New California Bill to Change HOA Rental Rules

Assembly Bill 2259, pending in the California Assembly, would prohibit home owner associations (“HOA”) in common interest developments from changing the rights of an owner to rent or lease his/her separate interest for the life of the buyer after the date the owner purchases. Subsequent changes in HOA rental rules would take effect if the owner agrees to new rules or when the owner sells or dies.

The proposed law does not prohibit an HOA from limiting rental rights. If passed, the law will freeze in place an HOA’s existing rental rules.

The Bill will require HOA rental policies be disclosed as part of the Transfer Disclosure Statement in all real estate transactions that require a Transfer Disclosure Statement.

Bill Status

AB 2259 was authored by the California Association of Realtors and introduced by Assembly Member Gene Mullin of San Mateo. It passed the Assembly’s Housing and Judiciary Committees on unanimous votes (including a Yes vote from 80th Assembly Member Bonnie Garcia) and is currently awaiting a vote by the full Assembly. With no strong opposition, it will likely pass both the Assembly and Senate and be presented to the Governor by the fall. If signed, it would take effect January 1, 2009.

Rationale

Rental rights are an important property right that factor into a buyer’s purchasing decision. After purchasing, the buyer should not be subject to potential changes in the right to rent.

The Assembly’s analysis of the bill reports that there are over 41,000 Common Interest Developments (“CID”) in the state that range in size from three to 27,000 units. There are more than four million CID housing units in California, representing 25 percent of the state's housing stock.

According to the Bill’s author, many people need to rent their units because of job relocation or personal situations. The ability to rent a unit has recently become more important due to the deteriorating housing market. With weak demand, it takes a long time for an owner to sell a home and if the house is sold, it may well be at at a financial loss for the owner. The right to lease owned real property is a valuable property right which AB 2259 seeks to protect.

AB 2259 seeks to preserve the right of a member of an HOA to lease his/her home as the right existed when the home was purchased. If the members of a HOA vote to pass a restriction on rentals, the restriction would not apply to an owner that had the right to rent or lease when they purchased unless the owner agrees to waive his/her right in writing. Once the existing owner sells their home new rental restriction approved by the members will apply to the unit.

What to Do Now

Lobby If your HOA strongly opposes the Bill, contact Assembly and Senate members. Links to all Assembly and Senate offices can be found at http://www.legislature.ca.gov.

Review Your CCRs This Bill stands a good chance of becoming law. It would be wise for every HOA to review the rental rules within its CCRs well before the law takes effect – which is likely January 1, 2009. Amending CCRs is more complex than amending an HOAs bylaws, so a head-start is a good idea.

If your HOA is comfortable with current rental rules, nothing more need be done. If your HOA would like to amend or impose rental rules, now is the time to act. If this bill becomes law on January 1, 2009, changes to your HOA rental rules will only take effect unit-by-unit as owners sell, pass away or agree in writing to new rental rules.