Recently, I was approached by a member of a Homeowners Association Board inquiring if there Association had the ability to stop a condo owner from renting out their unit.  This particular Homeowners Association’s insurance carrier had drastically increased their insurance premium on its annual renewal.  When the Association Board had inquired about the increased premium, they were told it was as a result of their high percentage of rentals.  Now faced with the choice of having to raise the monthly Homeowners dues to cover the increased premium, the Condominium Association was now looking to see if they had the ability to stop new and existing homeowners from converting their units to rentals. 

Is your Homeowner’s Association facing the same issue -- a decrease in owner-occupied units and an increase in tenant-occupied units?  Has your Condominium Association  been subjected to an increase in its insurance renewal premium as a result of a high percentage of rentals?  Has your homeowner’s association been denied FHA certification or mortgage financing because of the rental percentage rate?  There is a solution to this problem.

Over the past several years, many Homeowners Associations have adopted rental restrictions to their Covenants, Conditions and Restrictions (CCRs) to limit homeowners from renting their units.  Some have argued that this is an unenforceable restraint on homeowners rights under the law. However, Association Boards have pursued these restrictions on the basis that these rental restrictions ensure the maintenance of property values and the protection, preservation and operation of Association property.  In several landmark California court cases, the courts have found that restrictions on the use of condominiums are permissible. 

The bottom line is that, yes, Homeowners Associations do have the power to limit a homeowner from being able to rent their unit.  In several California court cases over the years, the court has found that restrictions on the use of condominiums are permissible.  In order for a Board to have the ability to exercise this power, the Homeowners Association must adopt a fair and reasonable rental restriction policy.  Any Homeowners Association who is contemplating adopting the ability to restrict unit owners from renting their units should carefully read and comply with the provisions of their CCRs on the requirements needed to amend the CCRs and consult with an Attorney.  Once the CCRs have been amended to include a fair and reasonable rental restriction policy, the newly adopted policy is applicable to both new and existing homeowners.

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