Opinion: Condo boards can’t turn down applicants just because they don’t like them

“If I like you, you’re in.” Those words were uttered by the board president of the first condominium unit I bought right out of law school. At the time, I wasn’t going to quibble about whether or not this screening procedure was legitimate.

Many community association residents expect their board members and managers to thoroughly screen applicants for purchase or lease. Current residents often want reassurance that new residents will not pose any risk to their health, safety and welfare and that these newcomers will have the financial resources to meet their monetary obligations in the community.

In order to fulfill this expectation, an association’s governing documents must provide the board with authority to approve proposed sales and/or leases. Without such authority, boards cannot screen applicants and certainly cannot charge application or screening fees. Some association governing documents only require that the association be notified of a proposed sale or lease but do not take the further step of requiring board approval for these transactions. In some mixed-use communities, the commercial units may be transferred freely while sales or leases of the residential units are subject to screening. Some boards also overlook the fact that they may not have the right to simply say no to an applicant. Many documents, particularly older ones, require the association to substitute a purchaser or tenant if the proposed application is denied.

For boards that have the right to screen leases and/or sales, the following factors are routinely considered when evaluating a purchase or lease application:

▪ Criminal history.

▪ Financial resources including credit score and equity.

▪ History of nuisance in a previous community or in the subject community.

▪ Failure to fully or truthfully compete the application.

▪ Certainty that the applicant will violate the governing documents if approved. One example of this factor would be the knowledge that the applicant is underage and attempting to move into a “55 and over” community.

Some boards believe that they have few rights to deny applications and therefore routinely approve all applications they encounter. Other boards recklessly disapprove candidates on the basis of ill-advised or unlawful criteria and without the advice of counsel. Both types of boards expose the association and potentially themselves to liability for failing to exercise due care when screening applicants.

Some missteps boards make include:

▪ Relying heavily on credit scores for an applicant who has otherwise qualified for a bank loan.

▪ Believing an applicant will violate restrictions they either don’t have, never properly adopted or have not strictly enforced over the years.

▪ Disapproving applicants based solely on arrest records rather than convictions.

▪ Automatically denying lease and purchase applications based on an applicant’s criminal history.

There is a significant difference between a misdemeanor conviction and a felony conviction. A criminal history involving recent violence to persons, particularly violence to minors, will warrant closer scrutiny than a nonviolent felony or a misdemeanor that is two decades old. Each purchase or lease application must be evaluated on its own merits and preferably evaluated with the assistance of association counsel.

In addition to reviewing a background screening report, a board can use a personal interview and contact the applicant’s personal and business references to gain a better idea of the applicant’s character and prior course of conduct in his or her former residential community. Personal interviews are a great way to set the tone for community expectations but advance thought should be given as to whom is best suited to conduct that interview and the topics that should be covered. Applicants would be well advised to use the interview process to determine whether the community is a good fit for them as well.

It is important for boards to strike the right balance when evaluating purchase and lease applications — doing their due diligence while not exceeding the scope of their authority set forth in the governing documents or violating applicable law. A board’s approval decisions have legal consequences as a disapproval has a direct financial impact on the current owner so advance communication with association counsel is always a good idea.

Donna DiMaggio Berger is a shareholder at Becker Law, a board-certified specialist in condominium and planned development law, and the executive director of the nonprofit Community Association Leadership lobby.

This story was originally published November 18, 2019 at 4:00 AM.