Rental Restrictions

RENTAL RESTRICTIONS

Problems with Renters. Associations often find that (i) renters do not care for their rentals to the same degree as owner-occupants, (ii) renters tend to ignore the association's rules and regulations more than owner-occupants, and (iii) absentee owners have a higher delinquency rate than resident owners.

Insurance Carriers and Lenders. The insurance industry has also recognized the problems associated with renters and takes notice when the rental percentage reaches 30-35%. Many preferred carriers draw the line at this percentage because claims histories have shown that associations with high rental populations have more claims. As a result, associations with excessive rentals are charged higher premiums. Lenders routinely ask for the percentage of rentals in a development, since a high percentage of rentals depresses market values.

Rent Restrictions. Many associations have adopted restrictions so as to avoid the problems associated with renters. Some argue that associations cannot restrict rentals because it would be an unlawful restraint on alienation in violation of Civil Code §711. Others believe associations can restrict leasing, including room rentals.

California courts have long recognized the importance of adopting and enforcing rules in condominium associations as a means of maintaining property values "[I]t is essential to successful condominium living and the maintenance of the value of these increasingly significant property interests that the owners as a group have the authority to regulate reasonably the use and alienation of the condominiums." Laguna Royale Owners Assn v. Darger

The Laguna Royale court set criteria for testing the reasonableness of restrictions: (i) whether the reason for the restriction is rationally related to the protection, preservation or proper operation of the property and (ii) whether the power was exercised in a fair and nondiscriminatory manner. In another case, the court found rental restrictions reasonable because they sought "to achieve a stabilized community of owner-occupied dwelling units, to avoid artificial inflation of prices caused by resales by speculators and to prevent scarcity caused by vacant homes awaiting resale by speculators." (City of Oceanside v. McKenna) Another reason is to ensure compliance with secondary mortgage requirements.

Application to Existing Owners. A valid, duly adopted leasing restriction may be applied to existing owners as well as to subsequent purchasers (Villa de Las Palmas HOA v. Terifaj). However, to help ensure passage of the CC&R amendment and to minimize the risk of legal challenges, many associations will grandfather existing rentals. See summary of cases for more information.

If your association is experiencing problems with rentals, contact us for a quote on CC&R amendments.

Updated by ADAMS KESSLER 9/28/2008