It’s probably not something that most homeowners think about, but the right to rent your property is fundamental and important. In recent years, though, its importance has been made quite clear to those who have found it necessary to move – often because of work situations – and who have found that market conditions made selling difficult. In many cases, becoming a landlord is the solution.

So, what about those who live in a common interest development (CID) – such as a condominium, own-your-own-apartment, co-op, or planned unit development – that has rules prohibiting an owner from renting out his property? Is that fair? Should there be a law?

The question of fairness can be discussed on a variety of levels. But now, finally, California has a law. On July 7, 2011, Governor Brown signed into law legislation (SB 150) that was introduced by Senator Lou Correa (D- Orange County). What the new law says is this: If you own a property in a CID and, if, when you purchased the unit, the governing documents permitted you to rent your property, then a change in those documents cannot now prohibit you from renting out your property. This right to rent the property would transfer to your heirs, but not to a subsequent purchaser. The law is not retroactive. It takes effect relative to governing document provisions on or after January 1, 2012.

The recently-passed legislation has a bit of a history. It represents an attempt to balance competing, but legitimate, interests. In the above opening remarks one of those interests was expressed on behalf of owners who have an unexpected and unwanted need to rent out their properties. Another, related, interest is that of those who had purchased their property with a reasonable investment expectation.

On the other side is the legitimate concern that Homeowner Associations (HOAs) may have when they find an unanticipated and undue proportion of units in the development are being rented. Sometimes this is a concern based simply on the belief – not necessarily substantiated – that rental properties are not kept us as well as owner-occupied units, and that they may diminish the overall value of properties in the development. A more specific and demonstrable issue is the concern that an overabundance of rental properties in a development may cause the project to be disqualified from financing from major lending entities.

There is little argument that a homeowner association, at its formation, has the right to adopt rules restricting the ability of members to rent out their units. HOAs can be formed with pretty much whatever rules they (usually the developer) choose. Prospective buyers can then decide if they want to live in a community that is subject to such rules. But what about an existing association that wants to change its rules – more frequently, to adopt rules concerning matters where no rules existed before?

What has happened is that, in recent years, HOAs have been adopting rules restricting the rights of owners to rent their units, when their rights to do so were not restricted before.

Hence, SB 150, which was sponsored by the California Association of Realtors®. A similar bill, AB 2259, was passed in 2008. The problem had already surfaced by then. However, Gov. Schwarzenegger vetoed that bill. He argued that HOA members had agreed to live by the rules duly adopted by the Association, and that the HOA should be allowed “to determine what is best for their communities.”

This year a bill with the same substance passed the legislature and was signed by the current Governor. There are arguments on both sides. This year proponents of the bill prevailed. The matter is now settled in California. Other states still face the issue.

Published: September 13, 2011

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Bob Hunt is a former director of the National Association of Realtors and is author of the recently published book, "Real Estate the Ethical Way." A graduate of Princeton with a master's degree from UCLA in philosophy, Hunt has served as a U.S. Marine, Realtor association president in South Orange County, and director of the California Association of Realtors, and is an award-winning Realtor. Contact Bob at .