IF CC&RS RESTRICT BUSINESS USE OF A RESIDENCE HOW CAN MY NEIGHBOR USE HIS PROPERTY AS A SHORT TERM RENTAL?

This is a complex area of the law as it involves an interplay of state, local laws, and the Davis-Stirling Common Interest Development Act Civil Code Section 4000, et seq.,  which governs planned HOA developments. Short-term rentals are not specifically addressed by the Davis-Stirling Act but courts have held that homeowner associations have the authority to address problems created by short-term rentals (“STRs”) by exercising authority granted to them under the Davis-Stirling Act.  Many Covenants, Conditions and Restrictions (“CC&Rs”) contain a provision prohibiting using a residence to operate a business.  However, this provision does not trump the local laws which permit short term vacation rentals.  (Hobbs v. City of Pacific Grove (2022) 85 Cal.App.5th 311 – a city in California can pass regulations permitting short-term rental properties even where the CC&Rs do not permit business use of the properties.) 

In addition, there is a caveat for associations within the jurisdiction of California's Coastal Commission. Amending governing documents to restrict short-term rentals requires approval by the Coastal Commission. "The decision to ban or regulate short-term rentals must be made by the City and Coastal Commission, not a homeowner’s association." (Greenfield v. Mandalay Shores (2018) 21 Cal.App.5th 896.)

Further, California’s Civil Code §4739 is a law that invalidates any association governing document provision that prohibits the rental of a “portion” of any separate interest lot or unit (typically a room) as long as the owner also occupies a portion of that lot or unit. The law does state, however, that the association’s governing documents can restrict the room rental to a term of 30 days or less. Civil Code §4739 invalidates restrictions in an association's governing documents that prohibit rentals of lots or units if the owner occupies a portion of that lot or unit unless the restriction is a 30-day or less minimum lease term., meaning that HOAs can prohibit short-term rentals, such as Airbnb and VRBO listings which would rent the unit or lot or room within the unit or lot while the owner still occupies it, if they don’t require a minimum lease term longer than 30 days. To be enforceable, this restriction must be specifically stated in an HOA's governing documents.

The use of a residence as a STR requires that the homeowner still comply with the CC&RS and Rules and Regulations.  Courts have held that homeowner associations have the authority to address problems created by STRs which violate the CC&Rs and the Rules and Regulations. Courts have upheld the HOA’s rights to regulate STRs within a planned development.  In Watts v. Oak Shores Community Association (2015) 235 Cal.App.4th 466, the court held: (i) associations have the right to restrict short-term rentals, (ii) boards can impose a reasonable fee to offset expenses associated with renters, and (iii) courts should defer to boards on decisions related to the maintenance, control and management of common areas. For example, if noise restrictions are outlined in the HOA’s governing documents, they must still be followed and the same goes for parking regulations, pet regulations, landscaping requirements, etc. In other words, and Civil Code §4739 does not excuse violations against other HOA rules and regulations. Board members and homeowners alike must still enforce these.

Further, a  restriction that rentals cannot be less than 30 days is a limitation on usage, not a prohibition, and has been deemed reasonable by the courts. (Mission Shores v. Pheil (2008) 166 Cal.App.4th 789.) Associations can require proof that lease terms are at least 30 days or more. To show compliance with the restriction, the only relevant information is an executed agreement bearing the names of the parties, the date of the agreement, the lease term, and signatures. The landlord can redact financial and personal information from the agreement before submitting it to the association.

However, beginning January 1, 2021, governing documents that require lease terms greater than 30 days may be unenforceable. (Civ. Code § 4741(f).) Associations with longer lease terms will need to show they do not constitute an "unreasonable restriction" (Civ. Code § 4741(a)) or will need to amend their governing documents to conform to the 30-day standard by no later than December 31, 2021. Failure to amend nonconforming documents by that date could result in a fine of $1,000. (Civ. Code § 4741(f)&(g).)

Therefore, in summary, it appears that the CC&Rs cannot be enforced to restrict your neighbor from using his residence as a STR, if local laws expressly permits such use, and he is permitted to do so as long as he complies with the municipal requirements.  However, such use is conditioned upon his following the Rules and Regulations and the CC&Rs, and the HOA has the authority to enforce them and/or impose new rules and regulations to regulate the use.