June 15, 2026

The Hedge | Brutal Honesty Over Hype Since 2008

Short-term rentals — Airbnb, VRBO, and similar platforms — have created one of the most contentious battlegrounds in California HOA law. Homeowners who want to generate rental income through short-term rentals and HOAs that want to maintain the residential character of their communities are fighting this battle in courts, at rent boards, and in Sacramento. Understanding where the law stands in 2026 is essential for any property owner navigating this issue.

HOA Authority to Restrict Short-Term Rentals

California courts have generally upheld HOA authority to restrict short-term rentals through CC&R provisions or board rules, provided the restriction is reasonable and consistently enforced. CC&R provisions limiting rentals to a minimum term (30 days, 6 months, 1 year) are typically enforceable against all owners. Board-adopted rules restricting rentals — without a CC&R amendment — are more vulnerable to challenge, particularly if they represent a significant change in use rights that existing owners relied upon when they purchased.

AB 1137 and Short-Term Rental Disclosures

California law requires operators of short-term rentals in HOA communities to verify that their rental is not prohibited by the association’s governing documents before listing. Failure to do so can result in fines from both the association and, in some jurisdictions, local government. Cities including San Francisco, Los Angeles, and San Diego have their own short-term rental registration requirements that layer on top of any HOA restrictions.

The Grandfathering Question

When an HOA adopts new restrictions on short-term rentals, owners who were already operating short-term rentals before the restriction was adopted sometimes argue that the new rule cannot be retroactively applied to their existing operation. Courts have been mixed on this grandfathering argument — some have found that reasonable restrictions can apply prospectively to existing rentals with adequate notice, others have found more protection for existing uses. If you were operating a short-term rental before your HOA adopted new restrictions, consult an attorney about your grandfathering rights before assuming you must comply with the new restriction immediately.

The Hedge has been cutting through financial and business noise since 2008. Brutal honesty over hype — always.

If you manage a hotel in the City of Los Angeles, a change to the Hotel Worker ordinance is about to change how you think about health benefits for your workforce.

Ordinance No. 188944 takes effect June 29, 2026, and it carries a requirement that catches many hotel operators off guard: if you are not actually providing qualifying health benefits to a hotel worker, you owe that worker an additional $4.25 per hour as a wage supplement. This is not a benefits question. It is a wage obligation.

Here is where this gets complicated for hotels. Part-time workers are a staple of hotel operations — front desk coverage, banquet and catering staff, housekeeping fill-ins, and on-call employees who may work regularly but never clear the eligibility threshold for your group health plan. Under the ACA, you may have no obligation to offer those workers coverage at all. Under this ordinance, that analysis does not end your inquiry. If the worker is a “Hotel Worker” under the ordinance and you are not spending at least $4.25 per hour toward qualifying health benefits on their behalf, the shortfall must be paid as wages.

The ordinance frames this as a spending floor, not a value test. The question is not whether your plan is actuarially equivalent to some benchmark. The question is what you are actually spending per non-overtime hour worked on qualifying benefits — health, dental, vision, and mental health coverage count; life insurance, AD&D, and disability do not. If that per-hour number falls below $4.25, the difference goes on the paycheck and will impact the regular rate of pay.

The ordinance also does not carve out a clean exception for workers who waive coverage or who simply are not eligible under your plan’s terms. If you are not providing the required health benefit to a given worker for any reason, including their part-time status, the default rule appears to require either the cash equivalent or an individually documented waiver. 

For context, the LAX airport worker provisions have operated on this same model for years, and the compliance benchmark that emerged there is straightforward: calculate your total employer cost for qualifying health benefits and divide by total non-overtime hours worked. If you can demonstrate that the per-hour spend meets or exceeds the required rate, you are compliant. If not, the gap is owed as wages.

The rate is $4.25 per hour starting July 1, 2026. It increases to $6.00 on July 1, 2027, and from July 1, 2028 forward, it will be pegged to whatever the LAX airport worker rate is at that time — currently projected above $8.35.

The practical implication for HR is this: run the analysis now, before the ordinance takes effect. Pull your part-time hotel worker population, identify who is and is not receiving qualifying health benefits, and calculate your per-hour spend for those who are enrolled. Any worker who falls through the gap — because they are part-time, because they waived, because they do not meet your plan’s eligibility threshold — represents a potential wage liability under this ordinance unless you are paying the cash equivalent or have a compliant individual waiver on file.

Proof of benefit expenditures must be maintained and made available to the City’s Office of Wage Standards upon request. This is an area where documentation practices will matter as much as the underlying compliance.

If you have questions about how this ordinance applies to your specific workforce structure, now is the time to get ahead of it.

The Hedge | Brutal Honesty Over Hype Since 2008

Franchising is one of the most popular paths to business ownership in California — and one of the most misrepresented in marketing materials. The California franchise disclosure requirements (among the most stringent in the country) provide more raw data for due diligence than most states, but prospective franchisees still routinely make costly decisions based on the franchisor’s sales pitch rather than the actual financial performance data the law requires to be disclosed. Here is how to read what’s actually there.

Item 19: The Financial Performance Representation

The Franchise Disclosure Document (FDD) Item 19 is where franchisors disclose financial performance information — if they choose to disclose it at all. Item 19 is voluntary under FTC rules (California adds some additional requirements). Many franchisors provide carefully curated Item 19 data: top-quartile revenue averages that exclude closed locations, “average” figures that include only certain system tiers, or revenue without cost figures that make profitability impossible to calculate. When evaluating an FDD, note whether Item 19 is present, what it covers, what it excludes, and whether the disclosed figures are median or average (median is more representative when high performers skew the average).

Item 20: Outlets and Transfers

Item 20 discloses how many franchise locations opened, closed, transferred, or were terminated in each of the past three years. This data tells you what the franchisor’s marketing pitch doesn’t: the actual failure and exit rate of existing franchisees. A franchisor who opened 50 locations and closed 30 over three years has a very different story to tell than one who opened 50 and closed 5. California’s FDD disclosure requirements make this data available — use it.

The UFOC/FDD Contact Requirement

California law and FTC rules require franchisors to provide a list of existing and former franchisees in Item 20. Contact at least 10-15 of these franchisees — both current and former — before signing anything. Ask specifically: what are your actual unit economics (revenue, food/product cost, labor, royalties, net)? Would you do it again? What did the franchisor not tell you that you wish you’d known? Former franchisees are frequently the most candid. The information they provide should be weighted heavily against whatever the franchisor’s sales team is telling you.

The Hedge has been cutting through financial and business noise since 2008. Brutal honesty over hype — always.