Question: You are the buyers’ agent for the pending purchase of a condominium unit. The seller lives in the unit, but upon close of escrow, the buyers want to rent it out. The condo complex has a total of 10 units. Only 2 of the units are currently rented out, given that the CC&Rs only allows 20% non-owner occupancy.

Multiple Choice Question: Can you tell your buyers that they can rent their unit out because a new 2021 law prohibits HOAs from restricting rentals to less than 25% of all units? Pick the best answer:

A. Yes.
B. No, because the buyer must wait until the HOA revises its CC&Rs to comply with the new law.
C. No, because some of the owner-occupied units may already have rent-paying roommates.
D. No.

Answer: As background, starting January 1, 2021, a new law generally prohibits a homeowners’ association (HOA) of a condominium complex from restricting the rental or leasing of separate interests to less than 25% of the separate interests. For example, if a condo complex has 10 units, the HOA must generally allow at least 3 units to be rented out. Also, just FYI, another provision of this new law allows an HOA to prohibit transient or short-term rentals of 30 days or less.

Answer A is discussed below. Answer B is wrong. HOAs must comply with the new law starting January 1, 2021, even though the deadline for revising their governing documents (as needed) to conform with the new law is not until December 31, 2021.

Answer C is also wrong. The new law specifically states, among other things, that a “separate interest” shall not be considered rented out if it is also occupied by the owner.

As between Answer A (“Yes”) and Answer D (“No”), Answer D is the best answer. Regardless of what the law says, buyers’ agents should refrain from vouching for what HOAs will or will not allow. Let’s say, hypothetically speaking, you were to tell your buyers that they will be able to rent out their unit. But then, after close of escrow, lo and behold, the HOA disagrees for whatever reason, rightly or wrongly. In that situation, the buyers may be forced to pursue a legal claim against the HOA, in which case, they may also try to pursue a legal claim against you for giving them bad advice.

Practice Tip: During escrow, a buyer may want to use a Request for Repair to ask the seller to get the HOA’s written permission to rent out the seller’s unit. Of course, the seller could reject the buyers’ request, and if that were to occur, we would leave it up to the buyers to decide whether to proceed with the purchase.

Source: The full text of this new law is set forth at section 4741 of the California Civil Code.

-Thank you to Barbara Palmer (Beverly Hills Office) for suggesting this week’s legal tip!

Copyright© 2021 Berkshire Hathaway HomeServices California Properties (BHHSCP). All rights reserved. Any unauthorized reproduction or use of this material is strictly prohibited. This information is believed to be accurate as of April 5, 2021. It is not intended as a substitute for legal advice in individual situations, and is not intended to nor does it create a standard of care for real estate professionals.