A new law became effective on January1, 2021, that impacts common interest developments (“CIDs”) (including condo projects and planned developments) and homeowners associations (“HOAs”) in California. Assembly Bill 3182 adds Civil Code Section 4741 to the Davis-Stirling Common Interest Development Act (“Davis-Stirling Act”), which is the primary body of law governing CIDs and HOAs in California.
The new law is controversial because it limits the right of HOAs to impose what many believe are reasonable and necessary restrictions on rentals in CIDs and requires HOAs to amend their governing documents to conform to the new law.
New Civil Code Section 4741 includes the following key provisions:
- The governing documents of a CID shall not prohibit or unreasonably restrict the rental of a unit. The governing documents include the project declaration (“CC&Rs”), HOA bylaws, HOA rules and related documents.
- The maximum number of rentals permitted in a CID cannot be capped at less than 25% of the units in the project. Rentals of accessory dwelling units (ADUs) are exempt from the cap.
- Perhaps most significant is that minimum lease terms cannot be greater than 30 days. Typical minimum lease terms of 6 months or 1 year are no longer valid. An HOA can only require a minimum lease term of 30 days or less.
- HOAs are required to amend their CC&Rs and other governing documents to conform to the requirements of Section 4741 by December 31, 2021.
- An HOA that willfully violates these rules shall be liable to the applicant or other party for actual damages and for civil penalties of up to $1,000.
Note that the new Civil Code Section 4741 modifies Civil Code Section 4740 enacted in 2012. Pursuant to Section 4740, rental restrictions that were already in place when an owner took title to a condo unit remained enforceable. Under the new Section 4741, even existing rental restrictions are invalid if they do not comply with the new law.
While this new law appears to be a well-intentioned change designed to increase affordable housing, there are potentially negative consequences for HOAs and condo owners. Minimum lease terms of 6 months or 1 year are very common, increase stability in a project and are not considered to be an unreasonable restriction on renting.
Requiring HOAs to amend their governing documents to comply with the new law is unusual and imposes a heavy burden on HOAs. The new law could have just declared non-compliant provisions in governing documents unenforceable. Instead, an affirmative obligation has been imposed on HOAs to amend their governing documents to conform to the new law. This typically involves amending a project’s CC&Rs, which is time consuming, costly, and can be difficult due to owner apathy.
HOAs should review their governing documents, in particular the CC&Rs, to confirm whether they comply with the new Section 4741. If there are any rental restrictions that do not comply, then those documents must be amended by December 31, 2021. Of particular concern are typical minimum lease terms of 6 months or 1 year. As these provisions are rendered unenforceable, this could leave an HOA without any minimum term for rentals. The CC&Rs may be amended to include a 30-day minimum lease term as permitted by the new law.
While the HOA board of directors can typically amend the HOA rules and regulations, amendment of the CC&Rs requires compliance with the Davis-Stirling Act, including voting by secret ballot and related procedures, which can take several months to accomplish. The amendment process should be started soon so it may be completed by December 31, 2021.
Please contact Jay Drake for assistance with amending governing documents to comply with the new law.
Authored by Reuben, Junius & Rose, LLP Attorney Jay Drake.
The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient. Readers should consult with legal counsel before relying on any of the information contained herein. Reuben, Junius & Rose, LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.