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Can declarant lease units indefinitely and never sell?

Customer Question
Can declarant lease units indefinitely and never sell?
Submitted: 2 years ago.Category: Real Estate Law
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Answered in 4 minutes by:
9/7/2015
Real Estate Lawyer: Barrister, Lawyer replied 2 years ago
Barrister
Barrister, Lawyer
Category: Real Estate Law
Satisfied Customers: 38,672
Experience: 17 years real estate, Realtor. Landlord 26 years
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Hello and welcome! My name is ***** ***** I will try my level best to help with your situation or get you to someone who can.

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Do you mean lease to one person indefinitely or just lease to consecutive tenants for the foreseeable future?

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Are there any restrictions in the Bylaws or CCRs of the Condo Owner's Association that restrict leasing?

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Is the Association attempting to end an owner's right to rent out their property?

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thanks

Barrister

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Customer reply replied 2 years ago
I mean lease units to consecutive tenants rather than selling units to new owners.
Real Estate Lawyer: Barrister, Lawyer replied 2 years ago

Ok, if you are talking about the developer or the COA, then if there is nothing in the Bylaws or CCRs that restrict them from renting indefinitely, then yes, they can do so. The Bylaws and CCRs are the governing documents for the development so without any prohibition on renting, they can do so indefinitely until the Bylaws or CCRs are changed by a vote of the members.

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thanks

Barrister

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Customer reply replied 2 years ago
Aren't condo units intended to be sold by developer or declarant with control of condo passing to owners association? That model would suggest that declarant cannot lease units indefinitely instead of selling to units to new owners.
Real Estate Lawyer: Barrister, Lawyer replied 2 years ago

Well that is generally the idea, but there is not any law that would require the developer to sell units if he wanted to hold on to them and use them are rental properties. There may also be a more sinister reason if the developer holds enough units so as to maintain control of the Association and essentially rule their own little "fiefdom".

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But many Bylaws have a clause that states that states that control transfers to the owners once a certain number of units have been sold or after a certain amount of time has passed. So it would require a careful review of the Bylaws to determine when and under what conditions control passes to the owners of the development so they can self govern.

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thanks

Barrister

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Customer reply replied 2 years ago
If this new declarant retains ownership of the 35 units he develops he has a super majority over the 10 original unit owners. The original owners will have no say in the management of the condo in spite of the expectation at the time they bought of dispersed ownership and COA control.
Customer reply replied 2 years ago
The original owner's condo has effectively been hijacked by the new declarant.
Real Estate Lawyer: Barrister, Lawyer replied 2 years ago

Unfortunately, without the Bylaws stating that the declarant has to turn over control of the Association to anyone after a certain time, or a requirement that it occur after a certain number of units are sold, then legally they can retain control indefinitely and continue to rent out the units for rental income.

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This is one of the dangers in being a first mover with regard to purchasing if there are not clear rules that state that the developer has to turn over control after a certain amount of time.

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I am sorry to deliver bad news, but there is nothing in the law that would force a property owner to sell their property if they choose not to. It would be essentially the same outcome if the developer sold multiple units to one private party so as to give that one property owner total control over the development..

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thanks

Barrister

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Customer reply replied 2 years ago
I don't believe the first paragraph immediately above about declarant retaining control indefinitely is legal in Washington state. RCW 64.34 specifies the limited period for declarant control. Are you familiar with Washington laws regarding condominiums?
Real Estate Lawyer: Barrister, Lawyer replied 2 years ago

RCW 64.34 is the general statute regarding Condo laws. RCW 64.34.308 deals with governing the development.

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(5)(a) Subject to subsection (6) of this section, the declaration may provide for a period of declarant control of the association, during which period a declarant, or persons designated by the declarant, may: (i) Appoint and remove the officers and members of the board of directors; or (ii) veto or approve a proposed action of the board or association. A declarant's failure to veto or approve such proposed action in writing within thirty days after receipt of written notice of the proposed action shall be deemed approval by the declarant.

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(b) Regardless of the period provided in the declaration, a period of declarant control terminates no later than the earlier of: (i) Sixty days after conveyance of seventy-five percent of the units which may be created to unit owners other than a declarant; (ii) two years after the last conveyance or transfer of record of a unit except as security for a debt; (iii) two years after any development right to add new units was last exercised; or (iv) the date on which the declarant records an amendment to the declaration pursuant to which the declarant voluntarily surrenders the right to further appoint and remove officers and members of the board of directors.

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(6) Not later than sixty days after conveyance of twenty-five percent of the units which may be created to unit owners other than a declarant, at least one member and not less than twenty-five percent of the members of the board of directors must be elected by unit owners other than the declarant. Not later than sixty days after conveyance of fifty percent of the units which may be created to unit owners other than a declarant, not less than thirty-three and one-third percent of the members of the board of directors must be elected by unit owners other than the declarant.

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So it would appear that there is a potential 2 year limit " two years after the last conveyance or transfer of record of a unit except as security for a debt". If the developer doesn't sell or convey anything for 2 years, then he would have to turn over control of the Association. The reason I say it is a "potential" 2 year limit is that if the developer wanted to avoid this, then they could sell or transfer a unit at just under 2 years time to a LLC owned by them and it would effectively enable them to avoid the requirement to turn over control.

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thanks

Barrister

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