Fact Pattern: Your client, a prospective buyer, wants to buy a condo to rent the unit out. The condo’s listing agent from another brokerage tells you and your client that, based on a recent new law, the HOA cannot prohibit rentals.

Multiple Choice Question: Is the listing agent correct? Pick the best answer:

A. Yes.
B. No.
C. It depends on what the HOA docs say.
D. Unclear. 

Answer: Answer A is likely to be wrong, and Answer B is the best answer. The listing agent is likely to be misinterpreting the law. First, a new 2023 law requires HOAs to allow an owner-occupying owner to have a rent-paying roommate (for a lease term of over 30 days). That law doesn’t help our buyer.

Second, a 2021 statutory law called California Civil Code Section 4741(a), basically says that an HOA must not prohibit nor unreasonably restrict the renting or leasing of “any of the units” in the complex. That language could arguably be interpreted to mean that an “HOA must allow 100% rentals.”

However, the very next statutory provision, section 4741(b), basically says that an “HOA must allow at least 25% rentals.” To illustrate, if there were 100 units in a condo complex, the HOA must allow at least 25 of the units to be rented out.

It is highly unlikely that the California legislature intended to pass a new law saying an “HOA must allow 100% rentals” under 4741(a), along with another law saying an “HOA must allow at least 25% rentals” under 4741(b). That particular interpretation of 4741(a) would directly contradict 4741(b).

Well, sure enough, there is a rule for legally interpreting statutes that requires both 4741(a) and 4741(b) to be read consistently with each other, if at all possible. With that in mind, it’s very likely that, with respect to the number of rental units, 4741(a) just means that an “HOA must not prohibit all rentals.” This alternative reading would be entirely consistent with 4741(b) that says an “HOA must allow at least 25% rentals.”

Of course, the ultimate statutory interpretation in any given situation will be made, if needed, by a judge or arbitrator, and not by us. But it is highly unlikely that a court will interpret 4741(a) to mean that an “HOA must allow 100% rentals.” After all, condo owners would have very serious concerns if their HOA were to allow 100% of the units to be rented, such as payment of HOA dues, upkeep, obtaining financing, insurability, saleability, safety issues, and so on.

Answer C is not necessarily wrong. It’s just not the best answer. When a buyer is buying a condo, what the law says may or may not be the same as what the HOA says. A buyer should care about both. For example, in this particular situation, even though the law says 25% rentals, an HOA’s governing documents might say “only 10% rentals.” If our buyer buys when 10% of the units are already rented out, the buyer must decide whether to challenge the HOA, defy the HOA rule, or what. One viable option for the buyer is, before acquiring the unit, to use a Request for Repair to ask the seller to obtain a letter from the HOA confirming the buyer’s right to rent after purchase.

The full text of California Civil Code section 4741 is available from the California Legislative Information website.

-Thank You to Pamela Brown (Brentwood Office) for suggesting this week’s legal tip!

Copyright© 2023 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 January 30, 2023. 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. Written by Stella Ling, Esq.