We have bad news. Despite a lot of lobbying work, the legislature passed, and the Governor signed into law Assembly Bill 3182 (“AB 3182”), which amends Civil Code section 4740 and adds a new section 4741 to the Civil Code. Pursuant to the new section 4741, an owner of a condo, home, lot, or unit in a co-op (a “Separate Interest”) that is part of a common interest development (“CID”) cannot be required to comply with a provision of the CC&Rs, Bylaws or Rules that prohibits or unreasonably restricts the renting or leasing of a Separate Interest, accessory dwelling units (“ADUs”), or junior accessory dwelling unit (“JADUs”) to a renter, tenant or lessee.
The good news is that section 4741 will allow CIDs to adopt or enforce governing document provisions that prohibit transient occupancy or short-term rentals of Separate Interests for thirty (30) days or less.
That was the good news; short and not so sweet. The other bad news is that Section 4741 explicitly prohibits CIDs from:
• Adopting or enforcing a governing document provision that restricts the rental or lease of Separate Interests in a CID to less than 25% of the Separate Interests regardless of when the provision was adopted. This changes the 2012 law that required that leasing restrictions only apply to new owners and not the owners of record when the restriction was adopted. However, the new law does not prevent a CID from adopting or enforcing governing document provisions that authorize a higher percentage of Separate Interests to be rented or leased (26%-100%).
• Treating ADUs and JADUs as Separate Interests. The Separate Interest is not divisible in this manner.
• Counting a residence as a rental when the owner also occupies the Separate Interest, ADU, or JADU. The Separate Interest (or ADU/JADU) must be solely occupied by a tenant or lessee to be considered leased or rented.
• Requiring homeowners to enter into leases or rental agreements for longer than 30 days, meaning that CIDs may not require owners to enter into long-term leases.
The law also impacts rental restrictions that were not explicitly mentioned in the legislation. For example, CIDs that require new owners to wait a year to lease their Separate Interest are no longer permitted to. Such restrictions are not in alignment with the legislature’s intent to increase housing opportunities for Californians. And, there may be more issues within your CID’s governing documents.
Section 4741 will require CIDs to comply with the new law on and after January 1, 2021, regardless of what their governing documents provide. However, the legislature did provide more time, until December 31, 2021, for CIDs to comply with the requirement to amend their governing documents to conform to this new law. This means that if your CID’s governing documents prohibit less than 25% of the Separate Interests from being rented or leased, or require leases of more than 30 days (such as year-long leases), require a waiting period before a unit can be leased, or contain any other provision that unreasonably restricts or has the effect of prohibiting leasing; then those provisions must be amended to comply with the new law.
Requiring that CIDs amend any provisions of their governing documents that are contrary to the new law is unusual. The intent must be to avoid confusion by owners. However, it may have the opposite effect for this first year, while CIDs struggle to comply by the deadline.
This year-long compliance period may cause CIDs to find themselves without compliant rules and restrictions to enforce come January 1, 2021. Some of our colleagues have warned against a free for all, with everyone suddenly renting their units on AirBnB. To avoid this, SwedelsonGottlieb recommends that CIDs amend their rules by January 1, 2021 to establish an accurate and statutorily compliant document to refer to for leasing enforcement. Further, these rules should refer to the new law and the proposed and pending CC&R amendment(s) that CID’s must prepare and send out for owner vote before the last day of 2021.
To make matters worse, new Section 4741 provides that a CID which “willfully violates” this new law, including the governing document amendment requirements, could be liable for actual damages and shall be obligated to pay a civil penalty to the successful complainant in an amount not to exceed $1,000. Since CC&R amendments require membership approval, it may not be within the board’s control to complete the amendment process by the deadline. Since it is unprecedented that CIDs are being required to amend their documents to comply with the law, there is no decision as of yet that guides us in determining how far a CID has to take the amendment to avoid being found in willful violation. What is clear, however, is that you do not want to be the CID that tests that issue!
As should be clear, AB 3182 will cause significant changes to many CIDs that have rental and leasing restrictions. We highly recommend that CID boards consult with their CID attorneys for legal guidance regarding how AB 3182 will affect their CID.
SwedelsonGottlieb is prepared to assist CIDs with AB 3182 compliance. We will evaluate a CID’s governing documents, advise regarding the enforceability of any existing rental restrictions, confirm what needs to be amended or changed, and prepare rules and amendments to the CC&Rs to conform with this change in the law. Since time is not on your side, we are able to review your CID’s leasing rules and regulations and either amend or prepare new rules for Board approval. Contact our office for a proposal for those services or click here to complete an RFP form.