Dealing with Short-Term Rentals

June 20, 2016 Tags: , ,

The rise of short-term lease websites (AirBnB, VRBO) has caused significant concern among condominium and homeowner associations. Repeated, short-term rentals may cause parking issues, noise, and other nuisances which disturb community residents.  What can an association do to restrict these types of rental arrangements?

In most cases, an amendment to the governing documents is required to address or restrict short-term rentals. Some associations have attempted to restrict short-term rentals under existing provisions of the governing documents. In most cases, those attempts were unsuccessful.

In a New Mexico case, the association’s governing documents required all lots to be used for “residential purposes” and homes must be “single family” dwellings.[footnote]Estates at Desert Ridge Trails Homeowners’ Ass’n v. Vazques, 300 P.3d 736 (2013).[/footnote]  There was no dispute that, in general, owners are entitled to rent their home. But it was the repeated, short-term rentals that caused an issue. An owner in the association began advertising his home on the internet for minimum stays of three nights. 

The association requested a court order stating that the owner was in violation of the “residential purposes” and “single family” dwelling provisions of its CC&Rs, arguing that short-term rentals are inconsistent with those restrictions. The court stated that “residential use” and “residential purposes” is typically interpreted to mean use of property for living purposes, or a dwelling, or a place of abode. The court rejected the association’s argument that repeated short-term rentals constitutes an economic or commercial endeavor, and is thereby inconsistent with “residential use”:

We therefore conclude…that an economic benefit flowing to Defendant from the rental of his home, whether long- or short-term, does not by itself constitute an impermissible business or commercial activity under the “residential purposes” restrictive covenant.

The Oregon Supreme Court decided a similar case.[footnote]Yogman v. Parrot, 325 Or. 358 (1997).[/footnote] An owner in a beachfront subdivision rented his home on a repeated short-term basis. The association’s governing documents stated that all lots be “used exclusively for residential purposes and no commercial enterprise shall be constructed or permitted on any of said property.”

The Court took the position that the short-term renters are “residents”—they eat, sleep, bathe and watch television within the dwelling.  Thus, the use of the home complied with the “residential purposes” language in the CC&Rs. As for the commercial enterprise language, the Court held that the language was ambiguous:

if a “commercial enterprise” requires a business organization that has profit as its primary aim, then the covenant does not cover defendants’ use, because the facts shown do not demonstrate that defendants are a business organization or that they have profit as their primary aim (as would be true, for example, of a bed-and-breakfast business).

Ultimately, the Court concluded that the owner’s repeated short-term rental of his home did not violate the CC&Rs.

Many governing documents prohibit rentals of less than 30 days. If that’s the case, the association may prohibit AirBnB type arrangements which are less than 30 days. In addition, if the association’s governing documents provide for a rental cap (only a certain number of lots or units may be rented at a given time), then any type of rental exceeding the rental cap are prohibited. 

If your governing documents do not address short-term rentals, first look to see if city or county ordinances provide guidance. For example, the city of Bend, Oregon, has a local ordinance restricting short-term rentals and requiring permits for such a use. Click here to review the ordinance. 

Absent a city or county ordinance addressing short-term rentals, the association will likely need to consider an amendment to the governing documents. An amendment restricting short-term rentals requires the vote of the membership. If there are already units or lots used as short-term rentals, consider exempting those owners from the restriction so long as they own the property. As always, amendments to the governing documents should be drafted with the help of legal counsel.