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TedW1 (California)
Posts: 4
Posted:
I'm the president of the HOA of a nine unit building in California. After researching the issues and taking the proper measures of discussion, notice, vote, etc., our HOA recently passed an amendment to our HOA to limit the number of renting owners in our building to three at any time and also provided a specific non-discriminating mechanism to deal with the situation where more than three owners desire to rent their units at the same time. Seven of nine owners voted to pass the measure and now one of two in the minority has hired a lawyer who sent me a letter arguing that the amendment places an undue restriction on the owner's right to rent their unit.

Can anyone guide me to the current case law in California on this point besides Laguna Royale Owners Association v Darger (1981), or is that still the primary authority on this issue?
JanetB2 (Colorado)
Posts: 4,219
Posted:
Hi Ted:

Go to: http://www.davis-stirling.com/

In the top right search box type "rental case law" and you should have some links with various information.

DavidA7 (California)
Posts: 179
Posted:
Please let us know how it goes as I'm interested where this leads too. It can be a very toxic issue. Our HOA approved such an amendment in 2006 and then in 2009 in the height of the housing meltdown 5 homewners out of 8 units got it rescinded and approved back to our original CC&R statement on the issue. We now have 4 of 8 units in rental. We just qualify for FHA but I bet banks don't like our 50% rental rate. Problem is we couldn't get it to pass again since these 4 homeowners who are renting will deny the vote.
DavidA7 (California)
Posts: 179
Posted:
forgot to ask would like to see the amendment so I know how you worded it. Would you be willing to share? If yes, could you send to [email protected]
JanetB2 (Colorado)
Posts: 4,219
Posted:
Hi Ted:

I also would be curious about the wording of the amendment. One of my arguments when rental restriction issues come up is the fact when you limit to only a certain number of units, then how is that rule evenly distributed to all owners.

The most equitable rental restrictions I have seen to date are those who limit where new homeowners cannot rent a unit for the first one to two years. This is a rule that could be applied to every unit equally. It also helps reduce or prevent units just being purchased by investors who are only interested in rental units.

TedW1 (California)
Posts: 4
Posted:
It's somewhat more complicated than initially presented, but we passed an amendment to our CC&R's last year by 7-2 vote to limit the number of renters to 3 of 9 units as a fourth owner was trying to lease out their unit. That owner's unit subsequently has been empty for six months after they were relocated, which is another story, but that amendment was passed because another owner's unit was for sale at the time, which has since sold (and two more are now in escrow), and nobody wanted to limit the pool of potential buyers by dropping below 2/3 owner occupancy in our building. The problem was we never dealt with a mechanism in the event that three units were being rented and a fourth owner wanted to rent their unit out.

In the second amendment that was just passed, there were two sections. The first section was passed 9-0 and is not in question:

"Owners may lease or rent their Unit only after owning the Unit for at least one (1) year and providing written notice to the HOA of such intent; provided that no Owner shall be able to lease or rent their Unit for transient or hotel purposes and no such lease or rental shall be for a period of less than one (1) year. Any such lease or rental shall be in writing and shall require the tenant to comply in all respects to the CC&Rs, By-laws and HOA rules and regulations and must state that any failure by the tenant to comply will be considered a default of said lease or rental agreement subjecting tenant to possible eviction."

The second section was passed 7-2 and is causing problems. The two minority votes were by two owners who are currently renting out their units. The third owner currently renting out his unit presumably didn't care because his unit is for sale and his tenants are moving out soon. The owners who relocated will be leasing out their unit shortly as the third of three renting owners. The biggest issue is if a tenant moves out of a renting owner's unit, who then should get the first chance to remain in or enter the rental pool of three owners (i.e., the renting owner who just lost a tenant or the owner who's been waiting to rent their unit?). I might be biased as a non-renting owner, but it seems to me that out of fairness, if nothing else, the owner who has been waiting should get his or her turn first. This obviously didn't sit well one of the renting owners, but quite frankly, nobody could come up with a solution that would balance (i) the rights of owners to sell their units without restriction, (ii) the rights of non-renting owners to enter the rental pool and (iii) the rights of renting owners to remain in the rental pool. If somebody has a solution, I'd be curious to hear it. Also, while this may seem lengthy, I drafted it to be as clear as possible, and 5.b was included to appease one of the renting owners.

"RENTAL POOL –
1. Size of rental pool. At no time shall more than three (3) Units be rented (which includes the term “leased” for purposes of these CC&RS’s) in accordance with Section 3.02 of the CC&R’s.

2. Intent of Owner to rent. An Owner wishing to rent his or her Unit must provide written notice of intent to the HOA prior to listing the Unit for rent.

3. Entry into rental pool. If the rental pool is not full when an Owner provides notice under Section 2, then upon renting the Unit, the Owner shall also provide a copy of the relevant portion of the lease agreement to the HOA that indicates the term of the lease so that the HOA can track the expiration dates of the leases in the rental pool.

4. Process with full rental pool. If the rental pool is full when an Owner provides notice under Section 2, then that Owner shall be placed in line for the right to rent his or her Unit behind those Owners in the rental pool and any other Owners already in line to enter the rental pool.

5. Opening arises in rental pool.

a. Expiration of lease resulting in vacancy. If the tenant of a Unit in the rental pool gives notice to the Owner of his or her intent to terminate their lease, then the Unit’s Owner shall give notice to the HOA of the same (which should be consistent with the lease agreement previously provided to the HOA) and may make a written request to have the Unit placed in the rental pool as of the date that the Owner’s tenant moves out of the Unit (the “Vacancy Date”).

i. If there are any Owners in line to enter the rental pool on the Vacancy Date, then the Owner whose Unit was just vacated is placed at the end of the line to enter the rental pool, and the first Owner in line to enter the rental pool, based on the earliest date entered in the line, shall have ninety (90) days following the Vacancy Date to rent his or her Unit and thereby enter the rental pool. If that Owner is unable to rent his or her Unit within the ninety (90) day period, then that Owner shall be placed at the end of the line to enter the rental pool and all other Owners in line to enter the rental pool, based on the earliest date entered in the line, shall have the right to rent his or her Unit under the same terms and conditions. This process shall repeat itself as long as there is more than one Owner in line to enter the rental pool.

ii. If there are no Unit Owners in line to enter the rental pool on the Vacancy Date, then the Owner whose Unit was just vacated has ninety (90) days to rent the Unit. If after ninety (90) days, the Owner has not been rented the Unit and the Owner wishes to continue to try to rent the Unit, then the Owner can request additional ninety (90) day periods to rent the Unit as long as no other Unit Owners are in line to enter the rental pool. However, if another Owner provides notice under Section 2 to enter the rental pool, then the Owner whose Unit was just vacated would go to the end of the line if the Unit was not rented after the latest ninety (90) day period had expired, and the terms of Section 5.a.i would be followed.

b. Unexpected expiration of lease resulting in vacancy. If the tenant of a Unit in the rental pool is evicted through no fault of the Owner as a result of an unlawful detainer action (i.e., the tenant has breached the lease by failing to pay rent or otherwise and action is taken to remove the tenant from the Unit), then the Owner shall give notice to the HOA of the same (the “Vacancy Date”).

i. If there are any Owners in line to enter the rental pool on the Vacancy Date, then the Owner whose Unit was just vacated is placed at the front of the line to enter the rental pool and shall have ninety (90) days following the Vacancy Date to rent his or her Unit and thereby remain in the rental pool. If that Owner is unable to rent his or her Unit within the ninety (90) day period, then that Owner shall be placed at the end of the line to enter the rental pool and all other Owners in line to enter the rental pool, based on the earliest date entered in the line, shall have the right to rent his or her Unit under the same terms and conditions. This process shall repeat itself as long as there is more than one Owner in line to enter the rental pool.

ii. If there are no Owners in line to enter the rental pool on the Vacancy Date, then the Owner whose Unit was just vacated has ninety (90) days to rent the Unit. If after ninety (90) days, the Owner has not been rented the Unit and the Owner wishes to continue to try to rent the Unit, then the Owner can request additional ninety (90) day periods to rent the Unit as long as no other Owners are in line to enter the rental pool. However, if another Owner provides notice under Section 2 to enter the rental pool, then the Owner whose Unit was just vacated would go to the end of the line if the Unit was not rented after the latest ninety (90) day period had expired, and the terms of Section 5.a.i would be followed."

JanetB2 (Colorado)
Posts: 4,219
Posted:
Hi Ted:

I personally have to commend your efforts in attempting to make the situation as fair as possible with being able to only have three units rent at same time. In some HOA’s who ever has been renting gets to continue renting and does not have to rotate, which some consider very unfair.

The problem HOA’s with rental restrictions are starting to maybe experience is the fact that due to economy some homeowners having to move elsewhere for their jobs. In the meantime they are not able to sell their home or sell for pricing now affecting the real estate market. Therefore, more homeowners need to rent the unit in order to make mortgage payments and HOA dues.

Out of curiosity did the attorney define what was considered the “undue restriction” on the owner’s right to rent the unit? Also, has the HOA contacted an attorney?

Something to potentially consider (might check with your attorney) is to offer variances for the next couple of years, due to current economic impact and allow more to rent. This is something I remember a while back that a poster mentioned they were currently doing for their association.

This is a tough situation and I do not envy the challenge you are currently facing.

EllieD (Vermont)
Posts: 446
Posted:
TedW1, I just came across this newsletter that might help you.

http://www.californiacondoguru.com/hoarticles/lease.html
JanetB2 (Colorado)
Posts: 4,219
Posted:
Hi Ted:

Ellie posted an informative article. Per your original question regarding case law as this has my curiosity going … the following is what I found at this time for CA cases:

Total Ban - City of Oceanside vs. McKenna (All Judges Concurred)
Reasoning:
1) It is being enforced in a uniform and objective manner
2) Requirement that owner either occupy unit or sell it was not a forfeiture where resale would be at a fair price. This argument may have merit in an appropriate case, but this is not such a case. We repeat, the Aldersons had the burden of proving that the rental restrictions were unreasonable. While there was some evidence that they might have to sell some of their units, there was no evidence of the financial effect that this would have on them. In the absence of such evidence, we cannot just presume — as the amicus would have us do — that the effect would be "devastating."
(NOTE: In the above #2 note that they did not possibly provide proper evidence regarding financial effect. If they had then the ruling could have potentially been different.)

Restricting to Minimum of 30 Days - Mission Shores Association V. Pheil (All Judges Concurred)
Reasoning:
The court explained that the 30 day minimum lease term requirement was reasonable because the provision applied to all owners, did not violate public policy, and any enforcement burden was outweighed by the amendments beneficial value in preserving the residential character of the development.

Laguna Royale Owners Ass'n v. Darger (1981) 119 Cal.App.3d 670. (Judges: 2 Concur / 1 Dissent)
As long as rental restrictions are reasonable they will be upheld by the courts. Restrictions are reasonableness if: (i) rationally related to the protection, preservation or proper operation of the property; and (ii) exercised in a fair and nondiscriminatory manner.

I would be interested to review some case law in which only a certain number of units can be rented; however, most case laws so far have been where the restriction is in essence equally applied such as: Florida courts upheld a leasing restriction that barred owners from leasing during the first 12 months of ownership and limited leasing to not more than nine (9) months in any twelve month period.

MelissaP1 (Alabama)
Posts: 13,836
Posted:
It's great to post or concern yourself with case laws and such. However, since I am NOT an attorney nor practice law. I PAY an attorney/lawyer to KNOW these case laws for me as they are the practicioner NOT me. Believe me, it annoys lawyers for clients to feed them law information they went to school for to know. It's good to be informed about the laws but let the lawyer do their job. (I did take a few law courses in college and know enough if I have a good lawyer or not). This is why I do not post laws or quotes when I give an opinion.

I did want to offer background on the Florida laws mentioned. The laws weren't set up for the "normal" homeowner. These laws restricting the rental/selling of the property for a 12 month period is in reference to scrupilous house flippers. There is a business out there with people who purchase property on the cheap, fix it up, and sale/lease the property. However, it is NOT a regulated industry. Therefore, there are those who abused this system for their advantage. In order to STOP the ability for these flippers to unload bad goods unto unknowing purchasers, Florida created laws that you quoted. The violations mostly involved the condo's more than individual houses. There are proabably MORE condo's in the Florida area than most states in the union. Thus why they created these rental restriction laws. They also have a law on the books in regards to these flippers to serve some pretty heavy prison time. I know of the one case that set this ball rolling the person got 10 years prison time.

Florida is more on their game than other states in home ownership issues because they are the most victimized. It takes victims to change the laws. Your NOT a victim until there is a law...This is how all those laws everyone quotes on here, are there. Notice next time when you quote a law, there are people's names attached. When you go to your lawyer, you WANT to be that name attached NOT the law itself. Use that law that exists, but know the story behind it's existance...


Former HOA President

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