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Unbundled Property Rights Condominium Leashold Restrictions

There are only two kinds of unit owners in any given condominium: those who live there and those who do not. Resident owners often take measures to tax absentee owners with additional fees, or establish policies to diminish landlord owners’ expectations of use and enjoyment in the property. And each time a conflict escalates, the litigants end up in court, only to hear the same message: We cannot, in the context of a common interest scheme, tolerate separate classes of ownership that would benefit the resident owner off the back of the absentee owner.

Resident owners believe that their biases against landlord owners are justified. After all, living in a common interest community often requires a subordination of one’s self-interest to that of the larger association. Owners who live on the property are more interdependently vested than the average Joe living just outside the gate. Resident owners clearly care how policies pertaining to trash and pets affect them and want to ensure that their association board is fiscally responsible. Investor owners, on the other hand, do not typically contribute ideas or resources for the betterment of the community, and they do not vote for trustees or capital improvements. What’s more, the higher percentage of the rentals that exist in any one community may affect individual lender financing.

When a community is dominated by investor ownership, the worry is that property values hang precariously in the balance—and resident owners are more sensitive to this issue now more than ever, when home values are depressed.

The issue then becomes primarily one of reconciling the individual owner’s legitimate expectation of property rights (economic and otherwise) with the association’s interest in shutting out the investor owners for the overall preservation of the property itself. Dozens of communities are struggling with this question in the recessed economy. Even though some communities recognize that rentals may be a viable alternative when overall condo sales are stalled, it seem more communities prefer to devise restrictive policies that would discourage or ban renting altogether.

This provokes all kinds of questions. Did the master deed originally permit leases, and if so, on what authority does the association now restrict them? Just because a purchaser was originally on notice that the governing documents could one day be amended, is this enough to slash an owner’s substantial property rights? What about those owners who are currently in contractual agreements with tenants—will they be made to phase them out? Or, do we extend certain privileges to those already renting, which may create the problematic special classes of owners? And what about public policy concerns? If multitudes of communities shun renters, will there be enough housing in New Jersey for those who cannot afford to buy?

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