QUESTION: I live in a three-bedroom, three-bath home with a homeowner association. I leased a single room to a friend and asked the HOA to provide a parking permit so he could park in the community. It declined to issue the permit, saying the rental constituted “commercial use” of my real property, which is disallowed under the CC&R’s.
This is not an Airbnb situation, nor is it a “revolving door” rental. It is long term. I’ve read Civil Code section 4740 and relevant case law, which seem to define commercial use as something other than a sole tenant who is a friend you eat meals with, but is there anything legally definitive that answers this quandary?
ANSWER: The law is fairly well-settled in this area: Almost any use of your home for money could constitute a “commercial” use. Included in this definition is rental of a single room to someone for payment — whether or not they are your friend. The amount of money they pay you may determine the need for certain registrations or taxes, but the determining factor is the payment of money, not a previous relationship with your tenant.
As you have seen, Civil Code section 4740 directly addresses regulations of rental restrictions on homes within common-interest developments. The bottom line is that an owner shall not be subject to such restrictions in governing documents unless it “was effective prior to the date the owner acquired title to his or her separate interest.”
Therefore, if this restriction were in place at the time you purchased your property, then the rental will be prohibited. If the restriction was passed after you purchased, then it likely won’t apply to you.
The matter was litigated when a La Jolla homeowner association sued an owner for breach of the CC&Rs for renting rooms in his four-bedroom home after complaints about parking issues and a loud party. The renters included a cousin, who stayed just two months, and five others who were there as long as two years. Each renter entered into a separate lease with the owner.
In the case, Colony Hill vs. Ghamaty, the association’s CC&Rs stated that each property shall be used and occupied for private, single-family dwelling purposes only and not be used for any commercial purpose whatsoever. However, the documents also gave each owner the right to lease his lot as long as they did not enter into separate leases for each individually rented room.
Because Ghamaty had rented or leased to multiple occupants, the board decided it was a commercial enterprise. A lower court ruled in the association’s favor, and the California Court of Appeal upheld the decision in 2006. It found that the rentals implied the home no longer was being used for single-family purposes. It also said that considered on a larger scale, such rentals could destroy the single-family character of Colony Hill.
The city’s municipal code allowed home rentals to multiple parties but the court found that under the CC&Rs, an owner could lease his entire unit to several tenants at the same time only if these tenants function as an “integrated economic unit.” It defined the term “integrated economic unit” in part by the issuance of only one lease whereby all tenants are jointly and severally responsible for all obligations under that same lease, including the rent.
The justices found that because of the separate leases, Ghamaty and the renters did not function as an “integrated economic unit.” One of the negative implications of having several different renters occurred when there were complaints about loud parties and parking problems at Ghamaty’s home. As a result of having different renters over a period of time, no one specific renter took responsibility for correcting the problem that the tenancy created.
The court’s opinion does not ban rentals, nor does it prevent an owner from renting his or her entire property to an individual, or even a large family under one lease. It should be noted that not all governing documents and boards, for that matter, impose rules identical to those at Colony Hill. Owners in common-interest developments are cautioned to familiarize themselves with their deed restrictions well prior to purchase and before renting out any portion of their property. In your situation, there is a room lease in addition to your occupancy as an owner, destroying the “integrated economic unit” doctrine.
If you live in Los Angeles, Municipal Code section 21.43 outlines the city’s position on renting your home, or a room in your home: It is not barred but is considered a commercial enterprise. In addition to complying with any requirements for commercial leasing imposed by your association, you also may be required to register with the Housing Department, obtain a business license and register for a tax certificate.
Zachary Levine, a partner at Wolk & Levine, a business and intellectual property law firm, co-wrote this column. Vanitzian is an arbitrator and mediator. Send questions to Donie Vanitzian, JD, P.O. Box 10490, Marina del Rey, CA 90295 firstname.lastname@example.org