Commercial HOAs in California: What Every Business Property Owner Should Know

OVERVIEW

Most people hear the term “HOA” and immediately think of suburban homes, manicured lawns, and neighbors arguing about fence heights. But in California, the concept of a homeowners’ association extends beyond residential communities. Increasingly, business owners, investors, and commercial property owners find themselves subject to governing boards, CC&Rs, special assessments, and architectural review committees—all under the umbrella of a commercial association.

These commercial associations, often described as “commercial HOAs” (despite the absence of homes or homeowners), are not governed by the Davis-Stirling Act—the body of law in California that governs homeowners and residential homes. Rather, commercial HOAs are governed by California’s Commercial and Industrial Common Interest Development Act (the “CCID Act”). (Civ. Code, §§ 6500-6876.) The CCID Act regulates the creation, governance, and operation of commercial and industrial common interest developments in California.

As commercial condominiums, business parks, and industrial subdivisions become more prevalent, so too do the legal entanglements associated with ownership in these developments. The CCID Act provides a framework for governance—but unlike its residential counterpart, the Davis-Stirling Common Interest Development Act, it offers far fewer protections for owners. This article is a legal and practical primer designed to help owners, investors, and attorneys understand the key features, benefits, and risks of owning commercial real estate in a unit or building subject to the CCID Act.

THE BASICS: THE COMMERCIAL AND INDUSTRIAL CID ACT

The Commercial CID Act governs a specific type of common interest development that involves non-residential property—namely commercial or industrial real estate. Examples include:

• office condominiums;
• business parks;
• industrial subdivisions; and
• retail plazas with subdivided ownership.

To qualify as a “common interest development” under the CCID Act, the project must include: (i) separate ownership interests (such as individually owned office suites or commercial units); (ii) common area owned in some form by the association or shared among members; and (iii) a recorded declaration of covenants, conditions, and restrictions (“CC&Rs”) that impose assessments on owners and create an owners’ association.

In practical terms, the Commercial CID Act, which went into affect in California on January 1, 2014, applies to any non-residential real estate development where multiple owners share common areas and are governed by a set of binding rules through an association. It was intended to simplify and streamline governance for commercial associations involving commercial entities, and thus didn’t require the same degree of consumer protection featured in the Davis-Stirling Act. As a result, the CCID Act grants associations significant authority while offering limited recourse for individual owners.

This distinction is critical. Unlike residential owners, who are often unsophisticated consumers, commercial owners are presumed to be businesses or investors capable of reading and negotiating governing documents. This presumption, as I explore more particularly below, has significant legal implications.

THE RISE OF COMMERCIAL HOAS IN CALIFORNIA

Commercial HOAs—again, a term of convenience rather than technical accuracy—have proliferated across California over the past two decades. This trend is driven by several factors:

1. Real estate affordability and accessibility. Commercial condominium developments offer small and mid-size business owners an affordable way to own their office or industrial space, rather than lease from a traditional landlord. These units often cost far less than standalone buildings, and the association structure allows for shared maintenance costs and property management.
2. Developer incentives. By subdividing large commercial parcels into individual units or lots, developers can sell to a larger pool of buyers. Instead of relying on one major commercial tenant, they can profit from dozens of small businesses. Developers can also shift maintenance obligations for streets, landscaping, parking areas, and utilities to the association, thereby reducing their long-term liability.
3. Zoning and municipal planning preferences. Many local governments now encourage higher-density commercial developments and vertical mixed-use structures, often requiring common ownership and shared infrastructure. Associations make it easier to comply with these requirements while managing shared obligations.

As a result, commercial CIDs have emerged all over the State of California—from downtown Los Angeles to suburban business parks in Irvine, San Diego, and the Central Valley. And while the benefits of such developments are real, so too are its complications.

THE UPSIDES OF OWNING COMMERCIAL PROPERTY IN A CID

Despite the potential pitfalls, many investors and business owners are drawn to the advantages of owning a commercial property governed by an association. These upsides include:

1. Predictable costs. Common area maintenance fees and regular assessments allow owners to budget for expenses that might otherwise be highly variable and unpredictable.
2. Architectural uniformity. The CC&Rs often include architectural controls to preserve the aesthetic consistency of the development or to capitalize on a specific type of business or customer. You’ll often find examples of the latter in medical/dental office buildings.
3. Shared services and amenities. Associations may provide shared services such as janitorial contracts, trash removal, building engineers, or shared signage.
4. Enhanced resale value. Commercial condominiums within well-maintained, professionally managed associations can command a premium on resale.
5. Voting power and governance. Commercial association members typically hold voting rights proportional to the size or assessed value of their units.

THE DOWNSIDES OF OWNING COMMERCIAL PROPERTY IN A CID

Where there are upsides, you’ll usually find some downsides too, and in the case of commercial HOAs, there are a number of substantial potential downsides, including the following:

1. Lack of consumer protections. The CCID Act imposes far fewer transparency or procedural requirements than the Davis-Stirling Act. For example, commercial associations are not required to hold open meetings, publish agendas, or allow member attendance. There are no requirements for secret ballots during elections or to notify members before major decisions. Financial disclosures such as annual budgets, reserve studies, or audited financials—which are mandatory for residential HOAs—are entirely optional under the CCID Act unless required by the CC&Rs themselves. Boards may operate with near-total opacity, leaving members unaware of how funds are managed or how key decisions are being made.
2. Disproportionate assessment powers. Boards can impose special assessments with little or no member input. For example, in many commercial developments, the CC&Rs give the board broad discretion to issue assessments for infrastructure repairs, legal disputes, or operating shortfalls—without requiring a member vote. Owners may receive notice of a five- or six-figure charge with no opportunity to challenge the amount, scope, or necessity. There is also no statutory cap or required cost-benefit analysis. In one case, an association levied an emergency assessment for roof repairs that had not been previously disclosed in any budget or reserve study, and owners were given 30 days to pay or face liens and foreclosure proceedings.
3. Use restrictions and business interference. CC&Rs may evolve in ways that restrict once-allowed business activity. For instance, a unit that was originally used for a cannabis distribution company may become non-compliant after a board-amended restriction prohibits any cannabis-related operations, even if otherwise lawful. In another example, a boutique gym was forced to shut down after the board reinterpreted parking allocation rules to restrict high-traffic businesses. These changes are often made without member approval and with little warning—leaving owners unable to lease, sell, or continue operating as they had planned. The association’s enforcement authority, often coupled with one-sided legal remedies, makes challenging these evolving restrictions extremely difficult and expensive.
4. No meaningful check on developer control. The CCID Act has no built-in requirements for developer turnover. For example, both the Davis-Stirling Act and regulations promulgated by the Department of Real Estate contain developer turnover requirements that control when a developer must turn control of the association over to the owners (when certain milestones are met, for example). The CCID Act contains no such requirements, which means that developer turnover only occurs if required under the CC&Rs.
5. Asymmetrical attorney’s fee provisions. Owners who have to sue their associations to enforce their governing documents, or who face lawsuits from their associations, aren’t entitled to reimbursement of their attorneys’ fees and costs upon winning like homeowners are under the Davis-Stirling Act.
6. Difficulty amending CC&Rs. High voting thresholds and entrenched control can prevent meaningful reform. In many commercial CIDs, the CC&Rs require supermajority approval—often 67% or even 75% of all owners—to amend key provisions. Achieving this threshold can be practically impossible in developments with absentee owners, fractured interests, or voter apathy. Compounding the problem, boards frequently control the voting process and may refuse to put amendments on the agenda or allow a vote at all unless required. In some cases, the governing documents permit the board to unilaterally amend certain rules, but prohibit owners from initiating changes without board approval. This structural imbalance creates a scenario where outdated, one-sided, or unreasonable provisions persist for decades simply because members cannot meet the procedural hurdles to reform them.

KEY DIFFERENCES BETWEEN THE CCID ACT AND THE DAVIS-STIRLING ACT

While both the CCID Act and the Davis-Stirling Act regulate common interest developments in California, they serve two very different constituencies. The Davis-Stirling Act—governing residential HOAs—is designed to protect relatively unsophisticated homeowners by mandating transparency, democratic participation, and fair dispute resolution procedures. The CCID Act, on the other hand, assumes commercial property owners are more business savvy and able to weigh the cost-benefit analysis of their purchase.

That assumption, however, is flawed. In practice, the CCID Act strips away critical safeguards and places disproportionate power in the hands of boards—particularly those dominated by developers or a handful of larger stakeholders. For example, you can be as sophisticated as they come by reading the governing documents, asking the right questions, and determining that a parcel of commercial property within a particular association is right for you. But that wouldn’t stop the association from, sometime down the line, passing a rule that greatly impacted your ability to conduct your business (while passing the reasonableness test, which is, thankfully, a requirement under both the CCID and the Davis-Stirling Act). How could anyone foresee the passage of a such a rule? And with no grandfathering protections in place—like are present in several Davis-Stirling Act provisions—there would be no protection for even the most sophisticated of business owners.

Below are the most significant legal and structural differences that consistently favor associations over individual owners:

• no open meeting requirements;
• no secret ballot elections;
• no mandatory alternative dispute resolution pre-litigation requirements;
• no developer turnover requirements;
• no reserve study or financial disclosure mandates; or
• no attorneys’ fees for the prevailing parties in litigation to enforce the governing documents.

As you can imagine, those key differences significantly tip the scales in favor of the association, and against the owner-members.

SOME KEY THINGS THAT PROSPECTIVE CCID OWNERS SHOULD DO

Buying into a commercial common interest development isn’t like buying a traditional standalone building ungoverned by an association. You’re entering a multi-layered contractual environment where an association—often controlled by larger owners or a developer—can limit how you use your property, what you owe, and how much control you have over decisions that affect your bottom line. While some risks are manageable with proper due diligence, many surprises catch buyers off guard only after closing. This section provides essential guidance to help prospective buyers identify red flags, avoid common pitfalls, and negotiate from a position of strength.

Prospective owners of units or buildings within commercial HOAs should always do as many of the following as possible:

• carefully read the CC&Rs prior to purchasing;
• investigate how the board has exercised its control in the past;
• request financials and a litigation history;
• speak with more than one current owner;
• examine permitted use restrictions;
• look for potential allies with whom you can build a voting bloc; and
• hire legal counsel to advise you and conduct your due diligence.

CONCLUDING THOUGHT

Commercial common interest developments are becoming an unavoidable reality of California’s real estate landscape. From sleek office condos in tech corridors to industrial parks on the outskirts of major cities, these developments offer accessibility, convenience, and equity-building opportunities for small businesses and investors.

But beneath that surface lies a legal structure that often tilts in favor of centralized control and association dominance. The CCID Act assumes sophistication on the part of every buyer—and strips away many of the protections that residential property owners take for granted under the Davis-Stirling Act. That assumption, though rational in theory, can prove dangerous in practice.

Owners face harsh enforcement provisions, surprise assessments, limited voting rights, and little transparency. Litigation is common, fees are asymmetric, and avenues for redress are few. In many ways, commercial HOAs operate like private governments—enforcing their own constitutions with little oversight and immense discretion.

For legal practitioners, brokers, and commercial buyers, the message is clear: read everything, question everything, and never assume fairness. In the world of commercial CIDs, the devil is always in the details—and those details are often buried deep within the governing documents.

Invest wisely. Read the fine print. And above all, go in with your eyes open.