Updated on September 23, 2021
In the recent 2021 case of Brown v. Montage at Mission Hills, Inc., the Fourth District Court of Appeal considered whether Civil Code section 4740 barred a homeowner’s association from enforcing a newly enacted prohibition on short term rentals. As discussed below, the Court of Appeal held that the homeowner, who acquired the property before the association enacted the rental restriction, could continue to rent her property short term because the new restriction acted as a complete ban on short term rentals, which section 4740 prohibits.
In 2002, plaintiff purchased and acquired title to a condominium unit located in a common interest development called the Montage at Mission Hills, Inc. (“Montage”) in Cathedral City. At the time, Montage’s governing documents did not prohibit any form of renting. This was important to plaintiff because she planned to use the property as an investment rental property and expected to be able to rent it for any length of time.
From 2002 until the fall of 2017, Plaintiff consistently rented the property for short terms. However, in 2018, Montage amended its governing documents to prohibit its members, including plaintiff, from renting or leasing their properties for periods shorter than 30 days. Montage further notified plaintiff that it would enforce the new prohibition if she continued to rent her property for short terms.
Thereafter, plaintiff sued Montage seeking declaratory relief on the grounds that Civil Code section 4740, which limits an association’s ability to enforce rental prohibitions on owners who acquired an interest before there were rental prohibitions in place, exempted her from the rental restrictions. The trial court ruled in favor of Montage on the grounds that section 4740 did not apply because it only “restricted” certain rentals and did not “prohibit the rental or leasing.” Plaintiff appealed.
The Court of Appeal reversed on the grounds that the complete ban on short term rentals constituted a “prohibition” that came within the protections afforded by Civil Code section 4740. In so ruling, the Court of Appeal analyzed the legislative history of Civil Code section 4740, which intended to provide broad protections for owners against restrictions on renting. Indeed, when enacting section 4740, the Senate’s originating committee recognized that some common interest developments have restrictions on renting out units require a minimum amount of time on leases. Further, the Court of Appeal noted that the legislative history indicates that the Legislature’s intention was to ensure that owners maintained all the rental and leasing rights they had at the time of purchase.
The Court of Appeal also rejected Montage’s argument that Brown’s use of her property as a short-term rental constituted a violation of the CC&Rs, which prohibited the use of property for “business or commercial activities.” As the Court of Appeal explained, because the association did not purport to ban renting or leasing in general, the CC&Rs could not be interpreted to prohibit renting or leasing as a “business or commercial activity.” Even if that were the case, the Court noted that section 4740 exempts Brown from any regulation, whatever its label, that restricts her right to rent her property if the regulation did not exist at the time she acquired title to the property.