Limitations on Rental Prohibitions

California courts have recognized the authority that HOAs have to impose reasonable rental restrictions within their developments. (See “Rental Restrictions (Generally).”) Additionally, where a HOA’s governing documents are amended to incorporate additional property use restrictions, California courts have held that such restrictions are not only binding upon future owners within the HOA’s development, but current owners as well. (Villa De Las Palmas HOA v. Terifaj (2004) 33 Cal.4th 73, 83.)

However, legislation sponsored by the California Association of Realtors (CAR) sought to modify this structure by limiting the degree to which a HOA may enforce newly adopted rental prohibitions against owners that had bought into the HOA’s development prior the time when the rental prohibition became effective. That legislation (SB 150) resulted in what is now Civil Code Section 4740.  Section 4740 states in pertinent parts that:

 “(a) An owner of a separate interest in a common interest development shall not be subject to a provision in a governing document or an amendment to a governing document that prohibits the rental or leasing of any of the separate interests in that common interest development to a renter, lessee, or tenant unless that governing document, or amendment thereto, was effective prior to the date the owner acquired title to his or her separate interest

…(f) This Section shall apply only to a provision in a governing document or a provision in an amendment to a governing document that becomes effective on or after January 1, 2012.” (Civ. Code § 4740 (Emphasis added).)

Thus, where a rental prohibition is incorporated into a HOA’s governing documents on or after January 1, 2012, that prohibition is only binding on owners that bought into the development after the rental prohibition became effective. Owners that bought into the development prior to that time are not bound by the rental prohibition, unless they expressly consent to be. (Civ. Code § 4740(b).)

Verification Requirement
Where an owner seeks to utilize the protections under Civil Code Section 4740 and rent out his property, the owner is required to first provide the association with (1) verification of the date the owner acquired title to his property, and (2) the name and contact information of the prospective tenant or the tenant’s representative. (Civ. Code § 4740(d).)

Rental “Restrictions” vs. Rental “Prohibitions”
By its own terms, Civil Code Section 4740 applies to a provision in a HOA’s governing documents that “prohibits” the rental or leasing of properties within the development. There is an ambiguity in the law as to whether Section 4740 would similarly apply to rental restrictions that do not serve as blanket rental prohibitions (i.e., a restriction allowing rentals provided that they are for terms of at least thirty (30) days). The degree to which both current and future owners are bound to comply with such restrictions remains unclear.

Disclosure of Rental Prohibition to Prospective Purchaser
If a provision of an association’s governing documents “prohibits the rental or leasing of any of the separate interests in the common interest development,” the owner of a property has a duty to disclose to its prospective purchaser the existence of the rental prohibition and provide a statement describing the prohibition. (Civ. Code § 4525(a)(9).)

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Related Case Law

  • Mission Shores Association v. Pheil
    (2008) 83 Cal.App.4th 789

    [Amendments to CC&Rs; Rent Restriction] An amendment to the CC&Rs which empowered the HOA to evict tenants who violate the CC&Rs was held to be reasonable.

  • Villa De Las Palmas Homeowners Association v. Terifaj
    (2004) 33 Cal.4th 73

    [CC&R Amendments; Binding Effect] CC&R amendments enacted by homeowners are accorded the same presumption of reasonableness as those imposed by developer; CC&R amendments are binding against both current and future homeowners.