California adopts a law prohibiting rental restrictions at HOAs

California legislature recently passed a bill regarding leasing restriction in common interest development. SB150 will go in effect January 1st, 2012. While it’s not clear what ‘prohibition’ really means one thing is for certain – it will affect association’s ability to impose caps on number of units that can be rented at any given time.

This could be a touchy subject especially in uncertain financial times when owners may depend on renting their unit to stay afloat. Living in a building with such restrictions can create an additional burden on such owners. With that in mind please consider the alternative.

  • Associations where a large percentage of residents are renters tend to be less taken care of comparing to those where most people own
  • In associations where a large percentage of owners live offsite might have difficult time with some maintenance and upkeep projects. It’s harder to make people living offsite to care about the building as much as they would if they lived there. It’s also harder to convince them to have to pay for additional expenses.
  • It might be easier to find a buyer for a community dominated with owners. After all these people are probably moving away from an apartment building.
  • It might be difficult to get financing (new sales or refinancing) for buildings where a large percentage of owners are renters. Few years ago many lenders wouldn’t consider giving a loan for a condo in a building where there were more than 25% to 35% of renters. Currently FHA would accept building with up to 50% of renters, but who knows what will happen when the real estate marker recovers.
  • Your association insurance rate may go up if you have a large percentage of renters.

All things considered it’s wise to consider putting some limitations to how units can be rented in your association. Approach your association’s board and ask them to consider putting a restriction in place. You need to hurry. Any amendment passed after the January deadline would exclude all current owners and would only affect those that buy after that time. This would require changing your CC&Rs through the usual process.

Another limitation you might want to consider putting in is not allowing rental of units in the first year of ownership. This will deter investors from buying into the building yet will still allow owners whose situation changes to rent when the time comes.

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6 Responses to “California adopts a law prohibiting rental restrictions at HOAs”

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  1. Lynne Woodward says:

    Dear Jeff:

    Has Gov. Brown signed this bill?

    Thank you.

    L. Woodward

  2. Jeff Ross says:

    Yes, it has been signed.

  3. Tory Long says:

    Why was the provision included in SB150 that the law only affect governing document changes effective after Jan. 1st 2012? If it’s a question of fairness, why not make it fair to everyone and allow everyone to be able to rent their units if that was what was in affect at the time they purchased their unit and not just those affected by newly changed governing documents?

    • Jeff Ross says:

      The new law doesn’t restrict existing owners from renting if this was allowed in their governing documents. To the contrary it prohibits restrictions to rent/lease if such language is not included already.

  4. Cyndy Hodges says:

    Jeff…We purchased our rental unit in 2003, the HOA amended CC & R’s in 2007 to limit rentals to 9 units. We did not vote for that. I am ending a marriage and moving into the complex. If I decide to rent this unit in 5 years, I was under the impression that I am grandfathered in since I owned my unit as a rental prior to the 2007 change in CC & R’s. Can you clarify that for me?

    • Jeff Ross says:

      Cyndy, when you say you didn’t vote for this change do you mean you individually or that there was no membership vote? If there was no vote the change may not be enforced. Of course I don’t know exact language of your governing docs, but usually any change requires a vote and an approval with a fairly high bar of acceptance. It’s often at 7-% and frequently requiring 100%. You may want to check on that to determine if the board acted properly. You’ll need to be looking at the older version of your docs.

      Provided that your change was proper you would not be grandfathered in. Again, I don’t know the wording but usually units are only grandfathered while they are rented. Once renting ends you have follow the same process as everyone else. In fact I’ve seen some associations only grandfathering units in until the current tenant moves out.

      To sum it up – if the CC&R amendment was done properly once you move into your unit you would be subject to the same 9 units limit as everyone else.

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