Reader Questions - Can We Limit Rentals?

Hello Kelly,

We are talking about limiting the number of rentals in our HOA complex. I believe we currently have about 1/3 rentals. Do you know if there is a way we can legally limit the number of rentals? We have noticed the more rentals we have, the more damage is done to our property and the more trouble we have in common areas amenities (pool, tennis courts, etc). We are also concerned we will lose our FHA/VA approval if we have too many rentals. Can you address the rental/owner occupied issue?

Thank you,

T.M., San Diego

Dear T.M.,

Many associations explore rental limitations, for various reasons. Rentals present a number of challenges, because tenants are less likely to respect the condition of the property, take responsibility for association welfare, respect association rules, and be concerned about their neighbors. CC&Rs address members’ rights and responsibilities, and operating rules also regulate conduct, but tenants are not members and so are not bound by the CC&Rs or rules. Perhaps this is why FHA/FNMA lending guidelines require that at least 50% of a condominium project be owner-occupied.

There was a widely followed case from 2005-2010 involving the Sierra Dawn Estates association in Hemet. The homeowners passed rental limitations which greatly affected one homeowner, Harrison. The association members passed restrictions that members had to wait one year after buying a lot before they could rent it out, capped total rentals at 20%, capped rental ownership at 3 per member, and banned long-term leases. Harrison challenged the restrictions, which were upheld at trial and on appeal, but the opinion was not certified as “published” and so is not a binding precedent.

In response to the Hemet lawsuit, the California Association of Realtors sponsored three different bills, each designed to protect owners’ ability to rent. After two vetoes, the third attempt was signed into law in 2011, creating what is now Civil Code 4740. That law creates an automatic grandfathering of all owners at the time the rental prohibition is adopted. Does this mean that any rule or use restriction regarding rentals only applies to future owners? I take the language quite literally, so if the HOA adopts a rental maximum, that is a partial ban on rentals. In other words, if an association has a 33% rental maximum, then rentals are banned in the other 67% of the association. Grandfathering applies to all members, so the partial ban would only apply to owners who bought after the limit was adopted.

However, there are many other restrictions which can have the effect of reducing rentals (or rental problems). Those would include a 1 year waiting period on rentals, or a minimum lease term of 1 year, or a ban on subletting, to name a few examples. Some associations adopt a requirement of a “lease addendum” in which the landlord and tenant agree to certain things which protect the association.

Civil 4740(d) requires HOA landlords to provide the HOA verification of the date of ownership (to check if grandfathering applies) and also the name and contact information of the prospective tenant. This helpful requirement is frequently overlooked.

Associations should check with their legal counsel to discuss the various options to address rentals (and rental problems) in the community.

Sincerely,
Kelly

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®.