California HOAs Navigate New Rental Regulations Amid Changes

Homeowners’ associations (HOAs) in California are grappling with new regulations regarding rental policies as community members express concerns about the impact of rentals on property values and community cohesion. Recent inquiries from residents in various locations, including Redondo Beach and San Diego, highlight the complexities of enforcing rental restrictions amidst evolving state legislation.

According to California Civil Code Section 4740, enacted in 2012, HOAs may implement rental prohibitions that apply only to future owners who purchase property after such restrictions are enforced. This legislation initially allowed associations to ban rentals altogether for new buyers. However, changes made by the California Legislature in 2021 under Civil Code Section 4741 have further modified this landscape by prohibiting complete rental bans. Although a rental cap of at least 25% of units is permissible, associations must navigate the implications of existing rental agreements.

Residents are raising pressing questions about the feasibility of establishing rental limits. One inquiry from a resident in San Diego, identified as T.E., revealed that their condominium complex currently has approximately 36% of units rented. T.E. expressed concerns that the increasing number of rental units has led to property damage and challenges in maintaining common areas. Additionally, there is apprehension that an excessive number of rentals could jeopardize the community’s eligibility for Federal Housing Administration (FHA) and Fannie Mae loans, which typically restrict lending for properties with more than 50% non-owner-occupied units.

Implementing a rental cap involves amending the community’s covenants, conditions, and restrictions (CC&Rs), which members must vote upon. Many associations have successfully adopted caps ranging from 25% to 45%, often after clarifying to owners that these limits will only affect future purchasers due to the grandfathering provision in Civil Code Section 4740.

Another resident, M.A. from Oceanside, reported frustrations with a growing waiting list for rentals under a 25% cap, noting that no units have become available for over a year. M.A. highlighted the negative impact of the rental moratorium on property sales within the community. Under Civil Code Section 4740(c), landlords must provide the HOA with prospective tenants’ details in advance, which could necessitate enforcement actions against owners who fail to comply with this statute.

The evolving nature of rental regulations places significant pressure on California HOAs to strike a balance between preserving community integrity and accommodating the realities of property rentals. As associations consider adjustments to their policies, they must remain mindful of the legal framework established by state laws and the potential effects on current and future homeowners.

For further guidance on community association laws, residents may consult legal experts specializing in HOA regulations, such as those from Richardson Ober LLP, a California law firm known for its expertise in community association matters. Questions for clarification can be directed to [email protected].