A Vermont Board Can Only Restrict Leasing to Satisfy Mortgage Lenders

Start with the rule track, because that is how most Vermont boards try to act. Subsection 3-120(f) is a closed list. An association may adopt rules affecting the use of or behavior in residential units only to implement a provision of the declaration, to regulate behavior or occupancy that violates the declaration or adversely affects other owners' use and enjoyment, or to restrict leasing to the extent the rules are reasonably designed to meet institutional lender underwriting requirements. Those are the only three doors. A board that adopts a leasing cap because members dislike renters, or to protect resale values, or to cut down on parking congestion, has not used any of them.

The lender door is narrower than it first looks. The rule has to be reasonably designed to meet underwriting requirements of institutional lenders that regularly make loans secured by first mortgages on units in common interest communities or regularly purchase those mortgages. That points at the investor-concentration and owner-occupancy conditions that secondary-market purchasers apply to condominium project approval. A Vermont board relying on § 3-120(f)(3) should be able to name the underwriting requirement its rule is designed to satisfy. A cap pulled out of the air, with no lender standard behind it, is outside the subsection, and § 3-120(h) independently requires that every rule be reasonable.

The declaration track is where real leasing restrictions live in Vermont. Section 2-105(a)(12)(A) requires a declaration to state any restrictions on alienation of the units, including any restrictions on leasing that exceed the restrictions an executive board may impose. That drafting confirms the structure: leasing limits beyond the board's narrow rule power are permitted, but they must be recorded in the declaration where a buyer can find them, not buried in a rulebook adopted later.

Amending a declaration to add a leasing ban is deliberately hard. Under 27A V.S.A. § 2-117(a) the declaration may be amended only by vote or agreement of unit owners holding at least 67 percent of the votes in the association, unless the declaration itself names a different percentage for all amendments or for specific subjects. Subsection 2-117(d) then adds a much steeper requirement for a particular class of change: absent unanimous consent of the unit owners, no amendment may change the uses to which any unit is restricted. Whether a new leasing prohibition changes the uses to which a unit is restricted is the question an owner facing a 67 percent amendment should be raising, because if it does, 67 percent is not enough. Subsection 2-117(c) requires every amendment to be recorded in every town in which any portion of the community lies and makes it effective only on recordation, and subsection 2-117(b) shuts the door on challenges: no action to challenge the validity of an amendment may be brought more than one year after the amendment is recorded.

What Vermont does not have is just as important. There is no statutory grandfathering for owners already leasing when a restriction is adopted. There is no statutory minimum or maximum lease term, no statutory cap on the percentage of units that may be rented, and no statutory exemption for hardship, military deployment, or an inherited unit. If your community has any of those, they come from the declaration, not from the statute, and a member seeking them has to amend the declaration to get them.

Coverage limits apply. Section 3-120 was added by 2009, No. 155 (Adj. Sess.), § 38, effective January 1, 2012, and it is not among the sections that 27A V.S.A. § 1-204 extends to Vermont communities created before January 1, 1999. An older community is not bound by the § 3-120(f) limits unless it has amended its declaration under 27A V.S.A. § 1-206 to take advantage of the title. Section 2-117 is likewise absent from the pre-1999 lists except for subdivisions (h) and (i), so the 67 percent amendment threshold is not automatically imposed on those older Vermont communities either. Read your declaration's recording date first.

Finally, a Vermont association is not powerless over the tenants it does have. Section 3-102(d) lets it exercise its fine power directly against a tenant who violates the declaration, bylaws, or rules, and lets it exercise any other right the unit owner as landlord could have exercised under the lease, and § 3-102(e) makes those landlord-style remedies available only if the tenant or unit owner fails to cure within 10 days after notice.

Enforcement runs both directions and both use the same machinery. § 3-116(a). § 3-116(m) the association may not commence a foreclosure action unless the owner owes at least three months of common expense assessments based on the last adopted periodic budget and has failed to accept or comply with a payment plan, and the executive board votes to foreclose against that specific unit; and under § 3-116(o), where the sums due do not include an unpaid assessment, the association must first obtain a judgment and perfect a judgment lien before it may foreclose.

A fine alone therefore cannot put a Vermont unit straight into foreclosure. § 1-104, which provides that the effect of the title's provisions may not be varied by agreement and rights conferred by it may not be waived. If the fight is over an amendment rather than a rule, watch the calendar: § 2-117(b) bars any action challenging the validity of an amendment more than one year after it is recorded.