While the bill's intentions may be good, and while California is certainly facing a housing crisis, voiding all but short-term rental and lease restrictions for California's 50,000-plus CIDs is the wrong solution. At its core, AB 3182 misses the "common interest" in common interest developments:
- Decreased Equity and Quality of Life. The purpose of use restrictions, maintenance requirements, architectural controls, and other provisions set forth in governing documents is to preserve and protect each owner's equity and right of quiet, safe enjoyment of their home. Yet many tenants are either unaware of such provisions or have little interest in compliance. Accordingly, communities with high rental rates frequently face problems related to parking violations, noise, overcrowding, damage to the common area, unapproved architectural changes, neglected maintenance, and more. These problems are especially acute in college, beach, and resort communities. Voiding rental and lease restrictions will increase such problems, thereby degrading each owner's equity and quality of life.
- Increased Costs. High resident turnover rates increases wear and tear on common area infrastructure. Voiding rental and lease restrictions will lead to higher common expenses for all owners.
- Reduced Owner Engagement. Owners who rent or lease their separate interest typically live offsite and have little interest in the day to day management or operation of their CID. As such, they tend to neglect their responsibilities under the governing documents, including their duty to pay assessments and perform maintenance. In addition, they tend to turn a blind eye to tenant violations so long as their rent is being paid. Absentee owners also have lower rates of board and committee service. Voiding rental and lease restrictions will increase such owner disengagement.
- Reduced Volunteering. As discussed in my other blog posts, Senate Bill 323 barred board service by non-owners. As such, even well-meaning, engaged tenants are now prohibited from serving on their board. With the reduced service rates of absentee owners, this means that communities with high rental rates will find it even harder to fill critical board positions.
- Impaired Creditworthiness. As a result of the above problems, most institutional lenders, such as the FHA and VA, require certain owner-occupancy thresholds, e.g., at least 50% of the units must be owner-occupied. Loans originating from such lenders are especially critical for first-time and other low to moderate-income buyers. Voiding rental and lease restrictions will negatively affect the availability and affordability of mortgage financing and the pool of potential purchasers for many owners, as well as the availability and affordability of financing for association capital improvements.
- More Expensive Insurance. As with lenders, insurers recognize the problems associated with high rental rates. Voiding rental and lease restrictions will negatively affect the availability and affordability of critical insurance coverage for many communities.
- Reduced Community Spirit. High resident turnover rates - and high rates of residents with little knowledge of or interest in the governing documents - undercuts the ability to form a cohesive community dedicated to the common good.
As with lenders, insurers, boards, and owners, California's courts have long recognized the problems associated with high rental rates and the critical importance of reasonable rental and lease restrictions in controlling them. See Nahrstedt v. Lakeside Village (1994) 8 Cal.4th 361; Colony Hill v Ghamaty (2006) 143 CA4th 1156; City of Oceanside v. McKenna (1989) 215 Cal.App.3d 1420. Sweeping away much of this well-established body of common-sense law will expose millions of California homeowners and CID residents to decreased equity, decreased quality of life, increased costs, and a host of other problems.
California is facing a housing crisis. That is undeniable. But voiding all but short-term rental and lease restrictions will threaten the "common interest" millions of California homeowners enjoy. The Legislature should look elsewhere for a solution to its problem.