Supreme Court Decides Bilanko – Upholds Rental Cap That Was Challenged Too Late

The Washington State Supreme Court has just issued its much anticipated ruling in Bilanko v. Barclay Court, dismissing a rental cap lawsuit an owner filed more than one year after the rental cap amendment had been recorded. This decision protects rental cap amendments that were not challenged within one year (for New Act condos) or six years (for Old Act condos) of the date the amendment was recorded. The decision provides these answers to these questions.

Is there a time limit within which a lawsuit challenging a New Act rental cap must be brought?

Yes. It generally must be brought within one year of the date the rental cap amendment was recorded.

Is there a time limit within which a lawsuit challenging an Old Act rental cap must be brought?

Yes. By implication, it generally must be brought within six years of the date the rental cap amendment was recorded. “By implication” means this decision did not directly address that question, but applying the reasoning contained in this decision to an Old Act rental cap would more likely than not produce this result.

Did the Court overrule the Court of Appeal’s Club Envy decision?

No. In Club Envy, a developer fraudulently recorded an amendment that reduced owners’ voting rights. Owners sued to invalidate the amendment, but filed suit more than one year after the amendment was recorded. The developer argued the lawsuit was brought too late and should be dismissed. But the Court of Appeals disagreed, ruling that the one-year limit for challenging a New Act declaration amendment did not apply to an amendment that had been recorded under such circumstances. The Supreme Court’s decision this morning treats the Club Envy decision as carving a very narrow “fraud/unauthorized act” exception to the general rule requiring a rental cap lawsuit to be filed within one year. Fraud of the type present in Club Envy is very rare, so the general rule will prevail in most challenges to declaration amendments.

Did the Court decide whether a New Act rental cap amendment must be approved by 90%?

Not quite. It did not have to reach the issue because it dismissed the case for having been filed too late. And yet, the decision does talk about the issue. First, it includes a footnote that urges the Legislature to consider taking action to clarify what it intended by its use of the word “use” in the New Act. Second, it says that Barclay Court did not “exceed its authority” by recording the amendment because the rental cap amendment had been approved by at least 67% of the owners, as required by Article 25 of the Barclay Court Declaration. Just as it had in the Filmore decision, the Court here appears to rely upon the specific language contained in the Barclay Court Declaration, but not quoted in the opinion. Section 25.2.1 of that Declaration is its “material amendment” provision, listing the types of amendments that require the consent of a majority of the Eligible Mortgagees, a list that includes “imposition of any restrictions on leasing.” But that Section says items on the list must be approved by 67% of the owners. So, by getting the 67% owners’ approval required by that Section, Barclay Court apparently satisfied the amendment requirements in its Declaration.

Is the Barclay Court Declaration’s “Material Amendment” Provision Standard Language?

Not quite. By our very rough estimate, the relevant declaration language in the Barclay Court Declaration’s “material amendment” provision turns up in about a third, or fewer, of the New Act declarations.