Q: Can a California HOA have a “no rental” policy? Our HOA is small, and an owner recently expressed interest in renting out their unit. In my experience, renters don’t have the same commitment to the community as owners do. — J.R., Redondo Beach
A: Civil Code Section 4740, enacted in 2012, provides, among other things, that rental prohibitions could only apply prospectively to owners who bought their HOA property after the prohibition was put in force. This reinforced the notion that HOAs could completely ban rentals, with such bans only applying to subsequent buyers into the HOA.
In 2021, the Legislature enacted Civil Code Section 4741, banning complete rental bans.
However, Section 4741(b) allows a limit or “cap” on rentals of no lower than 25% of the residences. Since Section 4740 is still law, rental caps only stop future owners of HOA residences in the HOA from renting if rentals are already at 25% or more in the complex.
Q: We are considering limiting the number of rentals in our condominium complex. We currently have about 36% rentals. Is there a way we can legally limit the number of rentals? We have noticed the more rentals we have, the more damage is done to our property and the more trouble we have in common areas. We are also concerned we will lose our FHA/VA approval if we have too many rentals. Can you address the rental/owner occupied issue in an upcoming article? — T.E., San Diego
A: As mentioned in the above answer to J.R., Civil Code 4741 allows HOAs to have a rental cap as low as 25%. Many HOAs desire a reasonable limit on rentals not only to have a balance between owner-occupiers and tenants, but also to ensure the owners qualify for FannieMae or FHA guaranteed loans – which generally do not approve condominium projects for loans if non-owner-occupied homes exceed 50%.
A rental cap should be part of an amendment to the CC&Rs, voted upon by the members. The impact of Civil Code Section 4740’s “grandfathering” of all current owners (regardless of whether they were already renting their unit) will usually slow the effective impact of the cap. Many of my clients have voted to approve caps ranging from 25-45%, and the caps are usually approved once owners understand that the cap only applies to future owners per Civil Code 4740.
Q: I live in a HOA with a 25% rental cap. The waiting list is large and growing and nobody has come off that list in over a year. I have requested several times an update on if the HOA has any verifiable numbers and they said they were going to send a mailer to owners and ask if they were renting their unit. The rental moratorium is having a negative impact on sales in our community. — M.A., Oceanside
A: If rentals exceed the rental limit when a rental cap is adopted, it may take some time before enough units turn over so that rentals drop below the maximum. Under Civil Code Section 4740(c), landlords must in advance give the HOA their prospective tenant’s name and contact information. Your HOA may need to begin disciplining owners who violate this statute.
Richardson, Esq. is a fellow of the College of Community Association Lawyers and partner of Richardson Ober LLP, a California law firm known for community association advice. Submit column questions to kelly@roattorneys.com.
