A recent Appellate Division case, approved for publication (which means it will have Statewide application and authority) was recently decided regarding the ability of a homeowner association to restrict the leasing of a home.  The case, Cape May Harbor Village And Yacht Club Association, Inc. v. Sbraga, et al., while a case of first impression in New Jersey, will probably be limited in scope and applicability throughout the State of New Jersey.       
 

Cape May Harbor And Yacht Club Association, Inc. (the “Yacht Club”) adopted an amendment to its governing documents that prohibited homeowners from leasing their homes to third parties.  Deborah Sbraga (“Sbraga”) sued, and at trial, the trial court ruled in favor of the Association and its enforcement of the leasing restriction.  Sbraga appealed.
 

The Yacht Club is a very exclusive enclave consisting of twenty-four single family homes, common areas and a marina.  The homes range from $2.5 Million to $2.7 Million.  Sbraga and her husband purchased a lot and built a home in 2005; however, because of a divorce the property was placed in Sbraga’s name only in 2007.  Subsequent to this, Sbraga, although intending to occupy the home full-time, decided to sell the home.
 

The documents in its original form allowed the leasing of homes and boat slips.  However, the governing documents were amended to prohibit leasing of homes shortly after Sbraga inquired with the Board about her ability to lease her home.  The Board President testified that none of the other members ever leased their home and that Sbraga would be the first.  As a consequence of Sbraga bringing this issue up, the Association presented before its membership an amendment prohibiting the leasing of homes.  The amendment was approved by a vote of 20 in favor and 3 opposed.  The meeting minutes reflected that members were concerned with  living in a homeowners association where rentals were permitted, the potential of a negative impact on home values, potential problems with renters, parking problems, the lack of responsibility and ownership for noise, and infractions of the Association’s rules and regulations.
 

While the amendment did not affect the leasing provision of the boat slips, the Board President did testify that previous experience with renters of the boat slips resulted in numerous occasions where the Association had to advise people not to live on their boats, children misbehaving in the marina area and children going onto other boats.  The police were called on a couple of occasions due to the inappropriate behavior of the children.  The Association used these incidents as evidence that there existed the potential for these types, or more serious types, of problems if homes were allowed to be leased.  
 

The trial judge needed to consider a number of factors,  the restrictions under review that were the result of an amendment and not the original governing documents, the restriction occurred after Sbraga bought into the community, that there were no prior restrictions on renting the homes, and that it affects property right.  Thus, a determination that the amendment needed to be given less credibility than it might otherwise.  Using this more stringent standard, the trial judge did determine that the amendment was a reasonable amendment.  The trial judge noted that the community was a small, exclusive community with no history of prior home rentals.  The trial judge also found that it was a legitimate concern that having tenants in such a community could impact the neighborhood and its image, and that the members were reasonable in not wanting a “transient” community.  The trial judge did concede that the analysis may be different if there were a history of homeowners renting, and/or if the Association were larger and not a small, exclusive community.  Thus, the trial judge found in favor of the Association and the amendment.
 

Although the Appellate Court did agree that the restriction is a significant one and that it does affect the fundamental right to utilize one’s real estate as one sees fit, the Appellate Division needed to go through the various factors to determine whether or not the “alienation” of Sbraga’s right to lease the home was so significant that the Court should overturn the trial judge’s decision to uphold the amendment.  The Appellate Division decided that a restraint on the leasing provision accomplishes a worthwhile purpose by preserving the residential nature of the community.  Since the nature of the community has never before been affected by rentals, the members of the Association had a reasonable basis to believe that the community would not be disrupted by the leasing of homes.  Further, the Appellate Division opined that leasing to homeowners had not occurred in the past and that some of the members did not even know that they were allowed to lease under the Declaration.  Because Sbraga only intended to lease the unit for a short time until she was able to sell, the duration of this restraint against her ability to rent would be limited in scope.
 

Further, the Appellate Division set forth that Sbraga cannot claim that she had a vested right that could never be affected.  Since Sbraga conceded that she took title to the property in accordance with the terms of the Declaration, she was presumed to have known that the governing documents could be amended. 
 

The Appellate Division, in its conclusion, opined that the trial judge’s use of the “reasonableness standard” was valid, and that the trial judge found appropriate reasons why the amendment was to be considered to be reasonable and enforceable based upon the facts presented at trial.
 

While at first glance this case may appear to provide the authority community associations need to prohibit leasing of homes or condominium units, I believe the law of this case will be narrow in its scope.  That is, great pains were taken to make specific mention that the outcome may be different if the history of leasing of homes is present, and stating that the size of the community is important.  Thus, I believe that a very narrow set of facts needs to be present in order for any leasing restrictions to be upheld.

 

If you would like to discuss this client alert in more detail or how it may affect your community association, please contact Chris Florio at 609-895-7335 or by email at cflorio@stark-stark.com