Proposed Law Would Override HOA Self-Determination

Assembly Member Ting from San Francisco has authored Assembly Bill 3182. In its original form it was a horrible bill but later amendments improved it from horrible to just bad – a poorly drafted bill cutting back on private property ownership rights. AB 3182 would restrict the ability of homeowners in an HOA to vote to prohibit or limit rentals. The bill proposes to make several amendments to current Civil Code Section 4740 –the section which was enacted in 2012 to “grandfather,” or exempt, current owners from prohibitions on leasing of HOA residences. The bill would remove the current grandfathering and make several other changes regarding rentals in HOAs.

Rental bans or limits are normally imposed by HOAs after they are voted upon by the homeowners within the community when they amend their CC&Rs, the contract binding them together. AB 3182 would make rental bans illegal, regardless of how the owners vote to operate their community.

Associations choose to adopt rental restrictions for many reasons. The most common reason is to preserve a higher quality of resident, based upon the belief that owners will take more pride in their home and will behave better than tenants. Another common reason is availability of FHA and FNMA-backed mortgages as FHA and FNMA will not allow HOA rentals to exceed a certain maximum amount.

AB 3182 would outlaw any restriction which prohibits, effectively prohibits, or unreasonably restricts HOA rentals. Short-term rentals (under 31 days) could still be banned, and HOAs are permitted to have a rental maximum of 25%. One of the bill’s oddities is that HOAs could have a HIGHER (more liberal) rental maximum if they could justify it as necessary for loans or insurance, but how can the HOA show the need for more rentals in its community? So, HOAs desiring more liberal rental maximums might not be allowed to have them.

The issue of “unreasonably restricting” rentals is a vague standard which could lead to litigation between homeowners and their HOA, since the definition of “reasonable” in this context is not obvious to all. HOAs often impose many restrictions on rentals – such as one year waiting periods, or requiring tenants promise to obey the rules, or one-year minimum lease terms. Are these requirements “unreasonable restrictions”?

Another troubling aspect of the law is that it specifically also protects the right to rent Accessory Dwelling Units (sometimes called “granny flats”) or junior ADU’s and excludes them from any rental maximum. Since under this proposed law the ADU’s are not considered part of the “separate interest,” the landlord of the ADU would not be required by 4740(e) to inform the HOA of the tenant’s name and contact information.

As with last year’s SB323, AB3182 is another piece of legislation which does not reflect the complexities of the existing law and disrespects the right of homeowners to manage their own communities as they see fit. Why do Legislators not seek input from the organizations which educate HOAs, such as Community Associations Institute, or ECHO, before tinkering with HOA law?

AB3182 passed the Assembly on June 11 with a substantial number of “no” votes. The bill is now in the state Senate, in the committee stage. To review the bill or contact its author, visit www.leginfo.legislature.ca.gov.

Written by Kelly G. Richardson

Kelly G. Richardson Esq., CCAL, is a Fellow of the College of Community Association Lawyers and a Partner of Richardson | Ober | DeNichilo LLP, a California law firm known for community association advice. Submit questions to [email protected]. Past columns at www.hoahomefront.com. All rights reserved®.