Tenants - For Better or Worse

Tenants - For Better or = Worse

David A. Loewenthal

Tenants - For Better or Worse

When an owner purchases a = property as an investment, the legal obligations of renting may be far = from the=20 owners mind. Some owners, not wanting the responsibility, hire a = licensed real=20 estate broker to find a qualified tenant and manage the tenancy for a = fee.=20 Owners handling the rental themselves should be familiar with the state = and=20 municipality's laws regarding discrimination, deposits, and=20 eviction.

Additionally for their own protection, owners should = acquire=20 proper forms to be completed and signed by tenant and owner including = rental=20 application form, security deposit form, and lease. Without these = properly=20 completed and signed forms an owner can end up with a long-term = nonpaying or=20 otherwise undesirable tenant.

Additionally, an owner who buys a = unit as a=20 rental in a common interest development has the additional = responsibility of=20 complying with the association's documents relating to renting. In some = common=20 interest developments leasing of units is prohibited by the CC&R's. = The=20 seminal case on this issue is City of Oceanside v. McKenna (1989) = wherein the=20 court held that a lease restriction in the CC&R's is enforceable in = a=20 condominium project subsidized by a local redevelopment agency to = provide low=20 cost housing to local residents. If enforced in a uniform manner, it did = not=20 constitute an unreasonable restraint on alienation under Civil Code = =A7711 as the=20 restriction was intended to foster the redevelopment goals of providing = a=20 stabilized community of owner - occupied units for low and moderate = income=20 persons.

If the governing documents prohibit renting of units, = the=20 municipality in which the property is located can grant exemptions to = these=20 requirements under certain circumstances and the municipality ruling = would=20 supercede the association's documents. Communities subsidized by = redevelopment=20 funds should include rules prohibiting owners who do not get exemptions = from the=20 municipality to lease their units. The policy should include a violation = process=20 with fines and further legal action in order to enforce the portions of = the=20 documents pertaining to leasing of units. In the absence of the = circumstances=20 cited, herein, associations can not legally restrict owners from leasing = their=20 units. However the association can and should establish policies and = procedures=20 regarding rented units. In common interest developments, unit owners are = legally=20 responsible to the homeowners association as they are the members of the = association and the legal relationship is through the owner. Owners = sometimes=20 want to use the association, through the manager and/ or management = company, as=20 their rental agent or apartment manager and not take responsibility for = their=20 tenant. Tenants are given the message from the owner that if you have = any=20 problems contact the homeowner association.

CC&R's address = the=20 responsibility of tenants to owners in a section giving responsibility = for any=20 damages or violation of the CC&R's to the owner when these = violations or=20 damages are caused by owners guests, pets or tenants. Owners are = responsible for=20 ensuring that their guests, pets and tenants do not create a nuisance or = unreasonably interfere with the rights of others. It is recommended that = boards=20 of directors establish a policy for owners who lease their property and = that the=20 policy be a part of the Rules and Regulations of the association. An = association=20 may also modify their CC&R's to include language regarding the = leasing of=20 units including language that is required to be included in leases = between=20 tenants and owners.

An association's policy regarding tenants = should=20 include the following items:
=95 Owner is required to provide a copy = of legal=20 documents to tenant including CC&R's and Rules and = Regulations.
=95 Owner=20 is required to provide a copy of a lease signed by both owner and tenant = to=20 association.
=95 The lease is to include language that the tenant has = been=20 provided a copy of the CC&R's and Rules and Regulations and agrees = to abide=20 by them.
=95 Lease to be signed by all who will reside in the unit = and to state=20 if pets are to be allowed or not.
=95 Owner is required to provide a = copy of a=20 document signed by the tenants stating that the tenants have received a = copy of=20 the CC&R's and Rules and Regulations. Failure to provide the = information=20 would result in fines being assessed against the owner.
=95 If = tenants violate=20 a rule and the association sends a notice of violation, the notice goes = to the=20 owner as the entity with the legal responsibility to the = association.
=95 A=20 copy of the violation is to be sent to the tenant.
=95 A policy for = rule=20 violation hearings should include terms as to whether or not a tenant = can attend=20 the hearing before the board of directors, if the owner must be present, = and if=20 the tenant must have written permission from the owner to appear before = the=20 board at a hearing.
=95 Associations may charge move in fees for new = residents=20 moving into the community. The fees should be reasonable and represent = charges=20 for costs such as providing keys , entering resident information into a = gate=20 system if applicable and processing the necessary paper work. The move = in fee=20 would be the same for owners moving in as for tenants.

Owners may = want to=20 include language in their contractual agreement with their tenant = (lease)=20 requiring tenant to pay for any fines assessed by the association for = rule=20 violations. Such an agreement is between the owner and the tenant and = the=20 association is not responsible for collecting monetary fines from the = tenant.=20 The association has no authority to assess fines to tenants; therefore; = owners=20 would be assessed fines as the legally responsible member of the=20 association.

It is good policy for an association not the divide = the=20 community into owners and tenants . Therefore, boards of directors = should=20 communicate with tenants as they do with owners, i.e. newsletters sent = to owners=20 should be sent to tenants as well. Changes in Rules and Regulations = should be=20 sent to tenants, etc.

Tangential to the issue of rental = restrictions is=20 the issue of the right to use common areas by an owner when he rents his = unit.=20 When owners lease their property they give up their right to use common = area=20 facilities to the tenant as determined in the case of Liebler v. Point = Loma=20 Tennis Club (1995) - In this case, the owner of a unit wanted to retain = his=20 right to use the tennis facilities at his association while leasing his = unit.=20 The appellate court upheld the lower court decision that nonresident = owners=20 whose units are rented do not have the use of the recreational = facilities.=20 Another case, MaJor v. Miraverde Homeowners Assn. (1992) may be in = conflict with=20 the Liebler case as the decision in this case stated that a rule = prohibiting a=20 non-resident owner from using the common area recreation facilities when = the=20 unit is occupied by another family member is unenforceable. The family = member in=20 this case was an 82 year old woman who did not utilize the recreational=20 facilities so there was no double usage of facilities. The case did not = rule on=20 whether an owner who leases a unit and delegates rights of use to the = common=20 area may be prohibited from using the facilities but indicated that a = different=20 rule might apply to such a case. Therefore the circumstances are = different in=20 this case than in the Liebler case.

Associations with high = percentages of=20 renters may face special problems and difficulties. As an example = certain=20 insurance carriers will not provide insurance to associations with high = tenant=20 populations or the insurance premiums for these associations may be=20 substantially higher than for associations with lower percentages of = tenants. In=20 addition, certain lenders will not approve loans or refinance units in=20 associations with high percentages of tenants.

Rental units in = community=20 associations are a fact of life. Associations that have policies in = effect that=20 address the rental units in their community and those that do not divide = the=20 community into owners and renters but treat all residents equally will = have=20 fewer problems with the renter population in their = community.

SPECIAL=20 ADMINISTRATIVE AND MAINTENANCE ASSESSMENT
Legislation regarding = special=20 administrative and maintenance assessments for owners who lease their = units is=20 being considered. Currently, no laws exist that provide for costs = incurred by=20 associations and management companies for the administration and = management of=20 units occupied by nonowner residents (tenants). These costs can include=20 additional insurance premiums, additional maintenance costs, and = administrative=20 fees. If a tenant sustains injury inside of the unit, the tenant will = generally=20 seek recovery for injury and/or damages directly from the landlord, i.e. = unit=20 owner. If a tenant sustains injury while outside of the unit on common = property,=20 the tenant will most likely seek recovery of damages directly from the=20 association. Though the owner may also be named and included in the = action, the=20 thrust of the action is directed to the association and might involve = the=20 association's insurance.

While the tenant is in common area the = board of=20 directors, manager, and homeowners association share the responsibility = with the=20 unit owner for the management of his tenants. From a practical point of = view, as=20 the landlord is usually an absentee owner, the management of the tenants = rests=20 with the association. Any costs that may be incurred such as wear and = tear on=20 walk ways, elevators, streets, etc. due to frequent moving in or out of = tenants=20 are absorbed by the association.. As the ratio of tenants increases in = many=20 communities these costs increase. The most costly budget items effected = by the=20 tenant ratio is the increasing cost of liability insurance Some carriers = have=20 refused to insure associations with high ratios of tenants to owners. = Some=20 mortgage lenders refuse to make loans to owners where the tenant = occupancy ratio=20 exceeds a certain level. These matters effect the other owners in the=20 community.

The legislation being considered would allow = associations to=20 levy a special assessment against every unit where a tenant is known to = reside.=20 The assessment would be at the discretion of the association provided = the matter=20 is first presented at a general meeting of owners and the owners pass a=20 resolution in favor of instituting the assessments. The legislation = would=20 address that the amount of the assessment be determined by the = association and=20 that the assessment not be excessive or unreasonable. Civil Code Section = 1366.1=20 states that an association shall not impose or collect an assessment or = fee that=20 exceeds the amount necessary to defray the costs for which it is=20 levied.

The legislation would give the responsibility for = collecting the=20 assessment to the board of directors. If this were to become law, each = homeowner=20 would have the responsibility to notify the board of directors or = management=20 when a tenant occupied the unit. Failure to comply would result in = penalties on=20 the owner as established in the associations rules and regulations. At = this=20 time, no action has been taken on any of these matters and as with all = other=20 items being considered, none of these items may come up for a = vote.

The=20 information discussed today is intended as an overview of the issue of = tenants=20 residing in common interest developments . It is not intended to provide = legal=20 advice regarding specific situations. If you are in need of legal advice = regarding tenants in a common interest development, please contact the=20 association's legal counsel.