BILL ANALYSIS Ó
SB 150
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Date of Hearing: June 15, 2011
ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT
Norma Torres, Chair
SB 150 (Correa) - As Amended: June 9, 2011
SENATE VOTE : 39-0
SUBJECT : Common interest developments
SUMMARY : Prohibits a common interest development (CID) from
restricting the right of an owner to rent or lease his/her
separate interest if the owner had that right at the time of
purchase, unless the owner waives the right to lease or rent.
Specifically, this bill :
1)Makes legislative findings declaring the following:
a) The right of CID owners to rent or lease their separate
interest should be protected by the State of California as
the right existed when they purchased their separate
interest; and
b) The right of subsequent CID owners to rent or lease
should be governed by the rights at the time they acquire
them.
2)Provides that the right of an owner to rent or lease his/her
separate interest shall be the same as when the owner
purchased his/her separate interest throughout the life of
ownership, unless the owner agrees otherwise in writing.
3)Provides that the provisions of the bill are not intended to
affect the voting process by which a CID adopts or amends its
governing documents.
4)Requires a CID owner to inform prospective buyers as soon as
practicable before transfer of title of a separate interest of
any restriction in the governing documents that would prohibit
renting or leasing a separate interest.
5)Specifies that certain types of property transfers are not
considered to terminate the rights of the owner at the time of
purchase.
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6)Applies to governing documents or amendments to governing
documents that become effective on or after January 1, 2012.
7)Includes language to avoid chaptering conflicts with AB 771
(Butler).
EXISTING LAW
1)Provides that any rule or regulation of a homeowners
association (HOA) that arbitrarily or unreasonably restricts
an owner's ability to market his or her interest in a CID is
void (Civil Code Section 368.1).
2)Defines the governing documents of a CID as the Covenants,
Conditions & Restrictions (CC&Rs), bylaws, operating rules of
the HOA, articles of incorporation, or articles of the HOA
which govern the operation of the CID (Civil Code Section
1351).
3)Provides the governing documents of a CID may be amended
pursuant to the process provided for in the governing
documents. The amendment is effective if the following
conditions are met:
a) The approval of the percentage of owners required by the
governing documents are met;
b) The vote of the owners are certified in writing by an
officer of the HOA; and
c) The amendment is recorded in the county or counties in
which the CID is located.
1)Provides if the governing documents do not provide a procedure
for amendment, the following conditions must be met for an
amendment to be effective:
a) The proposed amendment must be distributed to all owners
by first class mail not less than 15 days and not more than
60 days prior to a vote;
b) Fifty percent or any higher percentage required by the
CC&Rs of owners approve the amendment; and
c) The amendment is recorded in the county in which the CID
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is located.
(Civil Code Section 1355)
FISCAL EFFECT : None
COMMENTS :
Background :
There are over 47,000 CIDs in the state that range in size from
three to 27,000 units. CIDs make up over six million total
housing units which represents approximately one quarter of the
state's housing stock. In the 1990s, over 60% of all
residential construction starts in the state were CIDs. CIDs
include condominiums, community apartment projects, and housing
cooperatives and planned unit developments. They are
characterized by a separate ownership of dwelling space coupled
with an undivided interest in a common property, restricted by
covenants and conditions that limit the use of common area, and
the separate ownership interests and the management of common
property and enforcement of restrictions by a HOA. CIDs are
governed by the Davis Stirling Act, as well as the governing
documents of the association including bylaws, declaration, and
operating rules. CIDs are governed by volunteer boards of
directors who are elected by the members of the HOA and are
responsible for interpreting the governing documents and state
law. Except when CIDs are first developed, no state agency
provides ongoing oversight to these communities.
In order to amend the governing documents a HOA must follow the
procedure outlined in their governing documents or if the
governing documents are silent the process provided in state
law. State law and most governing documents require that a
majority of members vote to approve an amendment.
Some CIDs have restrictions on rentals which take a variety of
forms including: limiting the total number of rentals in a CID
to a set percentage, requiring a minimum amount of time for
leases, prohibiting rental of a unit until the unit has been
owner occupied for at least a year or prohibiting renting or
leasing outright. Additionally, in some cases HOAs adopt rules
which do not flatly deny rentals but require owners renting
their separate interest to follow specific policies. For
example, a HOA may require owners who rent their separate
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interest to include a clause in their lease agreement requiring
renters to abide by the rules of the HOA as a condition of
residence.
Federal Housing Administration (FHA) financing limitations
To qualify for FHA financing, at least 50 percent of the units
in a CID must be owner-occupied, or sold to owners who intend to
occupy the unit. It is unclear how many CIDs approach or exceeds
that amount, and whether this bill could cause some CIDs to
exceed that threshold. It should be noted that FHA recently
waived certain leasing restrictions, and that it is arguably
possible that the 50 percent restriction will be eliminated as
well in the near future.
Purpose of the bill :
According to the author, current law does not protect the right
of a CID unit owner to rent or lease his or her unit, if such a
right existed at the time ownership of the unit commenced. Over
the last few years, attorney's specializing in CID law, and
realtors representing buyers and sellers of CID units, have seen
HOAs impose rental restrictions on residential communities,
irrespective of the ownership rights vested at the time
ownership commenced. Many people need to rent their units
because of job relocation or a personal situation. The ability
to rent a unit has become even more important because of the
deteriorating housing market. Because demand is weak, it will
take a long time for an owner to sell their home (realtors
estimate it will take a minimum of 12 to 18 months to sell a
home) and it is almost certain that if the house is sold it will
be at a considerable financial loss for the owner. The right to
rent or lease real property owned is a valuable property right
that should be protected, irrespective of whether the real
property is located within or outside a CID.
SB 150 seeks to preserve the right of a member of an HOA to rent
or 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 they agree
to waive that right in writing. Once the existing owner sold
their home it would be grandfathered into any new rental
restriction approved by the members.
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This bill is not intended to affect the voting process through
which an HOA amends the governing documents. The members of an
HOA could vote to amend the governing documents to incorporate a
rental restriction if a majority of the members approved the
amendment as provided for in the governing documents or state
law.
CIDs are required to provide prospective buyers with disclosure
documents before purchase. This includes a statement of any
restriction that limits residency on the basis of age. This
bill would add to the list of disclosures by requiring a CID to
give a prospective buyer a statement describing any restriction
in the governing documents on rentals. This requirement will
allow prospective buyers to make an informed decision before
finalizing purchase of a home.
Arguments in opposition :
Opponents argue this bill would take away the decision-making
power from owners of CIDs by enacting a one-size fits all
prohibition on rental restrictions. Opponents argue that the
current process in place for amending the governing documents is
sufficient to allow owner input and approval or rejection of
changes.
Related legislation : In 2008, AB 2259 (Mullin) which was
identical to this bill was vetoed by Governor Schwarzenegger.
The veto message is below:
This bill would allow a homeowner in a common interest
development (CID) to retain the right to rent or lease
his or her unit, if the right existed at the time of
ownership unless the owner relinquishes those rights
in writing.
The supporters of this bill stress that the bill will
protect the property rights of the owners of property
within a CID governed by a home owner association
(HOA) by preserving the conditions under which the
property was purchased. This view stresses that these
conditions are essentially a contract between the
buyer and the HOA. However, the converse of this
argument is that owners have their property rights
limited when they are prevented from renting or
leasing their property when they are restricted by
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this law and the subsequent actions taken by HOAs.
This bill alters the basic tenets under which CIDs and
HOAs are formed and operated. While my support of
property rights is unwavering, the CID creates a
unique community model that is unlike the standard
single family home in a traditional neighborhood.
Property owners and residents that purchase and live
in a CID governed by an HOA have agreed to live under
a common set of rules and guidelines governed by a
democratic process. It is best, as current law
allows, for the owner-members of the HOA to determine
what is best for their communities.
Double referred : The Assembly Committee on rules referred SB
150 to the Committee on Housing and Community Development and
Judiciary. If SB 150 passes this committee, the bill must be
referred to the Committee on Judiciary.
REGISTERED SUPPORT / OPPOSITION :
Support
California Association of Realtors (sponsor)
Center for California Homeowner Association Law
Opposition
Community Associations Institute
Analysis Prepared by : Lisa Engel / H. & C.D. / (916) 319-2085