In recent years, the California state legislature has passed numerous laws aimed at increasing the state’s housing supply. Some of these laws are incremental; some are more ambitious. Nearly all of them focus in some way or another on restricting local governments’ power to limit or increase the cost of housing construction – a power that many jurisdictions, especially wealthy suburbs in the Bay Area and outside Los Angeles, have repeatedly and aggressively deployed for decades. Thanks to these new laws, cities must approve accessory dwelling units, or ADUs, that meet certain minimum standards, and they must allow homeowners in single-family zones to split their lots or build duplexes on their property.
Many local governments, unsurprisingly, do not like this, and they have looked for ways to discourage homeowners from taking advantage of these laws. One tactic has cropped up repeatedly: cities require homeowners who want to build an ADU or a duplex, or split their lot, to sign a deed restriction limiting the value of the proposed new housing. The deed restriction might, for example, require the homeowner to live in the new ADU after a certain date, limit their ability to tear down or renovate the ADU, or prevent them from selling the ADU even if state law is changed to allow it. Cities from Lafayette to Dana Point, from Burbank to San Marino, have employed this tactic.
A Quick Primer on Deed Restrictions
Let’s step back for a second. What is a deed restriction? And why do cities see deed restrictions as a way to blunt state housing law?
With respect to the first question: a deed restriction is a private contract that limits what the owner of a piece of real property can do with their property. Say, for example, that you don’t want your neighbor to paint their house in neon polka dots. You can pay your neighbor to sign an agreement not to do this. So long as you dot your i’s and cross your t’s, your neighbor and anyone they sell their house to will be bound by the agreement, and you and anyone you sell your house to will be able to sue to enforce the agreement. Deed restrictions commonly come up in planned subdivisions, where the developer will execute deed restrictions limiting the use of property in the subdivision. (Typically, non-residential uses will be prohibited, among other restrictions.) Homeowners associations also rely on deed restrictions to enforce their rules and collect dues from members.
With respect to the second question: cities see deed restrictions as a way to blunt state housing law because deed restrictions can survive changes in state law that regular city ordinances cannot. For example, until recently, the statewide ADU law prohibited cities from imposing an owner-occupancy requirement on ADUs before January 1, 2025. That is, cities could not require homeowners who built an ADU to live on the property – either in the principal dwelling unit or the ADU – before January 1, 2025. Under that law, it was very clear that cities could not pass an ordinance requiring owner occupancy for ADUs. Some cities did pass owner-occupancy ordinances, but even these cities acknowledged that the rule would not apply until January 1, 2025, and the subsequent change in state law has nullified these ordinances entirely. But some cities, instead of an ordinance, required homeowners who built ADUs to sign a deed restriction that imposed an owner occupancy requirement starting on January 1, 2025. When the statewide ADU law was amended to extend the prohibition on owner-occupancy requirements, local owner-occupancy ordinances were invalidated, but deed restrictions imposing owner-occupancy requirements (arguably) remained in force since they were contracts that had already been executed.
Thus, cities that want to discourage homeowners from building more housing, and that anticipate state housing laws will continue to change to facilitate housing construction, turn to deed restrictions to blunt the impact of current and future pro-housing laws. These deed restrictions have a double impact. As described above, they can restrict the use or expansion of housing in the future even if state law changes to otherwise allow it. In addition, because they reduce the utility of a given ADU, duplex, or other project, they discourage homeowners from building new housing in the first place. It’s the perfect scheme for anti-housing jurisdictions to maintain limits on the housing supply.
These Deed Restrictions are Unenforceable
There’s just one catch. These deed restrictions are not enforceable against anyone who purchases the property after the deed restriction is executed. Exactly two California statutes allow parties to impose restrictions on real property that apply to subsequent purchasers of the property: Civil Code sections 1462 and 1468. Neither section 1462 nor section 1468 covers the type of deed restriction cities are seeking to create here.
Civil Code section 1462 allows the seller (or donor) of a piece of land to create a deed restriction attached to the land when they sell the property. The deed restriction must confer a benefit on the sold parcel. For example, developers often include deed restrictions when they sell homes in a newly built subdivision that require the homeowners to pay dues to a homeowners association for the purpose of maintaining the neighborhood. This section would not cover cities proposed deed restrictions on homeowners seeking to build ADUs and the like for two reasons. First, the city is not selling the homeowner a piece of land; the city is simply requiring the homeowner to sign an agreement untethered from any real estate transaction. Second, the restrictions cities seek to impose do not benefit the homeowner’s parcel.
Civil Code section 1468 allows for deed restrictions that impose a burden on the land at issue, rather than conferring a benefit. But it requires that any such deed restriction be entered into by the owner of the property on which the restriction will be imposed and, crucially, the owner of a nearby piece of property that will benefit from the restriction. Thus, you can contract with your neighbor to prevent them and anyone they sell their home to from painting it in neon polka dots. But your local government cannot enter into such a contract with you (or your neighbor) because your local government does not own a piece of property that would benefit from the restriction.
To be clear, the deed restrictions at issue here may be enforceable against the homeowners who entered into them. But they are not enforceable against anyone who later purchases the property. Later purchasers may do what they please, whatever the local government might think.