When is There Good Cause to Deny a Sale?

Q. Our Board has disapproved sales transactions in the past, and the community documents allow for this with “good cause”, if the Board first receives a written opinion from legal counsel that good cause exists. We are not extremely confident in the opinions from our legal counsel in this area, and we would appreciate your general opinion on when there is good cause to deny a sale…

A. We can provide some guidance on this, but our first suggestion is to amend your documents to provide more clarity on what exactly constitutes “good cause”. We see many documents, particularly in older associations, that are too vague on this subject and it can get the association in trouble if the board makes inconsistent decisions. Experienced legal counsel can provide some language for a document amendment that specifically states the grounds on which a sale or lease can be denied. Typical grounds for “good cause” that we have seen and tested include: 1) the applicant has been convicted of a felony involving violence or theft; 2) the applicant has been evicted from other communities for violations of the community rules; 3) the applicant cannot comply with the community rules based on the application itself (i.e. the applicant has 3 dogs and the community rules allow only 1 dog); 4) the owner of the property is delinquent in the payment of maintenance fees or other charges at the time of application. A current “hot topic” is whether a board can deny an applicant based on credit score or financial history. This can be done but there needs to be specific language in the documents and the board needs to be reasonable and consistent in its review. “Good cause” will certainly not exist if the board wishes to deny an applicant based on race, religion or national origin, which is a violation of federal and state law.

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