No Duty for Listing Agent to Disclose HOA Rental Restrictions
Case Study: Moghadam, et al. v. Rodeo Realty et al.
No. B319620 (Cal. App. 2d Dist. Apr. 17, 2024)
The plaintiffs in this case were condominium purchasers, who filed suit against their own agent, the sellers, the listing agent and the listing brokerage alleging that each defendant had a duty to disclose an HOA rental restriction. The plaintiffs claimed that prior to closing, they had notified all parties of their intention to use the unit for rental income. Shortly after closing, the plaintiffs attempted to rent out the unit and were informed that the HOA’s covenants, conditions and restrictions prevented them from leasing the unit for two years. The trial court found in favor of the defendants and the plaintiffs appealed the matter. The plaintiff’s agent and the sellers were not parties to the appeal.
The California Court of Appeals affirmed the lower court’s ruling and found that the listing agent, under these facts, did not have a duty to disclose the rental restriction to the plaintiffs. Although the court did somewhat agree with the plaintiff’s argument that rental restrictions would be material and desirable facts requiring disclosure by listing agents to prospective buyers specifically looking to rent out the unit, California case law holds that lawsuits based on non-disclosure must also claim that the non-disclosure significantly and measurable affected the property’s market value. Here, the plaintiffs did not allege the HOA restriction reduced the unit’s value, only that they sought loss of their expected rental income. The court also noted that in the purchase contract, the plaintiffs had indicated that they intended to occupy the property as their primary residence. This appeared to contradict the plaintiffs’ allegation that they intended to use the property for rental income.
Takeaways:
Advise your clients to consult with their own attorney or applicable advisors as it relates to future usage of a property. Zoning codes, municipal ordinances and homeowner association rules and regulations may all need to be reviewed to confirm an intended use of the property.
Keep in mind your duties under Article 2 of the NAR Code of Ethics and avoid exaggerating, misrepresenting or concealing pertinent facts related to the property or the transaction.
About the writer: Prior to joining Illinois REALTORS® in 2022, Victoria (Vicki) Munson was an attorney in private practice focusing on real estate and estate planning matters. She enjoyed assisting buyers and sellers in bringing their transactions to the closing table. Victoria earned her bachelor’s degree from Western Illinois University and her Juris Doctor from The John Marshall Law School.
