HOAs with significant populations of renters may encounter problems that do not arise in developments that consist of primarily owner-occupied homes and condominiums. Those problems typically include higher amounts of assessment delinquencies, more rules violations, lower maintenance standards, more insurance claims, etc. HOAs seeking to avoid such problems often amend their governing documents (i.e., amend their CC&Rs) to impose reasonable rental restrictions within their developments. California courts have recognized a HOA’s authority to take such action as well as its general power to regulate rentals:
“Reasonable restrictions on alienation of condominiums are entirely consistent with Civil Code section 711 in which the California law on unlawful restraints on alienation has its origins. The day has long since passed when the rule in California was that all restraints on alienation were unlawful under the statute; it is now the settled law in this jurisdiction that only unreasonable restraints on alienation are invalid. (Laguna Royale Owners Assn. v. Darger (1981) 119 Cal.App.3d 670, 682.)
“The power to regulate pertains to a wide spectrum of activities, such as the volume of playing music, hours of social gatherings, use of patio furniture and barbecues, and rental of units.” (Nahrstedt v. Lakeside Village Condominium Assn. (1994) 8 Cal.4th 361, FN 6.)
“Here we hold, among other things, that homeowners associations may adopt reasonable rules and impose fees on members relating to short-term rentals of condominium units.” (Watts v. Oak Shores Community Assn. (2015) 235 Cal.App.4th 466, 468.)
Determining whether a rental restriction is “reasonable” will depend upon several factors including (1) the degree to which the restriction is “rationality related to the protection, preservation and proper operation of the property and the purposes” of the association, and (2) whether the restriction is “exercised in a fair and nondiscriminatory manner.” (Laguna Royale, at 683-684.)
Limitations on Rental Prohibitions
When an association’s governing documents are amended to incorporate additional property use restrictions, California courts have traditionally held that such restrictions are not only binding upon future homeowners within the association’s development, but current homeowners as well. (Villa De Las Palmas HOA v. Terifaj (2004) 33 Cal.4th 73, 83.) However, as a result of legislation that took effect in 2012, any provision in an association’s governing documents that “prohibits” the renting/leasing of properties is binding only on homeowners who bought into the development after the rental prohibition became effective. (Civ. Code § 4740(a); See also “Limitations on Rental Prohibitions.”)
Types of Rental Restrictions
The primary types of rental restrictions include the following:
- Rental Caps – these restrictions place a “cap” or ceiling on the number of properties within an association’s development that may be rented out at any one time. Once the cap is reached, no further properties may be rented out and owners wishing to do so are often placed on a waiting list established by the association.
- Rental Prohibitions – these restrictions flatly prohibit any property within an association’s development from being rented out. The enforceability of such prohibitions is impacted by the limitations on rental prohibitions contained in Civil Code Section 4740. (See “Limitations on Rental Prohibitions.”)
- Lease Requirements – these restrictions place conditions upon the terms of leases which owners may offer to tenants. For example, they may permit rentals provided that the rental terms are for periods of at least thirty (30) days so as to prevent short-term or vacation-type rentals. The California Court of Appeal has upheld an association’s authority to enact rules mandating rental period minimums so as to regulate short-term rentals within the community. (See Watts v. Oak Shores Community Assn. (2015) 235 Cal.App.4th 466.)
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).)
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.
- Watts v. Oak Shores Community Association
(2015) 235 Cal.App.4th 466
[Operating Rules; Rental Activities; Board Deference] Homeowners associations may adopt reasonable rules and impose fees on members relating to short-term rentals of condominium units.
- 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.
- Laguna Royale Owners Association v. Darger
(1981) 119 Cal.App.3d 670
[Reasonableness of Restrictions] Reasonableness of an association’s restrictions and powers is determined by whether they are rationally related to the protection, preservation or proper operation of the Association and its purposes.
- Nahrstedt v. Lakeside Village Condominium Association, Inc.
(1994) 8 Cal. 4th 361
[Governing Documents; Use Restrictions] CC&R restrictions are presumed reasonable, and are enforceable unless they are arbitrary, impose burdens on the use of land that outweigh their benefits, or violate public policy.