BILL ANALYSIS Ó
SB 150
Page 1
SENATE THIRD READING
SB 150 (Correa)
As Amended June 9, 2011
Majority vote
SENATE VOTE :39-0
HOUSING 6-0 JUDICIARY 10-0
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|Ayes:|Torres, Bradford, |Ayes:|Feuer, Wagner, Atkins, |
| |Cedillo, Hueso, Jeffries, | |Dickinson, Beth Gaines, |
| |Miller | |Huber, Huffman, Jones, |
| | | |Monning, Wieckowski |
| | | | |
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SUMMARY : Prohibits a common interest development (CID) from
restricting the right of an owner to rent or lease his or 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 or
her separate interest shall be the same as when the owner
purchased his or 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
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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.
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) pending in the Senate.
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 homeowners
association (HOA). CIDs are governed by the Davis Stirling Act,
as well as the governing documents of the HOA 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
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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
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% 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% 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.
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This bill seeks to preserve the right of a member of an HOA to
rent or lease his or 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.
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.
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,
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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 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.
Analysis Prepared by : Lisa Engel / H. & C.D. / (916) 319-2085
FN: 0001353