Changes to HOA Rental Restrictions

By Colette R. Thomason, Esq.

Since the 1970s, housing shortage has been an issue in California. In the past few years, the state and counties have enacted various rules in response to the housing crisis, such as construction of accessory dwelling units, legalizing microapartments (as small as 150 square feet), and increasing housing production. In the latest effort, California Legislature passed a bill (AB 3182) that addresses homeowners' association (“HOA”) rental restrictions.

Passed in September 2020, AB 3182 now requires HOAs to adopt more permissible regulations regarding rentals. The bill amended California Civil Code section 4741, and the most relevant change to homeowners is that it renders certain rental restrictions void and unenforceable. This measure went into effect on January 1, 2021, so we should see these changes implemented as the associations themselves begin to amend their rules to conform to these guidelines.

Significantly, restrictions that limit the number of an association’s units that can be rented to less than 25% of all units are now unenforceable. For example, many associations include in their rules a rental restriction allowing only 10% of their total units to be rented at any time. With the passing of this new law any restriction lower than a 25% limit will no longer be enforceable. However, the HOA can adjust their current rental restriction to 25% in order to conform to the new law.

This law also changes the minimum rental term an HOA may require. In practice, if you decide to rent your unit, many HOAs contain terms requiring that the lease with the tenant be at least six months or one year long. HOAs will need to amend this so that the minimum term, if there is any, is only 30 days. Therefore, an HOA can still prevent weekly vacation rentals, but tenants will be able to rent on a monthto-month basis.

Finally, the provision renders unenforceable any timed ownership requirements that may be imposed prior to renting a unit. As an example, I have seen HOAs require a new owner to own the property for a period of time, usually a year or even two, before they can rent it. This is done to prevent investors from buying the property with the sole intention of renting the unit. These restrictions are no longer enforceable, so a newly purchased unit may be rented immediately.

These restrictions took effect on January 1, 2021, and are enforceable regardless of whether the HOA has revised its CC&Rs. However, the associations themselves have until December 31, 2021, to revise their restrictions to ensure compliance, so a homeowner may not yet see the change reflected in their own HOA rules until the end of the year.

These new rules will likely create some positives and some negatives for those looking to sell or purchase a unit in a HOA. Condominium value is held down by restrictions on rentals, as the use restrictions limit income generated as well as the pool of potential buyers. With these new rules, it also becomes much easier for investors to purchase multiple units with the sole intention of renting them. Therefore, we may expect the sales price of some condominiums to increase as there is a larger potential pool of buyers and competition, especially if the unit was previously subject to especially restrictive provisions.