HARRISON v. SIERRA DAWN ESTATES HOMEOWNERS ASSN.
California Court of Appeals, Fourth District, Division Two
(June 23, 2010) UNPUBLISHED
The Giardinelli Law Group and J Niswonger for Plaintiffs, Cross-defendant, and Appellants.
June Babiracki Barlow and Neil D. Kalin for the California Association of Realtors as Amicus Curiae on behalf of Plaintiffs and Appellants.
Epsten Grinnell & Howell, Mary M. Howell, and William S. Budd for Defendant, Cross-complainant, and Respondent.
Sierra Dawn Estates (Sierra Dawn) is a senior citizen mobile home park in Hemet. It is a common interest development; thus, as with a condominium, units are individually owned, but common areas are owned by a homeowners association, defendant Sierra Dawn Estates Homeowners Association, Inc. (the Association). Ownership is subject to a set of recorded conditions, covenants, and restrictions (CC&R's). The Association is responsible for enforcing the CC&R's.
In 2005, the members of the Association, by majority vote, adopted a set of CC&R amendments restricting the rights of owners to rent their units, including that: (1) The new owner of a unit cannot rent it out for at least one year after acquiring it; (2) the maximum term of a lease is one year; (3) leased units cannot exceed 20 percent of the total units; and (4) no owner can lease more than three units.
Considered in the abstract, these rental restrictions seem draconian. The three-unit restriction seems particularly harsh as applied to the plaintiffs in this case; between them, they own and rent out a total of about 24 units in Sierra Dawn.
Plaintiffs therefore urge us to consider the validity of rental restrictions precisely thus — in the abstract, as a pure question of law. This overlooks the fact that the Association introduced overwhelming evidence that renters create some genuine problems, in senior communities in general and at Sierra Dawn in particular, and that the restrictions are in fact a measured response to these problems. Even worse, it overlooks plaintiffs' own failure to introduce evidence of the extent to which the restrictions are a genuine burden on them.
In light of this record, the trial court properly ruled that the rental restrictions were valid. Hence, we will affirm.
I. FACTUAL BACKGROUND
A. Historical Facts.
Sierra Dawn is a common interest development in Hemet. It consists of 1,474 lots for mobile homes. It is limited to occupancy by senior citizens, aged 55 or older. The Association is the homeowners association for Sierra Dawn.
Plaintiffs (the Aldersons) are Isabelle Harrison and her adult children, Curtis Alderson, Larry Alderson, Richard Alderson, and Sally Raehl. The Aldersons collectively own approximately 25 units in Sierra Dawn; Harrison alone owns some interest, ranging from 5 to 100 percent, in approximately 23 of them. Harrison lives in one unit, and the other 24 or so are rented out.
When the Aldersons purchased their units, the CC&R's expressly allowed owners to lease out their units, with no restrictions other than those that would apply equally to owner-occupied units (e.g., the age requirement).
In early 2004, a number of owners of units in Sierra Dawn complained to the Association about the increasing number of rentals. As a result, the Association established an "ad hoc rental committee" (the Rental Committee). The Rental Committee found that rentals were not as well maintained as owner-occupied units. From the police, it learned that felons, parolees, and registered sex offenders were looking for rental units in Hemet, including in senior housing. It was also concerned about a decrease in volunteerism.
Based on the Rental Committee's findings, the Association asked its existing "governing documents committee" (the Documents Committee) to consider adding rental restrictions to the Association's governing documents. Ultimately, the Documents Committee proposed the following restrictions:
A. Not more than 20 percent of the units could be leased at any one time. However, the Association would have discretion to allow exceptions "for good cause (e.g.[,] temporary work[-]related transfers [or] temporary hospitalization) . . . ."
B. No owner could lease more than three units at a time.
C. A unit could not be leased until at least a year after acquisition; in other words, the new owner would have to either live in it or leave it vacant for a year.
D. A lease could not have a term longer than one year.
E. Both new and renewed leases had to be approved by the Association.
F. An owner could not lease less than his or her entire interest in a unit.
G. Existing leases would be "grandfathered" — i.e., they would not be subject to the new rental restrictions. When an existing lease expired, however, the underlying unit would become subject to the restrictions.
The Documents Committee recommended the 20 percent limit on rentals because the rental level at the time was 18 percent; it had never exceeded 20 percent.
It recommended a limit of three rentals per owner for two reasons. First, the City of Hemet regarded the rental of more than three units as a business requiring a business license. Second, relatively few owners owned more than three units, so "this would impact the least number of [owners]."
The one-year waiting period after acquisition was taken from rental restrictions that had been upheld in Florida and Illinois. It was intended to make "the owner . . . aware of the social nature of the [A]ssociation," which "would limit the number of rentals" and promote volunteerism.
Finally, the one-year maximum lease term would give the Association the opportunity to disapprove a renewal by a tenant who had already violated the CC&R's.
At the same time, the Documents Committee also recommended certain other amendments. A number of these were necessitated by changes in state law, including the following:
A. The existing CC&R's prohibited pets. Under state law, however, they had to allow at least one pet per unit. (See Civ. Code, § 1360.5, subd. (a); see also id., subd. (e).)
B. The existing CC&R's effectively prohibited the display of the United States flag. However, this had been made illegal. (See Civ. Code, § 1353.5.)
C. The existing CC&R's prohibited noncommercial signs. This had been made illegal. (See Civ. Code, § 1353.6, subd. (a).)
D. The existing CC&R's provided that the pro forma operating budget had to be sent out 45 to 60 days before the new fiscal year. State law had changed so as to require that it be sent out 30 to 90 days before the new fiscal year. (See Civ. Code, § 1365, subd. (a)(4).)
On February 3, 2005, the Association held a "town hall" meeting at which it first disclosed the proposed amendments. Back in 2004, the Aldersons had begun hearing rumors that the Association intended to amend the CC&R's. In December 2004, Harrison had asked the Association for a copy of the proposed amendments, without success. The Documents Committee, however, had not finished its work on the proposed amendments until just before the February meeting.
At the meeting, Clark Barton, the chair of the Documents Committee, gave a presentation on the amendments. It featured a copy of the CC&R's, redlined so as to highlight the amended portions, projected on a screen. Attendees were also provided with a similarly redlined hard copy of the CC&R's. During his presentation, Barton stated: "Sacramento is making changes in the laws that force us to change our documents. Right at the moment we are in violation. We will be in violation of state codes until we pass these CC&R's. It's as simple as that."
Ballots had already been printed; they were mailed out shortly afterward. The ballots stated, "Sierra Dawn . . . will be in violation of certain state codes if [the amendments] are not passed." Yet another redlined copy of the CC&R's was mailed along with each ballot.
The Association repeatedly broadcast a statement on Sierra Dawn's closed-circuit television system that "passage . . . is absolutely essential to keep Sierra Dawn Estates from being in continued violation of state statutes . . . ."
On February 10, 2005 the Association held a second town hall meeting regarding the amendments. Harrison appeared at both meetings and vocally opposed the proposed rental restrictions.
The ballots were due back by February 26, 2005. Once they were counted, the amendments passed, by 53 percent of all potential votes, and by 84 percent of all actual votes. On March 4, 2005, the amendments were recorded and went into effect.
Thereafter, when the Aldersons asked the Association to approve new leases, it refused, because they already had at least three leased units. In October 2005, however, the Association entered into a stipulation allowing them to lease all of their units while this action was pending.
B. Evidence Regarding Reasonableness.
1. Plaintiffs' witness.
Dr. Jon Pynoos, an expert gerontologist, opined that the rental restrictions would "reduc[e] housing at the low and moderate income level." The Aldersons' units were "appropriate for low to moderately low income individuals[.]" He conceded, however, that while the rental restrictions reduced lower-income rental opportunities, they "could" actually increase lower-income ownership opportunities.
2. Defendant's witnesses.
F. Scott Jackson was an expert in common interest subdivision law. In his opinion, the rental restrictions were reasonable. He explained that owners, as opposed to renters, tend to take better care of their property. Owners are also more compliant with rules such as use restrictions and parking restrictions, and it is easier to enforce such rules against them. Owners tend to be more involved in community activities. A high rental rate impairs the willingness of mortgage lenders to make loans on units in a community. Finally, the rental restrictions provided exceptions for existing leases and for "hardship cases." The California Department of Real Estate had approved similar rental restrictions for new projects.
According to Daniel Goodrich, Sierra Dawn's property manager, "rentals ma[d]e up the majority" of maintenance violations at Sierra Dawn, as well as the majority of age violations. Since the rental restrictions had gone into effect, there were fewer complaints about maintenance.
Mark Trabing, the housing and code enforcement manager for Hemet, testified that, in his opinion, the rental restrictions did not violate the city's policies. The city generally preferred ownership to rental, because "ownership communities typically [a]re more stable and you have less calls for service to the police department." The homes in Sierra Dawn did not qualify as "affordable housing" for purposes of Hemet's general plan.
Richard Masyczek was the planning director for Hemet. He testified that the rental restrictions "help the city policy." Generally, the city preferred to "place rental units into complexes that can be regulated." The biggest problems with unregulated rental units were crime and code violations. That was true even in senior communities.
Shauna Clark was a former city administrator of the City of San Bernardino. She testified, based on a statistical analysis comparing Hemet police activity logs to Sierra Dawn rental lists, that "there were a disproportionate number of police calls for service to rental units." In 2006, police calls at Sierra Dawn went down for the first time in at least three years; "the main reason was that . . . the number of rental units had declined."
Sue Anne Sweeney, an expert on senior citizen developments, testified that renters are a particularly acute problem for such developments, because senior citizens have different needs, as follows.
First, seniors want "a social connection." "They have to depend on one another." "They won't get as connected with the renter . . . ."
Second, seniors living on a fixed income are particularly concerned about dues increases. Volunteerism reduces the costs that must be passed along to residents. "[R]enters typically aren't going to volunteer as readily as a homeowner . . . ."
Third, seniors are particularly concerned about maintenance. Moreover, maintenance problems tend to increase costs. "[M]ost of the problems . . . with [maintenance] come from renters . . . ." Also, "the bulk of age violations arise in a rental context[.]"
Wayne Guralnick was an attorney expert in homeowners association elections. In his opinion, the Sierra Dawn election complied with California law as well as with the standards of the industry. It was "the standard of the industry" for a committee to prepare proposed amendments without any input from individual homeowners. The Association actually went above and beyond the applicable standard by holding the "town hall" meetings.
II. PROCEDURAL BACKGROUND
In June 2005, the Aldersons filed this action against the Association. They alleged that the rental restrictions were an unreasonable restraint on alienation and that the Association had made misrepresentations to the owners who had voted for the rental restrictions. After a bench trial, the trial court found that the rental restrictions were not an unreasonable restraint on alienation. It further found that the electoral proceedings were not misleading, improper, or unlawful. It therefore entered judgment against the Aldersons and in favor of the Association. The Aldersons filed a timely notice of appeal.
III. THE REASONABLENESS OF THE RENTAL RESTRICTIONS
The Aldersons contend that the rental restrictions are an unreasonable restraint on alienation.
"Use restrictions are an inherent part of any common interest development and are crucial to the stable, planned environment of any shared ownership arrangement. [Citations.]" (Nahrstedt v. Lakeside Village Condominium Assn.8 Cal.4th 361, 372-373.) "[S]ubordination of individual property rights to the collective judgment of the owners association together with restrictions on the use of real property comprise the chief attributes of owning property in a common interest development." (Id. at p. 374.) (1994)
Use restrictions contained in the CC&R's of a common interest development are "enforceable . . . unless unreasonable . . . ." (Civ. Code, § 1354, subd. (a).) Such use restrictions are "cloaked . . . with a presumption of reasonableness [which] shift[s] the burden of proving otherwise to the party challenging the use restriction. [Citations.]" (Nahrstedt v. Lakeside Village Condominium Assn., supra, 8 Cal.4th at p. 380.) "[S]uch restrictions should be enforced unless they are wholly arbitrary, violate a fundamental public policy, or impose a burden on the use of affected land that far outweighs any benefit." (Id. at p. 382.)1
A. Standard of Review.
The Aldersons urge us to review the judgment independently. As they concede, however, the underlying facts were disputed. "Where the evidence before the trial court was in conflict, its factual determinations, whether express or implied, are reviewed for substantial evidence. We interpret the facts in the light most favorable to the prevailing party. [Citation.]" (Sahlolbei v. Providence Healthcare, Inc. (2003) 112 Cal.App.4th 1137, 1145 [Fourth Dist., Div. Two].)
The application of the "reasonableness" standard to the facts, as thus determined, is a question of statutory interpretation (see Nahrstedt v. Lakeside Village Condominium Assn., supra, 8 Cal.4th at pp. 378-379) or at the very least a mixed question of fact and law (see People v. Cromer 24 Cal.4th 889, 894), both of which we review independently. (2001)
B. Violation of Public Policy.
The Aldersons argue that the rental restrictions violate a fundamental public policy in favor of low- to moderate-income housing and/or senior housing.
We recognize that "the provision of housing for low and moderate income persons is in keeping with the public policy of this state." (City of Oceanside v. McKenna (1989) 215 Cal.App.3d 1420, 1427.) Here, however, there was substantial evidence that this public policy was not violated.
The Aldersons rely exclusively on the testimony of their expert, Dr. Jon Pynoos. He conceded, however, that while the rental restrictions reduced low-income rental opportunities, they "could" actually increase low-income ownership opportunities. Moreover, Hemet's planning director testified that, in Hemet, "the shortage in owner-occupied units in [low to moderate] price ranges is larger than the shortage of rental opportunities[.]"
Hemet's housing and code enforcement manager testified that the rental restrictions did not violate Hemet's "public policy on providing housing." The homes in Sierra Dawn did not even qualify as "affordable housing" under Hemet's general plan.
Thus, the Aldersons failed to make out any violation of public policy.
C. The Justification for the Rental Restrictions.
The Aldersons also argue that the rental restrictions "bear no rational relationship to Sierra Dawn's stated goals." There was ample evidence to the contrary.
The Association offered essentially three reasons for adopting the rental restrictions.
First, rentals were correlated with crime. Hemet's housing and code enforcement manager testified that there were typically fewer police calls in "ownership communities." Moreover, Clark testified that, specifically at Sierra Dawn, "there were a disproportionate number of police calls for service to rental units." After the number of rentals went down, the number of police calls also went down.
The Aldersons argue that "police calls do not equate to crime . . . ." However, they do relate to crime. At least in the absence of some other explanation, it seems most likely that an increase (or decrease) in police calls reflects an increase (or decrease) in crime. The Aldersons also argue that Clark's study was not "definitive," because she excluded some police calls from her analysis. Clark explained, however, that she considered only five categories of calls — "major property," "minor property," "major personal," "minor personal," and "nuisance." She excluded calls regarding "minor disturbances," such as noise, false alarm calls, and canceled calls. This actually made her data more meaningful, not less so.
Second, rentals were correlated with increased rule violations — particularly violations of maintenance and age rules — which in turn tended to increase the Association's administrative costs. The Rental Committee had investigated this and had found that rentals were not as well maintained as owner-occupied units. The Association's property manager testified that rentals accounted for most of the maintenance violations at Sierra Dawn. Since the rental restrictions had gone into effect, there had been fewer maintenance complaints. Likewise, rentals accounted for most of the age violations.
Admittedly, as the Aldersons point out, the Association's written records did not specifically note whether violations related to rented or owner-occupied property. Nevertheless, the testimony of these percipient witnesses, based on their personal knowledge, was substantial evidence.
Moreover, the Association's experts supported their testimony. According to Jackson, owners tend to take better care of property and to be more compliant with rules. Sweeney likewise testified that in senior communities, "most of the problems . . . with [maintenance] come from renters" and "the bulk of age violations arise in a rental context[.]"
Third, rentals were correlated with reduced volunteerism. In Sweeney's experience, "renters typically aren't going to volunteer as readily as a homeowner . . . ." Jackson agreed that owners tend to be more involved in community activities.
In addition to challenging the rental restrictions as a whole, the Aldersons also challenge particular restrictions as arbitrary. For example, they argue that limiting lease terms to one year will increase renter turnover and hence decrease volunteerism. The one-year limit, however, does not require that every renter be evicted every year. To the contrary, it simply contemplates that every lease will have to be renewed from year to year, which will give the Association an opportunity to disapprove renewal, if it has good cause — typically, if the renter has a history of rule violations.
They likewise argue that prohibiting new owners from leasing for at least one year will increase turnover and thus decrease volunteerism. The Association's reasoning, however, was that new owners will most likely be buying for their own occupancy and not for rental and that owners are more likely to volunteer than renters. We cannot say that this was arbitrary. In any event, under Nahrstedt, the Aldersons had the burden of proving that the rental restrictions were unreasonable. There was no evidence that this particular requirement would not actually further the Association's goals.
"[T]he reasonableness or unreasonableness of a condominium use restriction . . . is to be determined not by reference to facts that are specific to the objecting homeowner, but by reference to the common interest development as a whole." (Nahrstedt v. Lakeside Village Condominium Assn., supra, 8 Cal.4th at p. 386.) The record more than adequately demonstrates that the rental restrictions benefit the community as a whole.
We frankly acknowledge that the burden of the restrictions falls disproportionately on those who, like the Aldersons, own more than three units in Sierra Dawn. However, the magnitude of this burden is unclear. Harrison, for example, cannot continue to lease out all of her 25 units. She can continue to live in one and to lease out two more, but as the leases on the others expire, she will lose the rental income from them; presumably she will have to sell them. There was no evidence, however, that having to sell them would cause her a financial loss or any other harm.2 (See City of Oceanside v. McKenna, supra, 215 Cal.App.3d at p. 1429 [requirement that owner either occupy unit or sell it was not a forfeiture where resale would be at a fair price].)
The California Association of Realtors, as amicus curiae on behalf of the Aldersons, argues that the rental restrictions are unreasonable as a matter of law because they apply to owners who purchased their property before they went into effect. It claims that the "basic right" to rent must be grandfathered. This argument is premised on the fact that the owner of more than three units is effectively forced to sell.
This argument may have merit in an appropriate case, but this is not such a case. We repeat, the Aldersons had the burden of proving that the rental restrictions were unreasonable. While there was some evidence that they might have to sell some of their units, there was no evidence of the financial effect that this would have on them. In the absence of such evidence, we cannot just presume — as the amicus would have us do — that the effect would be "devastating."
In sum, then, we conclude that the trial court could properly find that the rental restrictions were reasonable.
IV. DUE PROCESS VIOLATIONS
The Aldersons also contend that the manner in which the rental restrictions were adopted violated procedural due process. They cite no authority, however, to the effect that any due process requirement actually applied, much less as to what due process required. Accordingly, we deem this entire contention forfeited. (Nelson v. Avondale Homeowners Assn. (2009) 172 Cal.App.4th 857, 862 [Fourth Dist., Div. Two].)
Separately and alternatively, the contention lacks merit. "It is well established that `[o]nly those actions that may fairly be attributed to the state . . . are subject to due process protections.' [Citations.]" (Shoemaker v. County of Los Angeles (1995) 37 Cal.App.4th 618, 631.) The Association's adoption of the rental restrictions was not state action.3 (Schmidt v. Superior Court (1989) 48 Cal.3d 370, 388-389; see also Homestead Savings v. Darmiento (1991) 230 Cal.App.3d 424, 433 ["A state's mere regulation of the exercise of a private power allowed by the state law and which is exercised solely on the basis of the power and without compulsion from the state does not convert the actor's conduct into state action."].)
The Aldersons complain that there was not enough time between February 3, 2005, when the rental restrictions were first disclosed, and February 26, 2005, when ballots were due, "to organize any significant opposition to the proposed changes." Again, however, they cite no evidence to support this, and there is none. The Association held two "town hall" meetings to inform its members regarding the proposed rental restrictions, and Harrison spoke at both. There is no evidence that the Aldersons so much as considered mounting a further opposition, much less that they were prevented from doing so.
In their reply brief, the Aldersons argue that this sequence of events violated Civil Code section 1355, subdivision (b), which provides that a proposed amendment to CC&R's must be distributed to all owners "not less than 15 days and not more than 60 days prior to any approval being solicited . . . ." They never raised this particular argument below; thus, they have forfeited it. (Fourth La Costa Condominium Owners Assn. v. Seith159 Cal.App.4th 563, 582, fn. 5.) They have additionally forfeited by failing to raise it in their opening brief. (Doe v. California Dept. of Justice 173 Cal.App.4th 1095, 1115.) (2008) (2009)
Finally, the Aldersons also complain that the Association supposedly made two types of misrepresentations regarding the rental restrictions. First, it stated that the proposed amendments were necessary to comply with state law; while this was true of some of the amendments, such as the pet restrictions, it was not true of the rental restrictions. Second, it supposedly misrepresented the extent to which units that were already leased would be grandfathered. Yet again, however, the Aldersons do not cite any evidence that anyone was actually deceived. (See Mission Shores Assn. v. Pheil 166 Cal.App.4th 789, 797-798 [rejecting claim that cover letter accompanying homeowners association ballot was misleading where there was no evidence that any homeowner voted in reliance on cover letter] [Fourth Dist., Div. Two].) They themselves voted against the proposed amendments, so obviously they did not rely on the supposed misrepresentations. (2008)
We therefore conclude that the Aldersons have not established any due process violation.
The judgment is affirmed. In our tentative opinion (see Ct. App., Fourth Dist., Div. Two, Internal Operating Practices & Proc., VIII, Tentative opinions and oral argument), we proposed to award costs to the Association. At oral argument, the Aldersons argued that the Association could not recover costs, citing Civil Code section 1363.09. That section provides that, in an action by a member of a homeowners association "to enforce his or her rights pursuant to this article," "[a] prevailing association shall not recover any costs, unless the court finds the action to be frivolous, unreasonable, or without foundation." (Civ. Code, § 1363.09, subd. (b).)
"This article" refers to title 6, chapter 4, article 2 of the Civil Code (article 2), sections 1363.03 through 1363.09, governing the conduct of homeowners association elections. The gravamen of the action, as well as this appeal, was an alleged violation of Civil Code section 1354, which is not part of article 2. While the Aldersons did also challenge the election, they did so on grounds unrelated to article 2. Finally, even assuming that some costs; the costs would simply have to be apportioned. (See Federal Deposit Ins. Corp. v. Dintino 167 Cal.App.4th 333, 358.) of the Aldersons' claims could be deemed to assert their rights under article 2, the Association would still be entitled to (2008)
Accordingly, the Association is awarded costs on appeal against the Aldersons. This award, however, is without prejudice to a request in the trial court to apportion costs.
1. Civil Code section 711 generally prohibits unreasonable restraints on alienation. By contrast, Civil Code section 1354 specifically prohibits unreasonable CC&R's.
The Aldersons do not argue that there is any difference between these two standards. Quite the contrary: They assert that Civil Code section 1354 "modified" Civil Code section 711's "blanket proscription against restraints on alienation . . . with respect to common interest developments." Thus, they urge us to review the rental restrictions under the standard of Civil Code section 1354, as set forth in Nahrstedt.
We therefore assume, without deciding, that as long as the rental restrictions do not violate Civil Code section 1354, they necessarily also do not violate Civil Code section 711. (See, e.g., Nahrstedt v. Lakeside Village Condominium Assn., supra, 8 Cal.4th at pp. 381-382 [analyzing reasonableness of CC&R's under standards generally applicable to equitable servitudes].)
2. As the Association points out, selling via an installment land sales contract would provide the Aldersons with some of the benefits of rental, including cash flow.
3. Unlike the right to due process, the common law right of fair procedure can apply to private action. (See generally Yari v. Producers Guild of America, Inc. (2008) 161 Cal.App.4th 172, 176-177.) The Aldersons, however, have never invoked this right. Accordingly, we need not decide how it might apply here.