Assembly Bill 3182 – New Limitations on Rental Restrictions – Civil Code 4741 David M. Van Atta and John Paul Hanna, Hanna & Van Atta © 2020

Recorded covenants (“CC&R’s”) for common interest developments often state limitations on the length of an allowable term of a rental agreement or lease or may prohibit rentals or leasing in the project. Section 4741, added to the Civil Code as Assembly Bill 3182, effective January 1, 2021, restricts the limitations that common interest development associations may impose and enforce on the rental of lots or units in the common interest developments.

Previously, in 2012, Civil Code Section 4740 was adopted that imposed some limitations on what rental restrictions could be implemented in CC&R’s for common interest developments. These limitations included that rental restrictions in CC&R’s could not apply to an owner of a lot or unit who had taken title before those restrictions had been imposed, unless the owner had consented to the restrictions. However, an owner who took title after such rental restrictions were imposed was subject to those restrictions.

Note: Rental restrictions effective before January 1, 2012 were not limited by the enactment of Section 4740. This means that if rental restrictions were already in place before 2012, they were valid on all lots or units in a common interest development project. That has now been changed by the new Section 4741.

Under Section 4741 the prohibitions or limitations on leasing have been greatly limited. Where CC&R’s prohibit or limit rental or leasing in Common Interest Developments, such limitations can no longer totally prohibit leasing or rentals. Any limitations on rentals must allow at least 25% of the units or lots in the project to be rented or leased. Leasing restrictions can allow a higher percentage of units to be rented, such as 30% or 35%, but in no event can the limitation be less than 25%.

Most importantly the new law will no longer allow rental restrictions that require leases to be of a term of no less than one year or less than six months. Such restrictions are very common place. Under this new law, limitations on the term of rentals or leases cannot require a term greater than 30 days. In other words, limitations on rentals can prohibit rentals or leases only if such rental is for 30 days or less.

This new law will require that a common interest development owners and associations must amend a project’s CC&R’s to comply with this new code section no later than December 31, 2021. Therefore any association that has rental restrictions that either have limitations on the term of a rental for greater than 30 days or has a prohibition against all rentals, or limits the amount of units that can be rented be less than 25% will have to amend their restrictions.
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[Note: Under subsection (g) of Section 4741, such an amendment would have to be submitted for approval by the owners by secret ballot as provided in Civil Code Sections 5100 et seq. Civil Code Section 4741 provides for damages payable to an “applicant or other party” [undefined] by the “common interest development” if the development willfully violates this code section and for a civil penalty payable to the “applicant or other party” in an amount not to exceed $1,000. This provision is unclear: Who is the “applicant or other party” who has the rights to damages stated? Also, who is the “common interest development” subject to such damages or penalty? Assumedly, the entity subject to damages or penalties would be the Project’s association. And, what is the violation? Is the violation not amending the CC&R’s or not allowing a rental to occur, or both?]