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June 1, 1997 MEMORANDUM TO CLIENTS
TRANSFERS: THOU SHALT NOT DISCRIMINATE It has been decades since the first housing discrimination laws were adopted; yet, some association directors still seem not to understand. The law is clear: Federal law prohibits discrimination in the sale or rental of housing on the basis of race, color, religion, handicap, sex, familial status or national origin! A recent New York trial court decision illustrates that some associations ignore the potentially astronomical penalties for illegal discrimination. Associations and their directors risk violating the Fair Housing Amendments Act when they disapprove a prospective tenant or purchaser. While associations may not have to provide a reason for denying an application for occupancy, normally prospective tenants or purchasers should not be disapproved unless there are objective reasons. A denial upon objective reasons usually avoids claims that a denial was based upon the applicant's race, color, religion, handicap, sex, familial status or national origin. A disapproval of a prospective tenant or purchaser based upon a clear objective standard could include a tenant's history of violating restrictive covenants, or if the occupancy itself would violate an otherwise enforceable regulation. The New York situation reportedly involved a cooperative association which disapproved a husband and wife's application to sublease an apartment. The husband was black and the wife was white. Several directors' alleged comments concerning the husband's "color" supported allegations that the denial of the husband and wife's application was discriminatory. The jury found that the Association and the Board of Directors improperly discriminated against the couple. The trial court ruled that a director's characterization of the husband as "arrogant" was evidence of discrimination. The judge stated that the term was a "code name for racial discrimination." The term "arrogant" was a modern substitute for the earlier derogatory term "uppity". The jury awarded $640,000.00 in damages to the couple and the apartment owner. Of this amount, $260,000.00 was specifically charged against the individual directors. It is noted that many directors' and officers' insurance policies will not cover discriminatory practices claims. Although the trial decision concerned discrimination based upon race, the consequences can be the same for an association's disapproval of a handicapped person, a family with children, or any other prohibited type of discrimination. Thus, associations should carefully evaluate applications, taking special care that a decision to disapprove an application does not violate the Fair Housing Amendments Act. TRANSFERS: LIMITATIONS UPON THE RIGHT OF FIRST REFUSAL
Florida courts have also been active in the area of transfers. In Fallschase Dev. Corp. v. Blakey, _____ So. 2d _____, 22 Fla. L. Weekly D754 (Fla. 1st DCA, March 20, 1997), the validity of a right of first refusal was at issue. Rights of first refusal are imperative to communities which restrict the sale of units or lots. Without a valid right of first refusal, most associations would have no ability to prohibit a sale, even if the sale is denied upon an objective basis. The problem raised in the Fallschase decision was timing as affected by a legal doctrine referred to as the Rule Against Perpetuities. In 1995 Blakey sought a declaration whether he could sell a commercial parcel without regard to a right of first refusal held by Fallschase. The right of first refusal was created in 1975 when Blakey's aunt sold one of two adjoining parcels to a corporation which later merged into Fallschase. As part of the 1975 sale, Blakey's aunt agreed not to sell the parcel she retained without first providing Fallschase a right to purchase the parcel. The First District Court of Appeal invalidated the right of first refusal. Generally, the Rule Against Perpetuities requires that a contingent interest in property be vested, or be realized, within a certain period of time. Though the Rule is very complex, the purpose is to ensure that potential interests in property either become ownership interests or are extinguished within a reasonable period of time. The Rule is still enforced to prevent sellers and their heirs from retaining contingent interests forever that would make property unmarketable. Cinema aficionados may recall that the Rule created the problems for the William Hurt character in the film "Body Heat." The Fallschase decision's application to associations is unclear. Concerning condominium associations, the Rule Against Perpetuities will not defeat a right of first refusal that is "reasonable" and included in a declaration of condominium recorded after the legislature first adopted what is now §718.104(5) Fla. Stat., part of the Condominium Act. The Cooperative Act does not have a similar provision; however, generally the Rule Against Perpetuities has not been applied to leases such as those approved by cooperative associations. The Fallschase decision may create significant problems for older homeowners associations. Those associations with covenants created before October 1, 1988 are especially at risk. Communities with older covenants might be able to amend their declarations to restate their transfer provisions. STATUTORY AND REGULATORY UPDATE
The legislative session has ended; however, the legislative process has not! Before this issue was completed for printing, the Governor had not completed his review of recent legislation affecting associations. The firm plans to provide a summary of new laws in the next Memorandum to Clients. In the interim, condominium associations must take note of the Department of Business and Professional Regulation, Division of Florida Land Sales, Condominiums and Mobile Homes, Bureau of Condominium revisions to the Condominium Administrative Rules. Noteworthy revisions include the following:
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