The California Legislature is committed to addressing the state’s housing crisis. For example, local municipalities (and HOAs) may not outright ban secondary units. Also per SB 9, single-family residential zoning has essentially been upgraded to multi-family zoning (with restrictions).
Short-term rentals (STRs) are a different but related housing topic. Municipalities are trying to address the adverse effects in neighborhoods of short-term rentals – a good thing.
Today’s case discusses one HOA’s attempt to ban short-term rentals.
LONG-TIME SHORT-TERM RENTAL
Nancie Brown bought a condominium in 2002 at Montage at Mission Hills subdivision in Cathedral City. She consistently rented it as a short-term rental. At the time, Montage did not prohibit any form of renting, and more to the point, they did not ban short-term rentals or require rentals to be for a minimum time period. Brown consistently rented her unit for less than thirty days. In 2018, Montage amended its CC&Rs to prohibit renting units for periods shorter than thirty days. Brown sued Montage claiming she was grandfathered and thus exempt from Montage’s prohibition against STR’s.
CIVIL CODE SECTION 4740
As we noted, California as of late encourages housing to provide affordable housing to Californians. Consistent with that theme, Civil Code Section 4740 provides in part that an owner of property in a subdivision, “shall not be subject to a provision in a governing document or an amendment to a governing document that prohibits the rental or leasing of” the owner’s property unless the document or amendment “was effective prior to the date the owner acquired title” to the property. HOA’s may not prevent the renting of residential units in a subdivision if the owner is grandfathered.
‘THE ISSUE’
Brown claims Section 4740 exempts her from the STR restriction. Montage argues that Section 4740 prohibits “complete bans” on renting, while its prohibition on STRs is only a restriction on renting, specifically, short term rentals, not all rentals. Only lawyers could get excited about arguing over the differences between “restrictions” and “prohibitions” – and get paid for it. The trial court ruled for Montage. Brown appealed.
RESTRICTION OR PROHIBITION?
The Fourth District Court of Appeal looked at the “plain meaning” of Section 4740 and concluded it was not clear. The code could be read both ways: favoring Montage or favoring Brown.
The Court of Appeal then looked at the legislative history of Section 4740: what was the Legislature’s intent in drafting the law?
The Court concluded the Legislature’s intent was to address both rental “restrictions” and rental “prohibitions” in subdivisions as broadly as possible to encourage the renting of properties – more residential units on the market available for renting makes them more affordable.
COURT RULING FAVORS STR’S
The Court of Appeal ultimately concluded in a close-call analysis that as Montage’s prohibition on STR’s did not exist when Brown acquired title to her property, she is exempt from the prohibition under Section 4740. Trial court reversed, Brown may continue her STRs.
Curiously, the Court misspelled the subdivision Davis-Stirling Act, instead writing Sterling.
Jim Porter is an attorney with Porter Simon licensed in California and Nevada, with offices in Truckee and Tahoe City, California, and Reno, Nevada. Jim’s practice areas include: real estate, development, construction, business, HOAs, contracts, personal injury, accidents, mediation and other transactional matters. He may be reached at porter@portersimon.com or http://www.portersimon.com
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Law Review: HOAs may not retroactively prevent short-term rentals - Sierra Sun
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