BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
HOA Rules
Q: I represent a buyer who is in contract to purchase a condominium. We received the condo documents including the HOA Rules. Those rules have two provisions that my buyer is not happy with:
1. Only one pet not more than 40 pounds; and,
2. No rentals if more than 30 percent of the units are currently rented.
Regarding the rental limitation, my buyer intends to live there but she may be transferred for work and may want to rent her unit. Currently more than 30% of the units are rented and she would have to be on a waiting list. The rules state that once the homeowner is given notice that they are on the top of the list, they have two weeks to rent their unit or they go to the bottom of the list.
Can the HOA have such rules? My buyer wants to know what she can do about that.
A: HOA’s have the right to promulgate rules governing the operation of the HOA and the conduct of the members/owners. However, the general rule is that such rules must serve a general business purpose and further must be “reasonable” — a very mushy word indeed. Basically, all HOA decisions, which are made within their governing authority including rule making, must be reasonable in light of the stated purpose, the facts involved, and the methods employed toward that purpose.
So, the general answer is that the HOA has the power to make rules within the above limits. Whether a rule is “reasonable” may well be subject to debate. If the buyer closes escrow with these rules in place, it can be an expensive exercise to try to prove that the HOA exceeded their rule-making authority.
Many HOA’s have rules limiting the number, size and/or type of pets allowed; when units may be rented; and smoking limitations. Some of these may, in fact, be found in the CC&R’s.
Some other general areas specified in the law that are within the rule-making authority of a HOA are: Use of the common area; member discipline; procedure for resolution of disputes; and procedure for approval of changes to a unit or common area.
1. HOA Limits on Condominium Rentals: Starting January 1, 2012, an owner in a Common Interest Development (or “CID,” which is a broad term for condominium, co-op, planned unit development, etc., that has a homeowners’ association, or “HOA”) is exempt from any prohibition by the HOA against renting or leasing the unit, unless that prohibition was in effect before the owner acquired title to his or her unit. However, this law does not apply to rental prohibitions in effect before that date. That means that any rent prohibition put into place prior to January 1, 2012 can apply also to all existing members of the HOA no matter when they bought their unit, as well as any buyer who closes escrow before that date.
After January 1, 2012, any rental limitations or prohibitions will only affect those buyers who buy after the effective date of those rules. This protection continues for so long as the buyer owns the unit. Several types of transfers, such as a transfer to family members, will not terminate these protections. So, when representing an investor-buyer in a CID, be sure to check which rent prohibitions are in effect; and inquire of the HOA if they are planning on implementing any such prohibitions which might go into effect prior to the close of escrow for your buyer.
Also, upon the sale of a unit in the HOA, the HOA must also disclose in writing any prohibition in the governing documents against renting or leasing.
2. PETS: For more information on limitations on pets, see Weekly Practice Tips entitled:
“HOA Limitations on Number, Type and Size of Pets” and “Pets in Condos”
For more information on HOA’s in general, see CAR Legal Memo “Homeowner Associations: A Guide for Realtors at: http://www.car.org/legal/hoa-folder/homeowners-associations/
*See in particular Questions 47 through 61 for some limitations on HOA rules and other governing documents.
PRACTICE TIPS:
1. If you are representing a buyer in a HOA, recommend that the buyer carefully review all governing documents in light of buyer’s intended use of the unit.
2. Any questions regarding the enforceability of any rules or other governing documents should be referred to a qualified California real estate attorney.
3. If a buyer does not like a particular rule, that buyer should consult with his/her attorney about whether the HOA had proper authority to make that rule, and the cost and likelihood of success of challenging such a rule if the buyer were to proceed with the purchase.
4. HOA’s are subject to all fair housing rules and cannot discriminate against HOA members’ use of service or companion animals.
WEEKLY PRACTICE TIP: DO NOT FORWARD TO CLIENTS. DO NOT FORWARD TO CLIENTS OR THIRD PARTIES. This Weekly Practice Tip is attorney-client-privileged and for the exclusive use of Broker Risk Management’s clients and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.