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April 30, 2007

A Trap for the Unwary: Prohibitions Against Daycare

Imagine this scenario: Your on-site manager is approached by one of your residents. The resident indicates that they plan to open a small daycare business operated out of the apartment. They want to know if management has any objection and the manager points out that the rental agreement prohibits operating a business out of the apartment. The manager also points out that the area in which the apartment building is situated is not zoned for commercial businesses. Unfortunately, as well intended as the manager might be in providing this response to the resident, the manager is wrong. Here's why:

Under California law, all single-family residences, including rental apartments and condominiums, can be used for small family day care homes. Qualifying operations are not considered a "business use of the property."

There is no legal requirement that providers of day care services own their own home. Even in situations where a rental agreement specifically states that an apartment can only be used as a residence, family day care is still allowed.

The California legislature made findings and declarations in support of legislation which created rights for residents in rental properties who choose to operate a family day care home. This was enacted in the California Health & Safety Code at Section 1597.30, et seq.

The law establishes a "public policy" to provide home environments for daycare and creates restrictions governing real property in order to promote the operation of family day care homes. Health & Safety Code §1597.40 states that it is "the intent of the Legislature that family day care homes for children should be situated in normal residential surroundings so as to give children the home environment which is conducive to healthy and safe development. It is the public policy of this state to provide children with a family day care home the same home environment as provided in a traditional home setting."

These laws were enacted by the legislature to meet a perceived need for greater access to daycare facilities within residential neighborhoods in which the families reside.

The legislature declared that: (a) it has a responsibility to ensure the health and safety of children and family homes that provide day care; (b) there are insufficient numbers of regulated family child care homes in California; (c) there will be a growing need for child day care facilities due to the increase in working parents; and (d) there should be a variety of child care settings, including regulated family day care homes, as suitable alternatives for parents.

The Legislature went on to declare this policy to be of statewide concern with the purpose of occupying this field of law to the exclusion of municipal zoning, building and fire codes and regulations governing the use or occupancy of family day care homes for children and to prohibit any restrictions relating to the use of single-family residences for family day care homes for children.

But what about restrictions or regulations prohibiting commercial activities in a residential area that existed before this law was enacted?

In Barrett v. Dawson (1998) 61 Cal.App.4th 1048, residential neighbors attempted to force a daycare center to shut down because of a restrictive covenant prohibiting any residence from being used for any "business" activity, including a family day care home. The covenant was in place in 1968, 13 years prior to the passage of this law in 1981. The original code section declared that "every restriction or prohibition entered into on or after the effective date of this section, whether by way of covenant, condition upon use or occupancy, or upon transfer of title to real property, which restricts or prohibits directly, or indirectly limits, the acquisition, use, or occupancy of such property for a family day care home for children is void." In 1983, the section was amended to remove the italicized language above. The court in Barrett held that this amendment showed legislative intent that all restrictions on family day care homes were void, whether they were created before or after the code section was put into law. Thus, the residential neighbors challenging the family day care home were prevented by the statute from using the 1968 covenant to shut down the day care home.

Under this law, every provision in a written contract entered into relating to real property, which purports to forbid or restrict the leasing of real property for use or occupancy as a family day care home for children, is void.

A prospective family day care home operator, who resides in a rental property, is expected to provide 30 days' written notice to the landlord or owner of the rental property prior to the commencement of operation of the family day care home. The reality is that many operators do not provide prior notice. Since the operator is not required to obtain the landlord's "consent," the failure of an existing resident to provide prior notice should be treated as a small technical deviation from compliance responsibilities and does not provide you a basis to stop the daycare activity. In order to avoid disruption of services to the children involved, residents moving a family day care home to a new location may not be required to give the new landlord 30 days' notice.

The law does provide that upon commencement of, or knowledge of, the operation of a family day care home on their property, the landlord or property owner may require the family day care home operator to pay an increased security deposit for the operation of the family day care home. The increase in deposit may be required notwithstanding that a lesser amount is required of residents who do not operate family day care homes. In no event, however, shall the total security deposit charged exceed the maximum allowable under the existing law.

Family day care homes must be licensed by the California Department of Social Services1. The Department establishes requirements for the home and the qualifications of the care providers (for example, each licensee must have at least fifteen hours of training on health practices). Officials inspect the premises for compliance with required elements such as smoke detectors and fire extinguishers and restrict the number of children allowed. If the Department approves a "small" day care home in a particular location, the operator can provide care for up to six children, including resident children under ten years of age, without the owner's permission and can add two more school-aged children with the owner's consent. "Large" day care homes are rarely approved, but if they are, the limitations are the same except that the numbers allowed are 10 without consent and 12 with consent.

Operators are required to carry either liability insurance of $100,000/$300,000 or a bond of $300,000. In lieu of this requirement, they can inform each parent they do not carry either liability insurance or a bond and keep affidavits on file signed by each parent acknowledging that they have been made aware of the lack of insurance or bond. Operators must also inform parents that it is possible that the property owner may not carry insurance coverage for losses "arising out of, or in connection with, the operation of the family day care home," except if the losses are "caused by, or result from, an action or omission by owner for which they would normally be liable under the law."

If there is insurance or a bond, the property owner can be named as an additional insured if so requested by the owner in writing. If this causes an increase in premiums, that increase is at the owner's expense. Adding the property owner to the insurance policy as an additional insured is allowed, as long as it does not result in cancellation or non-renewal of the insurance policy. Note that apart from the daycare operation, if the landlord otherwise requires residents to carry renter's insurance, that requirement will still apply to the home within which a family day care home is located.

Though the law requires that you allow a day care home to be run from an apartment, the same, reasonable rules that apply to other residents may be imposed. For example, you are not required to tolerate excessive noise that unduly disrupts the peaceful and quiet enjoyment of other tenants, or conduct that damages the property, if you censure non-day care operators for similar activities. If there are breaches of conduct in terms of excessive noise, etc., you can provide warnings or notices in a manner consistent with any other rule violation. However, you should be careful to evaluate the circumstances and any contemplated action carefully in each instance as it might be viewed as a retaliatory or discriminatory response to the operation of the family day care home. Not only could there be repercussions from fair housing enforcement agencies, but also from attorney advocates who specialize in child care issues.

In summary, all of your managers and staff should be made aware of the prohibition against restrictions for licensed family day care homes. Additional material concerning family child care homes is available in the form of a "Manual of Policies and Procedures" provided by the State of California. This manual summarizes the regulations and other information pertaining to the operation of licensed family day care homes. It is available online at http://www.dss.cahwnet.gov/getinfo/pdf/fcc.PDF.

1Health & Safety Code Section 1596.792 recognizes certain limited exceptions where a license is not required.

(Craig D. McMahon is a partner at Kimball, Tirey, and St. John LLP. Mr. McMahon consults on ADA and fair housing cases throughout California. Kimball, Tirey, and St. John specializes in landlord/tenant, collections, business and real estate law, with offices throughout California. This article is informational only and should not be used as legal advice. Check with your attorney before acting. If you have any questions regarding this article, please call 1-800-574-5587. )
(Edward O'Connor is a Harvard graduate and currently a law student at the University of San Diego. He is a law clerk at Kimball, Tirey and St. John LLP in the Business Real Estate Practice Group. )

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