BILL ANALYSIS
AB 1927
Page 1
Date of Hearing: April 14, 2010
ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT
Norma Torres, Chair
AB 1927 (Knight) - As Amended: March 9, 2010
SUBJECT : Real property: common interest developments
SUMMARY : Prohibits a homeowner association (HOA) in a common
interest development (CID) from amending, adopting or recording
a governing document to prohibit the lease or rental of a
separate interest without two-thirds of the member's approval.
Specifically, this bill :
1)Requires the vote to be conducted by written ballot and
approved by not less than two-thirds of the owners of separate
interest in the CID.
2)Overrides any provision to the contrary in the governing
documents of a CID.
3)Applies to governing documents that are amended, adopted or
recorded on or after January 1, 2011.
EXISTING LAW
1)Provides that any rule or regulation of an HOA that
arbitrarily or unreasonably restricts an owner's ability to
market his or her interest in a CID is void (Civil Code
Section 1368.1).
2)Defines the governing documents of a CID as the Covenants,
Conditions and Restrictions (CC&Rs), bylaws, operating rule of
the HOA, articles of incorporation, or articles of the HOA
which governs 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 is met;
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b) The vote of the owners is 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.
4) Provides that 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 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
is located (Civil Code Section 1355).
FISCAL EFFECT : None.
COMMENTS :
Background : There are over 41,000 CIDs in the state that range
in size from three to 27,000 units. CIDs make up over four
million total housing units which represents approximately one
quarter of the state's housing stock. 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 of these communities.
In order to amend the governing documents a HOA must follow the
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procedure outlined in the 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 to the
governing documents.
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.
This bill would prohibit a HOA from amending or adopting a
governing document that would prohibit the rental or lease of
units in the CID without the approval of two-thirds of the
owners. The election would have to meet the requirements of
existing law, including that the ballot be mailed and secret.
If a HOA's governing documents specify a percentage of owner
approval that is needed to approve a change to the governing
documents, in the case of a change to the rental policy or the
adoption of the rental policy, state law would trump the
governing documents.
Purpose of the bill :
According to the author, this bill is intended to protect the
property right of a CID owner to rent their unit if such a right
existed for them at the time they purchased the unit. An owner
of a property whose rights to rent that property were not
restricted when the unit was purchased should not have the
rights abridged during their term of ownership, without the
express permission. According to the sponsor of the bill,
preservation of the right to rent one's home is particularly
important to individual homeowners in the current stressful real
estate market. A prohibition on rentals in an association could
create a hardship for a homeowner who must move because of a
change in employment, and the owner cannot sell so he/she must
rent the unit.
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Arguments in opposition : The Executive Council of Homeowners
(ECHO) believes given the current foreclosure crisis and
restrictions by mortgage insurers and lenders on the number of
separate interests that can be rentals with in a condominium
development, the bill could have negative consequences for
homeowners. Owners who occupy their units and who may want to
sell their interest, refinance it or improve it , and those who
may want to purchase a separate interest in a condominium
development may not be able to secure a loan if the number of
rentals with the development exceeds the lender's or insurer's
threshold.
Staff comments : 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. The committee may wish to consider, adding to this list
of disclosures by requiring a CID to give a prospective buyer a
statement describing any restrictions in the governing documents
on rentals. This requirement would allow prospective buyers to
make an informed decision before finalizing purchase of a home.
Committee amendment :
1)The governing documents of CIDs typically require the approval
of a majority of the members to approve an amendment or change
to the governing documents. This bill would apply a separate
voting standard for changes that affect an owner's ability to
rent their separate interest. The committee may wish to
consider allowing CIDs whose governing documents include a
voting standard to apply and if the governing documents are
silent to require a two-thirds vote. This bill would still
require that a change to the governing documents that affects
an owner's ability to rent their separate interest be made by
the membership through a written ballot.
On page 2, line 17, delete "Notwithstanding any provision of
the governing documents to the contrary,"
On page 2, line 24 insert "Notwithstanding any provision of
the governing documents to the contrary"
On page 2, line 26, after "and" insert, "unless the
associations governing documents require a different
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percentage,"
2)The bill currently requires that a change to the governing
documents regarding rentals be approved by two-thirds of the
owners of separate interests in a CID. In some CIDs not every
owner has the right to vote; in some cases where there is a
joint ownership the separate interest only has one vote. To be
clear that only owners with voting power can vote the
committee may wish to consider the following amendments:
On page 2, line 22 after "interests" insert "with voting
power"
On page 2, line 27 after "two-thirds of" insert "the voting
power of"
3)Amend Civil Code Section 1368 to include the following
disclosure in the list of disclosures a prospective buyer must
receive prior to the transfer of title:
"If there is a provision in the governing documents that
prohibits the rental or leasing of all or any of the separate
interests in the common interest development to a renter,
lessee, or tenant, a statement describing the prohibition and
its applicability."
Related Legislation : In 2008, AB 2259 (Mullin) would have
prohibited a 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. AB 2259 was vetoed by the Governor. 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
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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.
Double referred : The Assembly Committee on Rules referred AB
1927 to the Committee on Housing and Community Development and
Judiciary. If AB 1927 passes this committee, the bill must be
referred to the Committee on Judiciary.
REGISTERED SUPPORT / OPPOSITION :
Support
California Association of Realtors (sponsor)
California Rural Legal Assistance Foundation
Western Center on Law and Poverty
Opposition
Community Associations Institute
Executive Council of Homeowners
Analysis Prepared by : Lisa Engel / H. & C.D. / (916) 319-2085