Brown v. Montage at Mission Hills, Inc.

• Court: California Court of Appeal
• Decided: August 20, 2021
• Docket: E074341
• Status: Published

Opinion

Filed 8/20/21

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION TWO

NANCIE BROWN,

Plaintiff and Appellant, E074341, E075762

v. (Super. Ct. No. PSC1801783)

MONTAGE AT MISSION HILLS, INC., OPINION

Defendant and Respondent.

APPEAL from the Superior Court of Riverside County. Kira L. Klatchko, Judge.

Reversed.

Slovak Baron Empey Murphy & Pinkney, Shaun M. Murphy and David A. Smith

for Plaintiff and Appellant.

Fiore, Racobs & Powers and Julie R. Balbini for Defendant and Respondent.

1 An individual bought a condominium, which she consistently rented for short

terms. Sixteen years after her purchase, the owner’s association amended its governing

documents to prohibit renting properties for less than 30 days. We agree with the owner

that she was exempt from this prohibition under Civil Code section 4740, subdivision (a)

(section 4740). That provision provides that an owner of a property in a common interest

development “shall not be subject to a provision in a governing document or an

amendment to a governing document that prohibits the rental or leasing of” the owner’s

property unless that document or amendment “was effective prior to the date the owner

acquired title” to the property. The trial court held that she was not exempt, so we

reverse.

I.

FACTUAL AND PROCEDURAL BACKGROUND

Defendant and respondent Montage at Mission Hills, Inc. is a common interest 1 development (CID) located in Cathedral City. Plaintiff and appellant Nancie Brown

purchased and acquired title to a property in Montage in 2002. At the time, Montage’s

CC&Rs—Montage’s governing documents—did not prohibit any form of renting.

1 The Davis-Sterling Act defines a common interest development as including a community apartment project, a condominium project, a planned development, or a stock cooperative. (Civ. Code, § 4100.) Any of these is managed by an association that is called either an owner’s association or a community association. (Civ. Code, § 4800.) An association’s governing document is called a “Declaration” (Civ. Code, § 4250), or more fully a “Declaration of Covenants, Conditions and Restrictions,” which is commonly called the association’s “CC&Rs.” (See generally Nahrstedt v. Lakeside Village Condominium Association (1994) 8 Cal.4th 361, 369.)

2 Although the governing documents imposed some recordkeeping requirements for

rentals, they did not ban short-term rentals (STRs) or require rentals to be for a minimum

duration. This was important to Brown 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.

Brown consistently rented the property for short terms (that is, less than 30 days)

from 2002 until the fall of 2017. In January 2018, Montage amended its governing

documents to prohibit its members, including Brown, from renting or leasing their

properties for periods shorter than 30 days. Montage notified Brown that it would

enforce the new prohibition against STRs if she continued to rent her property for short

terms.

Brown thereafter sued Montage, seeking declaratory relief among other claims, all

of which turned on her assertion that she is exempt from Montage’s prohibition against

STRs under section 4740. Brown sought summary adjudication on her declaratory relief

claim, requesting that the trial court declare that section 4740 exempts her from the

prohibition.

Montage responded with a motion for summary judgment. It argued that Brown’s

claims failed because (1) section 4740 precludes CIDs from imposing complete bans on

renting, but Montage’s prohibition on STRs is only a restriction on renting, and (2)

Brown’s use of her property for STRs violated the governing documents’ prohibition on

using the property for commercial purposes.

3 The trial court sided with Montage, finding that section 4740 does not apply

because Montage’s governing documents do not “prohibit the rental or leasing” of

Brown’s property but instead only restrict its rental. Because all of Brown’s claims turn

on her assertion that section 4740 exempts her from the prohibition on STRs in

Montage’s governing documents, the trial court granted Montage’s motion for summary

judgment and denied Brown’s motion for summary adjudication. Brown timely

appealed.

II.

DISCUSSION

Section 4740, subdivision (a) states that an owner of a property in a CID shall not

be subject to a provision in its regulations “that prohibits the rental or leasing of any of

the separate interests in that common interest development” unless that provision “was

effective prior to the date the owner acquired title to their separate interest.” The sole

issue in this appeal is whether section 4740 exempts Brown from the restriction on rentals

added to Montage’s governing documents after she had acquired title to her

condominium. We conclude that it does.

Because this case comes to us on an appeal from the grant of a motion for

summary judgment (to Montage) and denial of a motion for summary adjudication (to

Brown) that turn on the same issue, we review the matter de novo based on facts that are

undisputed. (Avivi v. Centro Medico Urgente Medical Center (2008) 159 Cal.App.4th

463; Hypertouch, Inc. v. ValueClick, Inc. (2011) 192 Cal.App.4th 806, 817 fn. 3.)

4 When Brown purchased her property in 2002, Montage’s governing documents

did not preclude her from renting her property for short terms. Now, however, the

governing documents would prohibit her from doing so. The question in this appeal is

whether Montage’s amendments to its governing documents in 2018 prohibiting STRs

constitute “amendment[s] to a governing document that prohibit[] the rental” of Brown’s

property under section 4740. If so, section 4740 exempts Brown from the amendments

because she acquired title before they took effect.

We must interpret a statute to effectuate the law’s purpose. (Green v. State of

California (2007) 42 Cal.4th 254, 260.) To do so, we first look to the usual and ordinary

meaning of the statute’s words. (Ibid.) If the ordinary meaning of the words is clear and

unambiguous, “the statute’s plain meaning controls.” (Ibid.)

With regard to STRs, the plain meaning of section 4740 is not clear and

unambiguous. On the one hand, if a regulation forbids any category of rental, such as a

short-term lease, that regulation “prohibits” that type of rental, even if it does not prohibit

all rentals. On the other hand, the section’s language could be read to bar only complete

“prohibitions” on leasing but not “restrictions” on leasing that fall short of outright bans

on all leasing. A treatise Montage cites accordingly reads it as “address[ing] only

‘prohibitions’ on leasing, not ‘restrictions’ on leasing. To the extent leasing is not totally

prohibited, it is unclear what rental restrictions a [CID] might adopt and enforce

retroactively.” (Sproul, Howell & Rosenberry, Advising California Common Interest

Communities (CEB 2017), § 6.49.) Another treatise identified the same ambiguity: “The

5 express language of [section] 4740, which uses the wording ‘prohibition,’ raises the

question about ‘restrictions’ or ‘limitations’ on rentals as distinguished from

‘prohibitions’ against rentals. The question is: ‘When does a restriction become a

prohibition,’ or ‘when is a restriction not a prohibition’?” (Cal. Common Interest

Developments Law & Prac. (2020 ed.) § 22:15.) These treatises both (a) conclude that

there are some “restrictions” on leasing that are not “prohibitions” and (b) note that it is

unclear what makes a regulation a restriction rather than a prohibition.

The parties dispute how to deal with these questions. Montage argues that its ban

on STRs is a “restriction” on the rental of Brown’s property, not a “prohibition.” On the

other hand, Brown argues that Montage “prohibits the rental” of her property because it

prohibits her from renting her property for terms of less than 30 days. We do not think

this dispute can be resolved by contemplating the text alone. Because both

interpretations of section 4740 are plausible constructions of its plain language, the text

of the statute is ambiguous as it relates to STRs. (See Hoechst Celanese Corp. v.

Franchise Tax Bd. (2001) 25 Cal.4th 508, 519 [statute is ambiguous if it is “susceptible to

more than one reasonable interpretation”].)

Montage suggests that any ambiguity as to whether section 4740 allows

“limitations” and “restrictions” on rentals as opposed to “outright prohibitions” can be

resolved by reference to other provisions of the Davis-Sterling Act. Montage notes that

other statutes in the Davis-Sterling Act provide that CIDs cannot “limit or prohibit . . . the

display of the flag of the United States” (Civ. Code, § 4705, subd.), “may not prohibit

6 posting or displaying of noncommercial signs, posters, flags, or banners” and may not

“effectively prohibit[] or unreasonably restrict[]” various things within a CID. (E.g., Civ.

Code, §§ 4745, subd. (a) 4745.1, 4750, 4754, subd. (c).) In Montage’s view, the waythat

other Sterling-Davis Act statutes use the terms “limit” and “restrict” in addition to the

term “prohibit” means that “prohibits” in section 4740 does not encompass “limitations”

or “restrictions” on “the rental or leasing” of CID properties, but rather contemplates only

complete bans on “the rental or leasing” of CID properties. Thus, Montage argues bans

on STRs are permissible under section 4740 because they are a “limitation” or

“restriction” on the rental of CID properties.

Although we may consider other provisions in “the statutory scheme of which the

statute is a part” to interpret an ambiguous statutory provision, we may consider “a

variety of extrinsic aids, including . . . the legislative history.” (Wilcox v. Birtwhistle

(1999) 21 Cal.4th 973, 997.) In doing so, we must “choose the construction that

comports most closely with the Legislature’s apparent intent.” (Smith v. Superior Court

(2006) 39 Cal.4th 77, 88.) We do not think the other Davis-Stirling provisions clearly

settle the matter of interpreting the text of section 4740 because they also leave

interpretive issues about what they prohibit and restrict. For the reasons explained below,

we conclude the Legislature’s intent underlying section 4740 is best articulated in the

statute’s legislative history. We therefore reject Montage’s argument that we need not

consider section 4740’s legislative history, and we turn to that history to aid in

7 determining the statute’s meaning. (Uber Technologies Pricing Cases (2020) 46

Cal.App.5th 963, 973.)

That history indicates that the Legislature intended broad protection for owners

against restrictions on renting, including the sort of restriction at issue in this case. When

enacting section 4740, the Senate’s originating committee recognized that “[s]ome CIDs

have restrictions on renting out units,” such as “requiring a minimum amount of time for

leases.” (Sen. Com. on Judiciary, Analysis of Sen. Bill No. 150 (2011-2012 Reg. Sess.)

as amended Apr. 25, 2011.) Section 4740 was proposed to “respond to those

restrictions.” The corresponding Assembly committee stated that section 4740 was

necessary because “only express legislative language will protect an owner’s right to

lease his or her property from leasing restrictions that may be adopted by CID members

subsequent to purchase.” (Sen. Rules Com., Off. of Sen. Floor Analyses, 3d reading

analysis of Sen. Bill No. 150 (2011-2012 Reg. Sess.) as amended June 9, 2011.) In these

reports, then, the committees not only used the word “restrictions” (rather than

“prohibitions”) but also made at least one reference to minimum-time restrictions.

Further, 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. By enacting section 4740, the Legislature sought to “preserv[e] the CID’s right

to adopt leasing restrictions, while at the same time ensuring that the owner can only be

so limited if the restrictions were in place at the time the interest was acquired.” The

Legislature thus intended section 4740 to ensure that “[i]f members of a [homeowners

8 association] vote to pass a restriction on rentals the restriction would not apply to an

owner that had the right to rent or lease when they purchased unless they agree to waive

that right.” (Sen. Rules Com., Off. of Sen. Floor Analyses, 3d reading analysis of Sen.

Bill No. 150 (2011-2012 Reg. Sess.) as amended June 9, 2011.)

Put another way, in enacting section 4740, the Legislature “declare[d] that the

rights of CID owners to rent or lease their properties, as the rights existed at the time they

acquired them, should be protected.” (Sen. Com. on Judiciary, Analysis of Sen. Bill No.

150 (2011-2012 Reg. Sess.) as amended Apr. 25, 2011.) That is, the Legislature passed

the statute to “[p]rovide[] that the right of an owner to rent or lease his or her separate

interest [in a CID] shall be the same as when the owner purchased his or her separate

interest throughout the life of ownership.” (Sen. Rules Com., Off. of Sen. Floor

Analyses, 3d reading analysis of Sen. Bill No. 150 (2011-2012 Reg. Sess.) as amended

June 9, 2011.)

In both its language and its substance, then, section 4740’s legislative history

shows that the Legislature sought for it to broadly address both rental “restrictions” and

rental “prohibitions” in CIDs. In our view, the statute’s legislative history demonstrates

that the statute’s goal is to exempt CID property owners from any kind of rental

prohibition or restriction that did not exist when the owner acquired title to the property.

The exemption must include at least the type of restriction at issue here, where a category

of rentals (STRs) is barred. We do not address whether an association could enact a

generally applicable limitation on occupants (such as a noise restriction) or impose

9 certain generally applicable requirements (such as a fee for using a common facility, or

housekeeping rules) that affect renting but do not directly prohibit “the rental or leasing”

of the property itself. That is, we need not decide whether a CID association may pass

generally applicable rules that may negatively affect a CID property owner’s ability to

rent or lease her property yet do not “prohibit” its renting or leasing. We need not deal

with that question in this case, where the regulation bars all STRs. That is a prohibition

on renting or leasing, not a prohibition on something else that happens to affect it.

We note that the Legislative Counsel, whose opinions we must “give due

deference” (Grupe Development Co. v. Superior Court (1993) 4 Cal.4th 911, 922),

reached the same conclusion. In its opinion, “the legislative history [of section 4740]

demonstrates that the Legislature sought to address both rental restrictions and outright

prohibitions,” and that the statute’s purpose “was to exempt [CID property] owners from

any rental prohibition, regardless of its nature, that took effect on or after January 1,

2012, unless the prohibition took effect before the owner acquired title.”

The Legislative Counsel thus summarized its opinion about section 4740’s effect

on rental prohibitions in CIDs, including prohibitions on STRs, as follows: “[U]nder

Civil Code section 4740, an owner of a separate interest in a [CID] is subject to a

provision of a governing document or an amendment to a governing document that

became effective on or after January 1, 2012, and that prohibits an owner from renting

out the owner’s interest in the property under certain conditions, such as a short-term

lease, only if either (1) the prohibition took effect before the owner acquired title to his or

10 her separate interest in that development, or (2) the owner consented to the governing

document or amendment containing that provision.” (Italics added.) Given section

4740’s legislative history, we agree.

In briefing, Montage dismisses section 4740’s legislative history as “irrelevant”—

an assertion we reject—and offers the following three arguments why Brown is not

exempt from its ban on STRs.

Montage first argues an STR is a “limited license” to use the property, and thus

Brown’s guests who rent her property on a short-term basis are licensees, not “tenants”

who rent the property under section 4740. Montage failed to preserve this line of

argument for consideration on appeal. (See Karlsson v. Ford Motor Co. (2006) 140 2 Cal.App.4th 1202, 1216-1217.)

Regardless, we reject the argument. In analogous contexts, courts have routinely

used the term “rent” and its variants to refer to short-term occupancies. (See City of San

Bernardino Hotel/Motel Assn. v. City of San Bernardino (1997) 59 Cal.App.4th 237, 246

[“The ordinance defines ‘rent’ as ‘the consideration charged, whether or not received for

the occupancy of space in a hotel . . . .’”]; Batt v. City and County of San Francisco

(2010) 184 Cal.App.4th 163, 167 [“[T]he Hotel Tax imposes a levy of 14 percent ‘on the

rent for every occupancy of a guest room in a hotel in the City and County.’”]; In re

Transient Occupancy Tax Cases (2016) 2 Cal.5th 131, 135 [discussing ordinance that

2 Montage’s one-line argument on the issue made in its summary judgment reply brief without any supporting authority or analysis is insufficient to preserve the argument on appeal. (See Bently Reserve LP v. Papaliolios (2013) 218 Cal.App.4th 418, 437.)

11 defined “rent” as “‘the total consideration charged to a Transient’”].) The same

conclusion is supported by the common, dictionary definition of the terms: The rental of

a property is “a usually fixed periodical return made by a tenant or occupant of property

to the owner for the possession and use thereof.” (https://www.merriam-

webster.com/dictionary/rent, italics added.) A STR is a “rental” under section 4740, even

if it could be described as a “license” as well.

Montage next argues that Brown is effectively running a hotel out of her property.

Montage thus contends Brown’s use of her property for STRs violates regulations in the

governing documents added in 2018 that allow her to use her property for “residential”

use only and prohibit her from using it for “business or commercial activities.” This

argument is curious in that a lease exceeding 30 days also is a “business or commercial”

activity in the sense that Montage is construing that phrase, particularly when that lease is

for profit. Because the association does not purport to ban renting or leasing in general,

the prohibition on business or commercial activity must refer to operating a business at

the property, not renting or leasing the property itself. Indeed, the governing documents’

prohibition is for such activities “in” any residence or “on” any portion of the property.

We cannot see how the prohibition on “business or commercial” activity can be read to

prohibit short term rentals but not longer term ones. Regardless, as we explained above,

section 4740 exempts Brown from any regulation, whatever its label, that restricts her

rights to rent her property if the regulation did not exist at the time she acquired title to

the property and she does not agree to the regulation. Montage’s prohibition on

12 “business or commercial” activities, if interpreted the way Montage does as a prohibition 3 on STRs, is another such regulation that would contravene section 4740.

Montage nonetheless argues its STR prohibition is permissible due to “public

policy considerations.” Montage observes that individual property owner’s rights must

sometimes give way to the public interest and the right of CIDs to decide their rules and

restrictions. We must give effect, however, to the public policy considerations that were

given priority by the Legislature when it adopted section 4740. (See Palmer v. Agee

(1978) 87 Cal.App.3d 377, 384 [statutory interpretation that “will promote legislative

intent, purpose and policy will override a construction that would defeat it”].) Section

4740 was enacted to protect “the rights of CID owners to rent or lease their properties, as

the rights existed at the time they acquired them.” (Sen. Com. on Judiciary, Analysis of

Sen. Bill No. 150 (2011-2012 Reg. Sess.) as amended Apr. 25, 2011.) (Italics added.) Its

goal is to ensure that “the right of an owner to rent or lease his or her separate interest [in

a CID] shall be the same as when the owner purchased his or her separate interest

throughout the life of ownership.” (Sen. Rules Com., Off. of Sen. Floor Analyses, 3d

reading analysis of Sen. Bill No. 150 (2011-2012 Reg. Sess.) as amended June 9, 2011.)

Our task is to ensure that goal is met. (Palmer v. Agee, supra, at p. 384; Bernard v. City

of Oakland (2012) 202 Cal.App.4th 1553, 1560-1561.)

3 We do not address whether Montage and other CIDs can enforce a new generally applicable prohibition on operating a business at the property, even if that new rule burdens renters. That issue is not presented here however because Brown uses her property only for STRs.

13 Finally, we note that the Legislature enacted Civil Code section 4741 while this

appeal was pending. That statute provides, among other things, that a CID may “adopt[]

and enforce[] a provision in a governing document that prohibits transient or short-term

rental of a separate property interest for a period of 30 days or less.” (Civ. Code, § 4741,

subd. (c).) But Civil Code section 4741 also provides that, “[i]n accordance with

[s]ection 4740, [Civil Code section 4741] does not change the right of an owner of a

separate interest who acquired title to their separate interest before the effective date of

this section to rent or lease their property.” (Civ. Code, § 4741, subd. (h).) Even

recently, the Legislature sought to protect the short-term rental rights of CID property

owners who took title to their properties before sections 4740 and 4741 went into effect,

much like section 4740’s general protection for the rental rights of owners who took title

before a change to rental prohibitions in governing documents, even though in section

4741 the Legislature permitted CIDs to regulate STRs going forward.

Because Montage’s prohibition on STRs did not exist when Brown acquired title

to her property, she is exempt from the prohibition under section 4740. We therefore

reverse the trial court’s orders granting Montage’s motion for summary judgment and

denying Brown’s motion for summary adjudication.

14 III.

DISPOSITION

The judgment granted to Montage is reversed. The trial court is directed to enter a

new order denying Montage’s motion for summary judgment and granting Brown’s

motion for summary adjudication. Brown is awarded costs on appeal.

RAPHAEL J.

We concur:

MILLER Acting P. J.

MENETREZ J.