CONDO MAY LIMIT LEASING AND SALES

Many purchasers prefer condominiums to cooperatives, because they believe condominiums afford owners greater flexibility to lease or sell their units. But that could not be farther from the truth. Frequently, condominiums take a highly restrictive stance on sales and leasing, as demonstrated by the case of Demchick v. 90 E. End Ave. Condominium.
The building in question consists of 43 residential units, 38 of which are described as "large, expensive, multi-bedroom units," with the remaining five comprising "small, relatively inexpensive studios." Apparently, it was the custom and practice of this full-service, luxury building to allow owners to utilize the studio units for their "household help," and it was understood that these studios could not be sold to anyone who did not already live in the building. Interestingly, these restrictions were not reserved in the offering plan or bylaws.
After the Plaintiffs purchased their four-bedroom apartment and a studio unit (which was used for storage), the Board circulated a proposed amendment to the condominium's bylaws formalizing the building's prior practice which restricted the leasing or sale of the studio apartments. Over Plaintiffs' objections, the amendment was adopted by a majority of the building's unit owners. Plaintiffs subsequently commenced suit in the New York County Supreme Court declaring the amendment "illegal," on the grounds that it constituted "an unreasonable restraint on alienation."
An array of common-law, constitutional and statutory protections are in place to prevent "undesirable" limits on the transfer of real estate. Restrictions which are "unjustified" run afoul of these safeguards and comprise a form of "unreasonable restraint" which will not be honored or enforced by the Courts.
The Supreme Court found the Condominium's amendment "unreasonable" and granted relief in the Plaintiffs' favor. On appeal, the Appellate Division, First Department, reversed, noting that Real Property Law section 339-v(2) grants condominiums the power to control the "alienation, conveyance, sale, leasing, purchase, ownership and occupancy of units," so long as those restrictions do not serve as a pretext or basis for discriminatory conduct. As the Appellate Division observed:

The restriction on the leasing of studios does not constitute an unreasonable restraint on alienation...Nor can it be said that the purpose of the restrictions of sale of the studio units--to preserve the character of the Condominium--is unreasonable. Although the duration of the restriction appears to be unlimited on its face, the restriction can be modified or removed at any time by a duly called meeting of the unit owners to further amend the bylaws. While there appear to be no New York cases on this point, other states have found such a restriction not to be an unreasonable restraint on alienation...The reasoning set forth in those cases is sound and applicable here.