HOA CAN PETITION COURT TO APPROVE AN AMENDMENT TO CC&RS WITHOUT SHOWING VOTER APATHY

               While voter apathy is quite common in many common interest development associations (often referred to colloquially as homeowners’ associations (HOAs)), one issue that bucks that trend by engendering strong opinions and driving member participation within communities is short-term (transient) rentals.  The proliferation of Airbnb and similar online platforms has led to an increase in short-term rentals within traditional residential settings, which has exacerbated the divergent views of those who engage in short-term renting (either for supplemental income or as the primary revenue-generating purpose of owning the property) and those who would prefer short-term renting be prohibited. 

Hot Topic: Short-Term Rental Regulations

The battle between pro- and anti-short term rental advocates is currently being fought on many fronts – at the State level (see, e.g., new AB 670 which voids any CC&R requirement that either “effectively prohibits or unreasonably restricts the construction or use of an accessory dwelling unit or junior accessory dwelling unit, leaving unstated whether short-term rental restrictions would be an unreasonable restriction on use), the local level (through zoning code interpretation or amendments to regulate short-term rentals), and the HOA level (through CC&R amendments or adoption of rules and regulations).

Amending Governing Documents to Regulate Short-Term Rentals

                One minor skirmish in this ongoing battle was recently resolved in favor of HOAs by allowing an HOA to petition the Superior Court to reduce the approval percentage to amend the CC&Rs despite the participation of the vast majority of members in the voting process. 

In Orchard Estate Homes, Inc. v. The Orchard Homeowner Alliance (2019) 32 Cal.App.5th 471, the HOA first adopted rules and regulations prohibiting short-term rentals.  This is a logical first step as rules and regulations can be adopted by the Board with member input, but without member approval.  The rules and regulations must be within the authority of the Board, not in conflict with the CC&Rs, adopted in good faith and in accordance with certain procedures, and reasonable.  (See Civil Code section 4350.) 

However, a member successfully challenged the rules and regulations, arguing they were unenforceable as an invalid amendment to the CC&Rs. The court’s opinion does not explore why the HOA’s rules and regulations were held invalid, though it is likely they were found to be conflict with the CC&Rs at this particular development as opposed to a holding disallowing regulation of short-term rentals by rule and regulation.  (See, e.g., Watts v. Oak Shores Community Assn. (2015) 235 Cal.App.4th 466, 470 [approving a “rule stating that the minimum rental period is seven days”].)  The HOA lost the first encounter.

                Therefore, because this HOA was unable to prohibit short-term rentals by rule, the HOA moved on to a new strategy – an election to amend the CC&Rs to prohibit short-term rentals.  The HOA sent ballots to all 93 of its members and conducted the election in compliance with the Davis-Stirling Common Interest Development Act (e.g., secret ballot voting).  The membership was decidedly not apathetic with 85 members voting, with 58 votes in favor (62% of the overall membership in favor).  This vote, however, did not meet the threshold required to amend the CC&Rs, which required 67% of the overall membership (63 members) to vote in favor of a CC&R amendment. The HOA was five votes short and lost the second encounter.

Elements of Petition to Reduce the Member Approval Requirements to Amend the CC&Rs

If at first you do not succeed, try and try again.  The HOA did not take this setback lying down, petitioning the Superior Court under Civil Code section 4275 to reduce the percentage of affirmative votes required to amend the CC&Rs.  The Orchard Homeowner Alliance (Alliance), a group of owners who purchased units for short-term vacation rentals, opposed the petition. 

                Civil Code section 4275(c) grants discretion to the court to approve such a petition if the court finds all of the following:

(1) The petitioner has given not less than 15 days written notice of the court hearing to all members of the association, to any mortgagee of a mortgage or beneficiary of a deed of trust who is entitled to notice under the terms of the declaration, and to the city, county, or city and county in which the common interest development is located that is entitled to notice under the terms of the declaration.

(2) Balloting on the proposed amendment was conducted in accordance with the governing documents, this act, and any other applicable law.

(3) A reasonably diligent effort was made to permit all eligible members to vote on the proposed amendment.

(4) Members having more than 50 percent of the votes, in a single class voting structure, voted in favor of the amendment. In a voting structure with more than one class, where the declaration requires a majority of more than one class to vote in favor of the amendment, members having more than 50 percent of the votes of each class required by the declaration to vote in favor of the amendment voted in favor of the amendment.

(5) The amendment is reasonable.

(6) Granting the petition is not improper for any reason stated in subdivision (e) [note – addressing different classes of membership, declarant rights and mortgagee rights which are not relevant to this situation].

                The Alliance argued that the HOA failed to show the CC&R amendment vote failed because of voter apathy, relying on prior cases that had mentioned voter apathy in their analysis.  (See, e.g. Mission Shores Assn. v. Pheil (2008) 166 Cal.App.4th 789, 794–795 [“The purpose of [the statute] is to provide homeowners associations with the ‘ability to amend [their] governing documents when, because of voter apathy or other reasons, important amendments cannot be approved by the normal procedures authorized by the declaration.’”].)  Voter apathy is not mentioned in the statutory language.

Holding – HOAs Need Not Plead or Prove Voter Apathy in a Petition

The court rejected the Alliance’s argument, finding that references to “voter apathy” in those cases were dicta and were not necessary to reach those decisions.  As explained by the court and harkening back to the first year of law school with some Latin for good measure, the “doctrine of precedent, or stare decisis, extends only to the ratio decidendi of a decision, not to supplementary or explanatory comments which might be included in an opinion.” 

The court read the statute strictly and in accordance with its plain meaning, finding that the only elements that the trial court must find are as follows:

[1] that adequate notice was given;

[2] that balloting on the proposed amendment was conducted in accordance with the governing documents as well as the provisions of the Davis-Stirling Common Interest Development Act (Civ. Code, § 4000 et seq.);

[3] a reasonably diligent effort was made to permit all eligible members to vote on the proposed amendment;

[4] members having more than 50 percent of the votes voted in favor of the amendment; the amendment is reasonable; and

[5] granting the petition is not improper.

Therefore, the court concluded that the HOA “was not required to plead and prove voter apathy under the plain language of Civil Code section 4275, and we are not empowered to insert what a legislative body has omitted from its enactments.”  This is consistent with other recent cases involving the Davis-Stirling Common Interest Development Act; courts often interpret this statutory language strictly and according to the plain language, though many of the past rulings cut against HOAs that did not strictly follow the statutes (e.g., in collections, recording liens, etc.).

For Now — HOAs Need Not Show Voter Apathy in Their Petitions

                Therefore, after several setbacks along the way, this HOA ultimately prevailed at the appellate level, securing court approval to amend the CC&Rs to prohibit short-term rentals.  However, much like the debate over short-term rentals currently occurring throughout the nation, the battle continues; on June 19, 2019, the California Supreme Court granted review in the case but did not depublish the case.  The Supreme Court will, thus, weigh in on the statutory language and whether a court has the power under section 4275 to effectively overrule the approval threshold set forth in the CC&Rs where the failure to achieve the approval threshold is not due to voter apathy. 

If the Supreme Court desires to overturn the decision, it could interpret the fifth factor – whether granting the petition is improper – broadly to find it improper to grant the petition when the failure to meet the approval threshold is not due to lack of voter turnout.  This rule would elevate the plain language of the CC&Rs (setting forth a higher approval threshold) over the statutory authority of the court.  Or, the Supreme Court could reinforce the plain reading of statutory language as is consistent with Davis-Stirling case law generally.  Whatever the result, it will be interesting to see how the Supreme Court weighs in on this interesting Davis-Stirling issue.

While this case’s holding still stands, it could have an important impact outside of the controversial short-term rental issue as it would allow HOAs to amend their CC&Rs with more than 50 percent of the vote even in situations where the CC&Rs require a higher approval percentage and there is strong voter turnout.  As a general matter, having the flexibility to amend and modernize old CC&Rs is a good thing.  The Supreme Court will soon weigh in on whether that good thing has additional statutory limits concerning issues that cannot gain the necessary threshold because of member-voter disagreement and not member-voter apathy.

Tahoe Truckee Business Law/Entity Practice, Homeowners’ Association Practice, Real Estate Practice; Trust, Estate Planning and Elder Law

Brian C. Hanley is a partners at Porter Simon and practices primarily transactional law in the areas of business, real estate, and estate planning. He may be reached at hanley@portersimon.com or www.portersimon.com.

The content contained and opinions expressed in this blog are solely those of the author. This blog contains content and opinions concerning the law generally, and is not intended to constitute legal advice or to create any attorney‑client relationship with the reader. The reader should consult with an attorney about any specific legal issues prior to embarking on any course of action or inaction involving legal matters. The author makes no claims, promises or guarantees about the accuracy, completeness, or adequacy of the contents of this blog and expressly disclaims liability for any errors and omissions.