NEW LAW BANS ‘UNREASONABLE’ RENTAL RESTRICTIONS AT HOAS
This year in Sacramento only one major HOA bill, Assembly Bill 3182, passed to become law effective Jan. 1, 2021. The bill creates a new Civil Code Section 4741 banning “unreasonable” HOA rental restrictions. The new law creates some uncertainties but is mostly manageable.
The new Section 4741(a) prohibits HOA governing documents from containing anything that prohibits, has the effect of prohibiting, or unreasonably restricts rentals of homes, accessory dwelling units (“ADUs”), or junior ADUs (“JADUs”). It is clear what “prohibiting ” rentals means, but the terms “effect of prohibiting ” and “unreasonably restricting ” are less clear. Most likely, these two terms are close to synonymous. Is a rental restriction a thinly veiled effort to halt rentals, or is there an explanation showing a legitimate purpose? This will be the critical question when evaluating present and future governing documents of rental requirements.
Associations should be cautious regarding rental restrictions because unreasonable restrictions could result in a $1,000 civil penalty and attorney fees to the complaining party.
One positive result of the new Section 4741 is its approval of rental caps as low as 25 percent of the HOA (excluding ADUs or JADUs). The law allows caps of 25 percent or higher, so HOAs with a rental maximum of 25 percent or more are unaffected.
Another helpful addition in
Section 4741(c) is its confirmation that HOAs may ban shortterm rentals (30 days or less). It is not yet completely clear if this will have any effect on HOAs that have lease term minimums in their documents regarding normal nonvacation rentals (often six months or one-year initial lease term). However, since short-term rentals are considered nonresidential use by many cities, there is a strong likelihood that minimum lease term requirements will be defensible if HOAs can show the requirement is reasonable.
New Civil Code Section 4741(f )’s requirement that all HOAs must amend their governing documents to conform to the law by the end of 2021 has received major attention in the legal community. Many lawyers are already advising that HOAs must amend their CC&Rs, but this is a misreading of the statute that exposes HOAs to expense and possible frustration. Per Civil Code Section 4150, operating rules are also “governing documents.” As such, associations can adopt rule changes complying with the law and contradicting any illegal CC&R provisions. Such rules would not violate the CC&Rs since illegal CC&R provisions are overridden by the law. Passing rule changes is far easier and less expensive than seeking member approval upon CC&R amendments.
One very problematic part of this law change is in an amendment to Government Code Section 65852.2. This statute will now provide that if a public agency does not respond to an application to build an ADU or JADU within 60 days, the application is automatically deemed “approved.” Associations subject to creation of ADUs (primarily planned developments) should adopt solid architectural standards (which among other things incorporate local building codes) in case a building permit is approved due to inaction of the agency. Of course, HOAs also must be vigilant and prompt in responding to such applications to avoid having its own approval issued by default.
While there is still uncertainty, reasonable associations led by competent professional managers and attorneys should be able to handle this new law.