New California Law Expands Clearance Of Restrictive Covenants On Commercial Property

Highlights

• California housing developers can now seek to redact restrictive covenants from title when seeking to redevelop an existing commercial property that includes residential uses permitted by state housing laws or local land use and zoning regulations. Formerly limited to projects that provide lower-income affordable housing, the law, Assembly Bill (AB) 1050, is now open to all qualifying housing developers.
• The process of redacting covenants is not automatic and requires review by the county recorder and county counsel's office.
• Holland & Knight has substantial experience invoking recent laws that limit the ability of restrictive covenants to restrict residential development and can assist in advising project applicants of their legal options and how to pair the new law with other existing pathways such as AB 2011's streamlined ministerial process for projects on sites zoned for office, retail or parking uses.

California Gov. Gavin Newsom on Oct. 10, 2025, signed into law Assembly Bill (AB) 1050 (Schultz) (Chapter 504, Statutes of 2025), effective Jan. 1, 2026, further amending California Civil Code Section 714.6¹ and expanding the availability of the process for removing recorded restrictive covenants that block housing developments in order to facilitate the residential redevelopment of commercial properties. In doing so, AB 1050 greatly expands the ability to develop commercial property with projects, including affordable and/or market-rate housing, notwithstanding existing restrictions prohibiting or restricting residential uses of such property contained in recorded covenants, conditions, restrictions (CC&Rs) or other instruments, including reciprocal easement agreements (REAs), affecting the transfer or sale of the property. In his signing statement, Gov. Newsom announced that "this bill removes outdated barriers that keep underutilized commercial properties from being converted into housing, strengthening our adaptive reuse strategy and accelerating progress toward our statewide housing goals."²

Overview

For years, the California Legislature has been seeking to facilitate the redevelopment of outmoded commercial centers for housing development. Laws such as the Affordable Housing and High Road Jobs Act of 2022 (originally enacted through AB 2011 of 2022) have attempted to clear a path around local restrictions that prohibit residential uses. But private restrictive covenants have remained as an impediment to redevelopment and can often be invoked by private parties to block new housing development.

As described in Holland & Knight's previous alert on 2022 housing laws, the legislature first enacted a process for housing developers to redact restrictive covenants by adding Section 714.6 to the California Civil Code (AB 721 (Bloom) (2021)). This law built upon on prior law that allows parties to eliminate unenforceable racially restrictive covenants from recorded documents – but went further by making recorded CC&Rs that restrict the number, size or location of residences that may be built on a property, or that restrict the number of persons or families who may reside on a property, subject to redaction in certain circumstances. Prior to the enactment of AB 1050, California Civil Code Section 714.6 provided that recorded restrictive covenants³ could be rendered unenforceable only against the owner of any affordable housing development (100 percent of units other than a manager's units affordable to lower income households) if an approved restrictive covenant affordable housing modification document has been recorded as provided in Section 714.6. In the aftermath of the COVID-19 pandemic, many traditional commercial corridors and shopping centers have struggled with shifting consumer demand, and property owners have explored mixed-use or residential development to meet deep demand for housing – only to be blocked by recorded restrictions against residential use. To help tackle this problem, AB 1050 now extends the coverage of this law to any property owned or controlled by an entity or individual⁴ that has submitted a development project application to redevelop an existing commercial property that includes any residential uses permitted by state housing laws or local land use and zoning regulations, regardless of affordability.⁵

This prohibition on enforceability of such restrictive covenants is not automatic. In order for an owner or developer of a housing development⁶ to avail itself of the protection afforded by Section 714.6, the owner of the housing development must establish that the existing restrictive covenant is unenforceable by submitting to the county recorder the prescribed restrictive covenant modification document⁷ that modifies or removes the restrictive covenant to the extent necessary to allow the housing development to proceed under the existing declaration of restrictive covenants, together with a copy of the original restrictive covenant, any documents the owner believes necessary to establish that the property qualifies as a housing development under Section 714.6 and a request for recordation of the restrictive covenant modification document. The recorder must then submit the request documentation to the county counsel for review and a determination as to whether the subject restrictive covenant, housing development and request meet the requirements of Section 714.6 and, if county counsel determines that they do, the county counsel shall authorize the recorder to record the modification document, and the recorder shall record the document. The owner may, but is not required to, mail to anyone else the owner knows has an interest in the property or restrictive covenant a copy of the modification document and an explanation that the county counsel has approved the same for recordation. The owner also may, but is not required to, publish notice that the modification document has been approved for recordation.

Once the restrictive covenant modification document has been recorded, the effective date of the terms and conditions of the document shall be the same as (i.e., relate back to) the effective date of the original restrictive covenant document, subject to any intervening amendments or modifications, except to the extent modified by the recorded modification document.

A variety of covenants and restrictions remain untouched by Section 714.6, as amended by AB 1050. It applies only to restrictive covenants (as defined) and not to any other covenants, including any covenants that relate to purely aesthetic objective design standards that do not render the housing development infeasible, provide for fees or assessments for common are maintenance, or provide for limits on rent that may be charged to tenants (provided such covenants have been consistently enforced or assessed prior to construction of the housing development) or certain conservation easements. (Section 714.6(c), (g)).

Remaining the Same

AB 1050 leaves local building codes and other rules intact. These include rules regulating the number of persons who may reside in a dwelling or the size of a dwelling, and the law does not authorize any development that is not otherwise consistent with state housing laws or the local general plan, zoning ordinances and any applicable specific plan – including any requirements regarding the number of residential units, the size of residential units and any other relevant zoning restriction. (Section 714.6(f)).

AB 1050 also retains the exclusion from the provisions of Section 714.6 for any recorded deed restriction, public access easement or other similar covenant that was required by a state agency for the purpose of compliance with state or federal law, provided that the same contains notice that it was recorded to satisfy a state agency requirement. (Section 714.6(i)). Section 714.6 is only one of the recent efforts by the legislature to take aim at restrictive covenants. Other such laws include Section 714.3 of the Civil Code, which declares unenforceable any CC&R that effectively prohibits or restricts an accessory dwelling unit (ADU) on a lot zoned for single-family uses, and Section 4747 of the Civil Code, which renders any CC&R void and unenforceable if it effectively prohibits or unreasonably restricts a qualifying housing development from the floor area ratio to which it is entitled pursuant to SB 478 of 2021.

Conclusion

In the years since AB 721 took effect in 2021, Holland & Knight has advised affordable housing developers through the process of considering and seeking to redact covenants that preclude housing development. As a result, the authors and their colleagues are well prepared to advise on how to invoke the new law and craft an entitlement strategy that takes maximum advantage of other potential streamlining tools. AB 1050 pairs particularly well with AB 2011, which permits streamlined, ministerial, California Environmental Quality Act (CEQA)-exempt approval of qualifying housing development on sites zoned and designed for office, retail or parking uses. Also of note, AB 1050 does not prevent a housing development from receiving any bonus or incentive pursuant to the State Density Bonus Law or other applicable law or any related local ordinance. (Section 714.6(f)(3).

AB 1050 should provide housing developers with another much-needed tool to facilitate affordable and now also market-rate housing developments on underutilized commercial properties whose title is often burdened with outdated and nonsensical restrictions on use. Hopefully, the governor's prediction proves true that "[t]his is the kind of practical reform we need to cut through red tape and deliver more housing for California."

Footnotes

1 Unless otherwise noted, all references herein to Section 714.6 shall mean and refer to Civil Code Section 714.6 as amended by AB 1050.

2 See Gov. Newsom's signing statement.

3 "Restrictive covenant" means "any recorded covenant, condition, restriction, or limit on the use of private or publicly owned land contained in any deed, contract, security instrument, reciprocal easement agreement, or other instrument affecting the transfer or sale of any interest that restricts or prohibits the residential uses of the property, the number, size, or location of residences that may be built on the property, or that restricts the number of persons or families who may reside on the property, as described in subdivision (a). "Restrictive covenant" does not include an easement set forth in a reciprocal easement or other recorded instrument." (Section 714.6(j)(6)).

4 "Owned or controlled" is defined to include not only "any record title owner" and "any beneficial owner," but also entities that hold "the right to acquire the property under an option agreement, purchase and sale agreement, or similar agreement." (Section 714.6(j)(B)(i)). Although not absolutely clear under AB 1050, these definitions of "owner" and "controlled" would appear to potentially encompass as individuals or entities entitled to take advantage of the benefits of AB 1050 (in addition to record fee title owners and optionees or purchasers of the property under the listed agreements) beneficiaries under ownership trusts, ground lessees or other tenants with an option to purchase or right of first offer or refusal contained in their lease, trustees and debtors in possession under bankruptcy laws and, perhaps, mortgagees in the process of acquiring title by foreclosure or deed in lieu or property receivers.

5 This reference appears broad enough to encompass accessory dwelling units (ADUs) and junior accessory dwelling units (JADUs).

6 "Housing development" means a development located upon the property subject of the restrictive covenant that is subject to a recorded 100 percent affordability restriction or other percentage required by project financing or a permit application has been submitted for such a project, or the property is owned or controlled by an entity or individual that has submitted a project application to redevelop an existing commercial property that includes residential uses permitted by state housing laws or local land use and zoning regulations. (Section 714.6(j)(1)(A)).

7 Pursuant to Government Code Section 12956.2. As a practical matter, this means that the owner will need to submit a modified form of the restrictive covenant modification document form already widely utilized for the modification of restrictive covenants based on race or other prohibited classifications.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.