Condo Law in California

QUESTION: Can the board fine a family of five (all related) for living in a 2-bedroom unit? The board feels that five is to many and wants to fine them $75.00 per month.

ANSWER: The board’s decision would probably not withstand legal challenge. Although associations have the power to regulate the number of people living in a unit, such restrictions must be reasonable.

Limiting Density. Restricting density is important to associations because overcrowding strains parking, drives up utility costs, overloads recreational facilities, disrupts the quiet enjoyment of residents, and depresses property values. It can also lead to potential health and safety issues.

The Federal Fair Housing Act allows reasonable restrictions on occupancy so long as they apply to all occupants, and do not discriminate on the basis of race, color, religion, national origin, sex, familial status or handicap. The Uniform Housing Code and California’s Health & Safety Code both restrict the number of persons in a unit, using a formula based on bedroom square footage.

Discrimination. When associations adopt occupancy restrictions, the restrictions cannot be an excuse to discriminate against families with children. California’s Department of Fair Employment and Housing (DFEH) has taken action against associations for excessive occupancy restrictions. In one case, the DFEH took action against an association that prohibited 2 adults and 3 children from occupying a 2-bedroom unit.

Acceptable Formula. A formula that appears to be acceptable to the DFEH is the “two-plus-one” standard used by many associations. This formula allows two persons per bedroom, plus one extra per household. For example, a 1-bedroom unit could have 3 people, a 2-bedroom could have 5 persons, and so on.

If you plan to add such restrictions to your CC&Rs, you should seek legal counsel on the drafting of the language. If you have questions, contact us.

In a recently published decision, the Court of Appeal upheld an association’s prohibition against room rentals.

Background. Colony Hill is a planned development near San Diego in which defendant Masood Ghamaty bought a four-bedroom, three-bath house. Ghamaty moved into the house and rented the remaining rooms to six persons at various times for periods of between two months and two years.

Board Hearing. Owners voiced concerns to the board about parking issues, renters and a loud party at Ghamaty’s home. They complained that Ghamaty was running a commercial enterprise, which was prohibited by the CC&Rs. The board met with Ghamaty and demanded that he return the property to a private single-family dwelling status immediately. Ghamaty denied that he was violating the CC&Rs because he considered the renters as family. The association filed suit.

Family Argument. At trial Ghamaty relied on the San Diego Municipal Code’s definition of “family,” which is:

unrelated persons who jointly occupy and have equal access to all areas of a dwelling unit and who function together as an integrated economic unit.

The court found that “family” could not reasonably be interpreted to include Ghamaty and his renters. Ghamaty provided no evidence he had any prior relationship with five of the renters, or that any of the renters had any prior relationship with each other. He produced no evidence he shared meals with or had any type of relationship with the renters.

Privacy Argument. Ghamaty argued that the permanent injunction issued by the trial court violated his right of privacy under the California Constitution, i.e., “the State may not utilize its power to interfere with a person’s choice of cohabitants.” The court noted that the Constitution restricts the State, not private developers. Moreover, a prior Supreme Court decision made it clear that CC&Rs have the power to limit activities in the confines of the home itself.

Decision. The court ruled that by renting out rooms Ghamaty was engaged in commercial activity prohibited by the CC&Rs, and the injunction was rationally related to the association’s right to maintain its family character by prohibiting uses other than single-family dwelling purposes. To review the decision in detail, see Colony Hill v. Ghamaty.

Too many boards improperly suspend voting rights automatically when an owner is delinquent. To suspend voting rights, boards must do the following:

1. In Bylaws. The procedure must be in the articles or bylaws. In the alternative, it must be annually sent to all members. Corp. Code 7341(c)(1)

2. Notice of Hearing. The person must be given written notice by either personal delivery or first-class mail, at least 10 days prior to the meeting at which voting rights will be suspended (unless the governing documents provide for a longer notice period). Civil Code 1363(h) The notice must be reasonably calculated to provide actual notice to the member. Corp. Code 7341(d) The notice must contain the following:

   1. The date, time, and place of the hearing,

   2. The nature of the alleged violation for which a member may be disciplined, and

   3. A statement that the member has a right to attend the hearing and present evidence in his/her defense. Civil Code 1363(h)

3. Executive Session. The hearing should be in executive session unless the member requests otherwise. Civil Code 1363(h) Members have the right to submit their defense in writing rather than make an appearance before the board. Corp. Code 7341(c)(3)

4. Decision. If the board suspends the member’s voting rights, notice of the suspension must be given by personal delivery or first-class mail within 15 days following the board’s decision Civil Code 1363(h) (unless the governing documents provide a shorter notice requirement) and at least 5 days prior to the effective date of the suspension. Corp. Code 7341(c)(3) Once imposed, suspension of voting rights may continue until such time as the violation ceases.

RECOMMENDATION. The above procedures are generally NOT found in an association’s articles or bylaws. Therefore, boards should either (i) amend their bylaws to include the above procedures or (ii) include the procedures in the annual disclosures mailed to all members with the budget.

The procedure for suspending common area privileges is somewhat easier but still requires due process.

Each year, boards are required to prepare a pro forma budget for conducting the operations of their associations. Civ.Code 1363(b)As nonprofit organizations, associations must budget so that revenues do not exceed expenses, i.e., total income minus expenses should equal $0.

There are two techniques for preparing budgets: (i) zero base budgeting and (ii) incremental budgeting.

1. Zero Base Budgeting. This approach starts each year’s budget from a zero base, i.e., at the beginning of the budgeting process, all budget line items have a value of $0.

a. Advantages. Since each line item starts at zero, the budget committee must justify each item in the budget. This should bring to light and wastage and obsolete operations.

b. Disadvantages. This approach can be very time consuming.

2. Incremental Budgeting. In incremental budgeting, the current year’s budget serves as a basis for next year’s budget and is simply adjusted. The most common methods of adjustment are: (i) CPI adjustments and (ii) variance projections.

a. CPI Adjustment. The easiest and least effective method is to simply take the Consumer Price Index (the measure of inflation published by the government) and apply it to all line items. The disadvantage is that not all items in a budget are affected by the CPI. This results in some line items being over budgeted and others being under-budgeted.

b. Variance Adjustments. This is the method used by most associations. Since most line items in an association’s budget are necessary rather than discretionary (utilities, insurance, maintenance, etc.), the budget committee starts with the current year’s budget and looks at variances projected through the end of the fiscal year. This gives the committee an estimate of actual expenses for the year for each line item so it can adjust expenses up or down, as needed.

Dues Increases. If the board plans to increase dues for the following year, it must publish the budget 30 to 90 days in advance of the new fiscal year. Civ.Code 1365(a)4 Failure to meet this requirement nullifies the increase and requires membership approval of the dues increase. Civ.Code 1366(a)