If someone under 55 inherits a home in an over 55 community are we required to let them live there?
Homeowners' associations are characterized by board management. Boards make three types of management decisions: adopting rules binding on unit owners, applying existing rules to particular actions or activities of one or more unit owners and making other decisions about the development such as those about expenditures and assessments.
Florida courts follow what is know as the "rule of reasonableness" in making a decision to review or not review the actions of board members.
Faced with legal challenges to board actions, including rules imposed on all unit owners, state courts have formulated a restriction on a board's unbridled discretion. This restriction takes the form of a rule of reasonableness. If a rule or action is determined to be unreasonable, it is not
enforced against unit owners.
The rule of reasonableness that is imposed when reviewing board management decisions should not be confused with the duty to act reasonably that is imposed in various unrelated contexts. For example, in determining whether board members have exercised due care in managing
an association, courts inquire whether they have acted reasonably-in other words, as an ordinarily prudent person would act. Similarly, in determining whether a resale or leasing restriction constitutes an invalid restraint on alienation, courts ask whether the restriction is reasonable. Although the courts employ the same term, "reasonable," in each of these situations, they give it varied meanings.
The case law involving condominium and homeowners' associations is not very instructive on the justification for imposing a rule of reasonableness. Most of the cases recognize the rule without explanation. Five justifications, however, can be gleaned from the case law.
• The governing association documents so limit the board's power.
• The state condominium statute so limits the board's power.
• The state corporation law so limits the board's power.
• The association is deemed to be analogous to an administrative agency in its rulemaking authority and therefore should be subject to similar limits.
• As a matter of public policy, some limitation should be imposed on management discretion.
It is uncommon for state statutes to impose a rule of reasonableness. Instead, the doctrine is typically recognized as a common law limitation on board power or because of limits found in the association's governing documents-for example, the condominium declaration or bylaws.
The leading decision recognizing and defining a rule of reasonableness as a limit on board power is Hidden Harbour Estates, Inc. v. Norman, 309 So. 2d 180 (Fla. Dist. Ct. App. 1975). The court declared in Hidden Harbour:
[T]he association is not at liberty to adopt arbitrary or capricious rules bearing no relationship to the health, happiness and enjoyment of life of the various unit owners. On the contrary, . . . the test is reasonableness. If a rule is reasonable the association can adopt it; if not, it cannot. Id. at 182. Under this standard, "reasonableness" means that the rule must relate to the condominium unit owner's health, happiness and enjoyment of life. For example, a rule limiting the number of pets a unit owner could keep in a unit was deemed a reasonable regulation because it was "based on potentially offensive odors, noise, possible health hazards, clean-up and maintenance
problems and the fact that pets can and do defile hallways, elevators and other common areas." Dulaney Towers Maintenance v. O'Brey, 418 A.2d 1233, 1235 (Md. Ct. Spec. App. 1980).
The rule of reasonableness seeks to draw a balance between the desire to defer to board decision-making and the desire to avoid unbridled discretion. Admittedly, the requirement that a rule relate to the health, happiness and enjoyment of life of the unit owners is not difficult to satisfy. Nonetheless, it avoids completely unchecked management power.
The Florida courts have made it clear that, under a rule of reasonableness, the board has the burden of both articulating reasons for the rule or action-which must serve the legitimate objectives of the association such as the health, happiness and peace of mind of the unit owners-and demonstrating that the rule or action is reasonably related to the fulfillment of these
objectives. See Killean Acres Homeowners Ass'n v. Keever, 595 So. 2d 1019 (Fla. Dist. Ct. App. 1992); Hidden Harbour Estates, Inc. v. Basso, 393 So. 2d 637 (Fla. Dist. Ct. App. 1981). In the Basso case, for example, the condominium board had denied a unit owner's request to drill a well. The court agreed that the board's reasons for denying the request served legitimate objectives of the association. The court, however, was not convinced the board demonstrated that its action was reasonably related to the fulfillment of the stated objectives. There was no evidence that its fears, such as discoloration of commonly owned property, would materialize. Courts have distinguished between restrictions contained in the condominium declaration and restrictions imposed by board rule-making.
Typically, courts subject only the latter to the rule of reasonableness. The former are enforced unless they violate public policy or some fundamental constitutional right or are wholly arbitrary in their application.
The Hidden Harbour standard is quite deferential. Arguably, almost any rule or action agreed to by a board bears a relationship to the "health, happiness and enjoyment of life" of all unit owners. Thus, leasing restrictions have been enforced because they serve the purpose of inhibiting transiency, fostering participation in self-management and fostering greater compliance with rules
and regulations. The Hidden Harbour standard merely requires that a restriction serve the health, happiness and enjoyment of life of the various unit owners. It does not require that the restriction be necessary to serve such a purpose. Similarly, age restrictions have been enforced under the rule of reasonableness because they serve the purpose of "providing appropriate facilities for the differing housing needs and desires of varying age groups." Constellation Condominium Ass'n v. Harrington, 467 So. 2d 378, 382 (Fla. Dist. Ct. App. 1985) (quoting White Egret Condominium, Inc. v. Franklin, 379 So. 2d 346, 351 (Fla. 1979)). The opportunity for judicial review is, however, introduced by the requirement that the board bear the burden of justifying the rule enacted or action taken.
Court decisions considering the amount of deference to be accorded board decisions at times generate uncertainty or confusion. Several appellate decisions in the Florida courts illustrate this problem. After the two Hidden Harbour decisions, several appellate cases in Florida stated that "the business judgment rule" will protect a corporation's board of directors. See Cedar Cove Efficiency Condominium Ass'n v. Cedar Cove Properties, Inc., 558 So. 2d 475, 479-480 (Fla. Dist. Ct. App. 1990); Farrington v. Casa Salana Condominium Ass'n, 517 So. 2d 70, 71 (Fla. Dist. Ct. App. 1987); Tiffany Plaza Condominium Ass'n v. Spencer, 416 So. 2d 823, 826 (Fla. Dist. Ct. App. 1982). Nevertheless, those courts went on to state that this was true if the board acted in a "reasonable" manner.
The business judgment rule is a legal doctrine that restrains a court from overturning the management decisions of a corporation's board of directors or holding the board liable for any loss resulting from those decisions. It is also a rule of deference to management discretion. The court will not examine the soundness of management decisions or actions by substituting its judgment for that of the board. Although the rule was formulated in the corporate law area, some states have borrowed the doctrine and applied it to condominium associations, cooperative corporations and homeowners' associations.
The Hidden Harbour decisions involved restrictions in the condominium declaration and rules enacted by the board. The later decisions involved discretionary operating decisions. Were these later cases embracing a business judgment rule for board decisions other than rule-making?
Unfortunately, none of the decisions discusses whether the unit owner or the board bears the burden of challenging or justifying the purpose behind the action taken. Therefore, it is not clear what rule the courts intended to apply.