BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 1927|
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THIRD READING
Bill No: AB 1927
Author: Knight (R)
Amended: 6/9/10 in Senate
Vote: 21
SENATE TRANSPORTATION & HOUSING COMMITTEE : 8-0, 6/15/10
AYES: Lowenthal, Huff, Ashburn, DeSaulnier, Harman, Kehoe,
Pavley, Simitian
NO VOTE RECORDED: Oropeza
SENATE JUDICIARY COMMITTEE : 4-0, 6/29/10
AYES: Corbett, Harman, Hancock, Leno
NO VOTE RECORDED: Walters
ASSEMBLY FLOOR : 73-0, 4/29/10 - See last page for vote
SUBJECT : Renting units in common interest developments
SOURCE : California Association of Realtors
DIGEST : This bill establishes specific procedures for a
common interest development to follow when initially
recording or amending governing documents on or after
January 1, 2011, in a manner that prohibits the rental or
lease of individual units.
ANALYSIS : A common-interest development (CID) is a form
of real estate where each homeowner has an exclusive
interest in a unit or lot and a shared or undivided
interest in common area property. Condominiums, planned
CONTINUED
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unit developments, stock cooperatives, community
apartments, and many resident-owned mobilehome parks all
fall under the umbrella of common interest developments.
CIDs are governed by a homeowner's association (HOA).
The Davis-Stirling Common Interest Development Act provides
the legal framework under which common interest
developments are established and operate. In addition to
the requirements of the act, each CID is governed according
to the recorded declarations, bylaws, and operating rules
of the association, collectively referred to as the
governing documents. The Davis-Stirling Act is silent on
the issue of renting units within a CID. As a result, the
governing documents of any particular CID may allow or
restrict the rental of units within the development, and
the members of a CID may amend their governing documents to
alter these rules at any time.
The Davis-Stirling Act requires the seller of a unit within
a CID to provide a purchaser, as soon as practicable before
transfer of title, with various disclosures, including the
governing documents, the HOA's budget, and information on
regular and special assessments.
The Davis-Stirling Act also establishes standards for CID
elections. A CID must conduct any election, including a
vote to amend governing documents, by secret written ballot
and appoint one or three election inspectors to tabulate
and report the results.
This bill establishes specific procedures for a CID to
follow when initially recording or amending governing
documents on or after January 1, 2011 that prohibit the
rental or lease of a separate interest. Specifically, this
bill:
1. Requires the members of a CID when adopting or amending
governing documents on or after January 1, 2011, to vote
to approve any prohibition on the rental or lease of a
separate interest within the development. This election
must be conducted in accordance with the existing
election requirements of the Davis-Stirling Act.
2. Requires the CID, unless the governing documents in
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effect as of February 17, 2010 require a different
percentage, to approve the prohibition on the rental or
lease of a separate interest with a two-thirds vote.
3. Provides that any provision added to an existing
governing document or included in a new governing
document after January 1, 2011 that prohibits the rental
or lease of a separate interest in a common interest
development and that is not approved by a vote of the
members according to this bill is void.
4. Requires the seller of a unit within a CID to provide a
purchaser, as soon as practicable before transfer of
title, with a statement describing any prohibition on
the rental or leasing of all or any of the separate
interests within the development to a renter, lessee, or
tenant.
Background
Related court decisions on CID restrictions on the ability
to rent . The California Courts of Appeal has previously
considered the legality of CID no-rental policies and
formulated certain criteria for testing the reasonableness
of an exercise of power by an HOA to deny a homeowner the
ability to rent his/her unit. In Laguna Royale Owners
Association v. Darger (1981), the Fourth District Court of
Appeal provided the following criteria to be used in this
test:
Whether the reason for withholding approval is rationally
related to the protection, preservation or proper
operation of the property and the purposes of the
Association as set forth in its governing instruments and
(2) whether the power was exercised in a fair and
nondiscriminatory manner. Another consideration might be
the nature and severity of the consequences of
application of the restriction (e.g., transfer declared
void, estate forfeited, action for damages).
Neither the supporters nor opponents of this bill have
contended that the bill either upholds or violates any part
of the Laguna Royale decision, because the central issue
here is not whether a denial of the right to rent meets the
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"reasonableness test," but rather, whether adoption of a
no-rental policy into governing documents should require
two-thirds approval of member owners, or some other
proportion. Assuming a CID established a no-rental policy
in its governing documents by approval of the requisite
percentage of members, enforcement of that policy by the
association must still pass the "reasonableness test"
pursuant to Laguna Royale .
Prior legislation . In 2008, AB 2259 (Mullin) would have
provided that an owner of a unit in a CID is not subject to
a provision in a governing document adopted after January
1, 2009, that prohibits the rental or leasing a unit unless
the prohibition was in effect prior to the date the owner
acquired his/her unit. Governor Schwarzenegger vetoed the
bill. The veto message read:
"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 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
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to determine what is best for their communities."
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 7/1/10)
California Association of Realtors (source)
California Apartment Association
California Rural Legal Assistance Foundation
Orange County Association of Realtors
Western Center on Law and Poverty
OPPOSITION : (Verified 7/1/10)
Executive Council of Homeowners
ARGUMENTS IN SUPPORT : According to the author's office,
this bill preserves the right of an owner of a separate
interest in a CID to rent his or her unit if personal or
financial conditions require such an action in order to
preserve the unit's ownership. It further addresses the
concerns expressed by the Governor in his Veto of AB 2259
in 2008 by establishing a voting process for CID owners if
they overwhelmingly decide they want to restrict the right
of owners in the subject CID to rent units therein.
Amendments taken in the Assembly Housing Committee also set
up a "grandfather" treatment of governance provisions, in
place when this bill was introduced, for CIDs with a voting
process in place that, pursuant to a written ballot of
homeowners, had already enacted a rental restriction.
ARGUMENTS IN OPPOSITION : The Executive Council of
Homeowners, in opposition, states that they object to the
requirement for a two-thirds vote because they "adhere[] to
the concept of self-governance in making those decisions
rather than state imposition of a standard." Although this
bill would impose a two-third vote requirement in cases
where such a requirement was not in place as of the
introduction of this bill, that high threshold appears
appropriate given the importance of preserving the ability
to rent one's property.
ASSEMBLY FLOOR :
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AYES: Adams, Ammiano, Anderson, Arambula, Beall, Bill
Berryhill, Tom Berryhill, Blakeslee, Block, Blumenfield,
Bradford, Brownley, Buchanan, Charles Calderon, Carter,
Chesbro, Conway, Cook, Coto, Davis, De La Torre, De Leon,
DeVore, Emmerson, Eng, Evans, Feuer, Fletcher, Fong,
Fuentes, Fuller, Furutani, Gaines, Galgiani, Garrick,
Gilmore, Hagman, Hall, Harkey, Hayashi, Hernandez, Hill,
Huber, Huffman, Jeffries, Knight, Lieu, Logue, Ma,
Mendoza, Miller, Monning, Nava, Nestande, Niello,
Nielsen, V. Manuel Perez, Portantino, Ruskin, Salas,
Saldana, Silva, Skinner, Smyth, Solorio, Audra
Strickland, Swanson, Torlakson, Torres, Tran, Villines,
Yamada, John A. Perez
NO VOTE RECORDED: Bass, Caballero, Jones, Bonnie
Lowenthal, Norby, Torrico, Vacancy
JJA:mw 7/2/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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