submitted
for approval, and either directly or indirectly obtain that approval from the required parties.
then the four 20% vote holders can pass an amendment with 80% of the vote. Mortgagees (i.e., mortgage lenders)
Unit Owners Amending a community association’s declaration typically requires a substantial number of members (unit owners) to authorize the change. The minimum requirement in most associations, and according to the Minnesota Common Interest Ownership Act (MCIOA), is 67% of the voting interests. Some declarations contain a requirement that 75% or even 90% of the voting interests approve the change, and MCIOA will defer to that higher percentage. Note that the applicable percentage will apply to all of the voting interests in the association, not just those who show up at a meeting. Despite this high percentage requirement, associations with proper guidance rarely seem to fail to get amendments passed except in the event they’re pursuing particularly controversial amendments. The procedures available to get there are addressed below. Note, also, that 67% means at least 67%. If your association has six units, and the owners of each unit each have equal voting power, then the approval of the owners of four of those units is just two thirds, which is still less than the required percentage. In your case you’ll need to get the owner(s) of that fifth unit to approve the amendment. The analysis changes if your owners’ voting interests are determined instead based on an unequal allocation (square footage of units, etc.). You need 67% of the voting interests, not owners of 67% of the units. So, if among six unit owners, four have 20% of the vote each, and two have 10% of the vote each,
Most amendments also require notice to, and/or consent of, mortgage lenders to at least some degree. The extent of mortgagee approval can vary substantially, however. Some declarations may require all first mortgagees to approve the amendment. That means all lenders who have a first-position mortgage on a unit within the association. If the association is governed by MCIOA, this isn’t necessarily cause to fret, as I’ll explain below. If your association is not already subject to MCIOA, however, the association has to perform some research and be prepared to be persistent to get through to the decision-makers at the applicable lenders. Fortunately, in most cases, associations are authorized to pass an amendment with only the approval of “eligible mortgagees.” If this requirement applies to your association, the term “eligible mortgagee” should already be defined in your existing declaration. It usually means only those mortgagees who have previously registered with the association. As you might guess, mortgagees almost never do this. If your declaration refers to “eligible mortgagees,” that’s usually good news.
WHERE, WHEN AND HOW I’ve lumped the last three questions together, because as we review where and when each of the above participants carries out its function in this process, we’re really answering the question of how as well. Board initiates The board begins the process by identifying the issue(s) that require the amendment, and either it or its appointed committee Rental Restrictions continued on page 10 September | October 2013
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