Rentals in HOAs: The New Law
The California legislature has passed, and the Governor has signed, AB 3182 which requires all associations to allow at least 25% rentals. It is now an appropriate time to address the best practices for HOA Boards, as well as owners who rent (aka “investor owners”) and look at the best practices for this issue.
To summarize the law which is now Civil Code as Sections 4740 and 4741, common interest developments may not have any rental restriction that limits less than 25% of the association in renting their units. In addition, any clause that restricts rentals is void. Some associations have “seasoning clauses” which requires owners to occupy for a period prior to renting their units and these clauses are now unenforceable. Any documents that contain language which contradicts this law will need to be amended prior to December 31, 2021.
Many associations have adopted rental restrictions as they perceive that tenants are responsible for many of the problems they experience in their association. In addition, many investor-owners are perceived as not caring about the community and just wanting the highest rental possible. While these may be valid perceptions, the reality is that not all tenants and investor- owners are bad for the community. This may be a case where a few bad apples spoil the bunch.
The Board is not powerless in this situation. There are steps that Boards can take to help this situation. The Board will need to act proactively in addressing these issues in their community to maintain, protect and enhance the Association. Consider the following ideas for possible implementation in your community. For investor-owners: When you rent your unit out in an HOA, you become responsible for the actions of your tenants. The association could fine you, not your tenant, if they break the association rules. The best way to avoid fines from the association is take every precaution to make sure you are renting to the “perfect” tenant. That said, investor-owners should do the following:
A. The law requires that “prior to renting or leasing, an owner shall provide the association verification of the date the owner acquired title and the name and contact information of the prospective tenant or lessee or the prospective tenant’s or lessee’s representative.”
B. Property Management companies should rely on sound business judgment based on verifiable facts when deciding whom we will accept as a tenant. To help make these decisions, they check an applicant’s credit and their rental, employment, and banking histories before renting to them. The downside risk of not doing this can end up costing the owner thousands in repairing damage to the property and unpaid rent.
C. Screening your prospective renter for a unit in an HOA takes on an added element. Parking in every HOA can be challenging when a tenant has more vehicles than the allocated spaces. A tenant who has three vehicles, when the unit only has two spaces, will be problematic from the beginning. Make sure you understand how many vehicles your future tenant will have. Other issues that create problems in HOA’s can be classified as “lifestyle issues” regarding noise and large gatherings. It is strongly recommended that as a part of your screening process, you contact their current or prior landlord for a reference.
D. Provide a copy of the Association’s “Rules and Regulations” prior to the tenant signing the lease. It should be expected that the prospective tenants will have read the rules prior to signing the lease and arranging for their move. The Association “Rules and Regulations” must be included with the lease agreement and signed by the tenant as having received and read. Review the rules with the prospective tenants and ask them if they see any concerns with complying with the association rules. As stated earlier the owner is responsible when your tenants violate the rules.
As the owner it is best to live locally (i.e. within thirty minutes of the property) or if this is not possible, then locate a local representative to respond to issues related to the property. This could be a family member, a trusted friend, or a local property manager. This is important in case there are any maintenance emergencies or in case the Association needs to access the unit on short notice and the tenant is not available.
E. Finally, as an owner who does not live on site, your participation in the Association is important for your investment.
Do not take the view that because you do not live on site, you do not need to be involved with the Association.
Now to the steps that Association Boards can take in addressing issues pertaining to rental units in the property.
A. An objective of Board members is to protect the value of the investment for all owners, whether they live on the property. All owners benefit equally from the decisions of the Board. There is no reason why investor-owners should not be considered as prospective Board members. Every owner benefit when the property is maintained properly. Let us not allow investor-owners off the hook. We can expect owners who rent to serve on the Board.
B. As with many practical issues, the key is in the “Rules and Regulations” of the community. If they do not address these issues already, add them to the “rules” and do that by following the legal steps of amending rules. Rules that Boards should consider are the following:
- Require that owners who rent their units have their tenants to sign a copy of the “Rules and Regulations” and by doing so indicate that they read and understood them. The owner should provide a copy of the signed agreement to the Association or management company.
- Require owners to provide names, email, and cell phone number for at least one occupant within ten days of occupancy.
C. Tenants do not have a financial interest in the property however they have an “emotional interest”. This is their home too. While they are tenants, they still want a safe and trouble-free environment in which to live. While tenants are only renting, they are also your neighbors. If your community has social events during the year, invite the tenants. Why not? Unless the owner gives their tenant a “power of attorney” they have no voice in the business of the association, but they are a part of the community and should be treated accordingly.
In closing, while tenants and investor-owners have historically posed a challenge in HOA’s the issue does not have to leave Associations without options. As an owner occupant, you may not know when life circumstances will change, and your best choice could be to rent out your unit.
Associations can and should protect the interest of all owners by reviewing their rules and adopting fair and reasonable restrictions that protect the interests of the Association.
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