HOW TO MONITOR OCCUPANCY AND ENFORCE RENTAL RESTRICTIONS
By Hanh Pham, Esq., Law Offices of Ann Rankin
Our firm has received many inquiries regarding how to enforce rental restrictions. It seems that renters everywhere host loud parties, or that owners are trying to satisfy lending requirements for lower rental rates.
So, what can the association’s board of directors (“Board”) do to enforce the rental restrictions in their declaration of covenants, conditions and restrictions (“CC&Rs”)? Unfortunately, it’s not easy to monitor occupancy or to enforce rental restrictions.
Most associations determine whether an owner lives in his or her unit by determining whether the owner has asked that communications such as invoices for assessments should be sent to the property address or to another address that’s not in the property.
Another method, which may cost more money and take more time, is to check the Tax Assessor’s records to see where the property tax invoice is sent. Of course, the fact that the property tax bill is not being sent to an address within the development does not prove that the unit isn’t owner-occupied; some people may have a relative or a CPA who helps with financial matters. However, the fact that invoices for assessments and bills for property taxes are being sent to an address outside of the complex should cause you to make a further inquiry.
A difficult issue arises when an owner allows family members to occupy the unit. For example, in some situations, parents will purchase a unit and allow their adult children to live there. In other cases, adult children may buy a unit and allow their older parents to live there. In these cases, the occupant is often not a “renter” in the sense that the occupant pays rent for the right to possess the premises. In my opinion, such a situation shouldn’t be treated as a “rental,” but the association should consider this situation and perhaps develop a policy to exempt it from the rental restriction.
Of course, sometimes an owner’s neighbor will know when the owner moves out and a renter moves in. If the association has a move in/move out policy, that may be another source of information. The association should also consider asking owners for their emergency contact information and their tenant’s information. Some owners will consider this request an invasion of privacy, but others may provide the information.
To address a possible violation, the Board may wish to invite the owner to an internal dispute resolution (IDR) meeting to discuss the Board’s concerns. The Board can perform an investigation based upon public records, testimony from neighbors, etc. and ask the owner questions. The Board could also ask for a copy of the owner’s driver’s license or other information with the owner’s principal address to ascertain the owner’s address. Some owners will decline to provide this information; this will force the association to dig deeper. The Board will have to make a business decision about how much money to spend on such an investigation after the IDR meeting.
ENFORCING RENTAL RESTRICTIONS
If a violation is found after the IDR meeting and the owner continues to rent out the unit, the Board can enforce the rental restrictions by providing notice of a hearing to impose disciplinary action in accordance with the governing documents (with no less than 10 days’ notice) and giving the offender an opportunity to present his or her side of the story.
Before the hearing, the Board should adopt a fine schedule in the same manner it would adopt any operating rule (e.g., mail the proposed schedule to the members for a 30-day comment period before a Board vote at a duly-noticed meeting). The fine for each violation must be “reasonable,” which means that it must fit the offense and should include a per diem fine for continued violation of the rental cap (i.e., $200 for each day that the unit is rented in violation of the CC&Rs).
Once the hearing notice is issued and the hearing date arrives, the Board merely conducts a fair hearing in which the accused can explain his or her side of the story. Owners often attempt to circumvent the rules by claiming that long-term guests, friends, or family members are occupying the residence. If, after investigation, the Board finds that this claim is an attempt to avoid compliance with rental restrictions, the Board may proceed with disciplinary action, including levying a fine, suspending voting rights, suspending the owner and tenant’s privileges to use recreational facilities such as a pool, clubhouse, or fitness room, and/or ordering the owner to commence an unlawful detainer action within a specified period. If the fine remains unpaid for 30 days, the association can collect it by filing a small claims court action and referring it to a collection agency.
If the owner continues to rent out the unit, the association can serve a Request for Resolution asking that the owner agree to participate in mediation of the dispute within 30 days. If the owner does not respond within 30 days or rejects the Request, the association may file an action for injunctive relief requesting that a court enforce the rental cap and award the association reasonable attorney’s fees pursuant to California Civil Code Section 5975(c). However, if the association proceeds down this road, it faces a heavy burden of proof and the cold realities of a crowded docket and a judge that may not be sympathetic to its action.
In addition to enforcement of the rental restrictions, the association should distribute a formal disclosure to all homeowners and prospective purchasers about the rental cap and about the procedure for submitting a request to rent.
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