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Wrestling with Short Term Rentals1

By Steven S. Weil, Esq. — Berding & Weil, LLP (Walnut Creek, CA) and
Lisa Tashjian, Esq. — Beaumont Gitlin Tashjian (Los Angeles, CA)
Published: March, 2017

Introduction

In our world of community association law and practice, we see the sharing economy manifest in the explosion of short term rentals. But the sharing economy is larger than this: it includes peer-to-peer sharing of cars (www.lyft.com and www.uber.com); bicycles and snow rentals (www.spinlister.com); house cleaning, handymen, lawn mowing and more (www.zaarly.com); high fashion clothing (www.poshmark.com); household items (www.neighborgoods.com); as well as short term rentals (www.airbnb.com, www.flipkey.com, www.9flats.com, www.HomeAway.com, and www.vrbo.com).

Many of us have observed the collision between the short term rental phenomenon and covenants drafted over the last decades which reflect a more static and staid homeownership model. Association members everywhere are striving to monetize assets they already own and make the most of what they have by efficiently using and sharing their property (real or personal) with others at a profit.

It is not only community associations dealing with these flashpoints in our evolving economy; cities and counties everywhere face similar challenges. Throughout the country the growing concept of vacation or short term rentals (“STRs”) has resulted in local jurisdictions imposing transient occupancy taxes, licensing and all sorts of other limitations (and, along the California coast, an outright ban on STR limitations).

Some of the STR issues we face as community association lawyers are obvious: how do we help our clients keep their neighborhoods safe and relatively tranquil; others, not so much: is an association that shares income with an online rental platform vicariously liable for race discrimination claims based on the refusal of an Airbnb host to rent to those in protected classes? The law and practice are in flux and community association boards, scrambling to figure out what is best for their community, look to us for help.

As used in this article, the acronym “STR refers to these five different short term rental models: “full-time operators” who rent out their units 360 days or more per year; “multi-unit operators” who rent out two or more units; “variable operators” who rent out multiple units 360 days or more per year; “mega operators” who rent out three or more units; and “occasional operators” who rent out their units sporadically, usually in connection with a local event such as the Miami Open tennis tournament, the Super Bowl, or the Presidential Inauguration.2

This article draws from the authors' experiences as California attorneys in the field of community association law, along with assistance from Ja Ja Jackson who is the Director of the Global Multifamily Housing Partnership for AirBnb, one of the largest host platforms used to market residences worldwide. In this article, we provide an overview of statutes and cases throughout the country addressing a wide range of STR issues: specifically those relating to the benefits and burdens of STRs, the impact of STRs on community associations nationwide, and the application and enforcement of prohibitions and restrictions concerning STRs.

Enforceability of Rental Restrictions

Rental provisions in the covenants of a community association fall into two main categories (with some overlap): (1) prohibitions, and (2) restrictions.

Prohibitions purport to prevent owners from leasing their units. Typical prohibitions include: those imposing owner occupancy requirements, mandatory waiting periods, restrictions on business activity, and rental ceilings or caps. Restrictions, on the other hand, are meant to manage and regulate rental properties and allow rentals under certain conditions or circumstances. Common restrictions include: minimum lease terms, security deposits, move in/out fees, bans on single-room rentals, requirements of single family use, and prohibitions on multiple ownership of units. These restrictions have been incorporated into – and frequently expanded by – local legislation, as discussed below. Local laws provide excellent ideas for practitioners drafting covenant amendments to regulating – as opposed to prohibiting – STRs.

Statutes and case holdings which address rental restrictions vary across the nation. Some states seek to limit rental provisions to those owners who purchased their property after the adoption of a rental limitation, whereas other states allow communities to restrict rentals without legislative interference. Examples include:

  1. California: Civil Code section 4740 states that rental provisions in governing documents that prohibit rentals in a community can be enforced only against owners that purchase their units after the provisions are duly adopted. Specifically, Civil Code section 4740(a) states: “An owner of a separate interest in a common interest development shall not be subject to a provision in a governing document or an amendment to a governing document that prohibits the rental or leasing of any of the separate interests in that common interest development to a renter, lessee, or tenant unless that governing document, or amendment thereto, was effective prior to the date the owner acquired title to his or her separate interest.”

    In California, recorded covenants are presumed enforceable unless a challenging owner can show they violate public policy, or are otherwise unlawfully discriminatory or “unreasonable” if applied to the community at large. (Nahrstedt v. Lakeside Village Condominium Assoc., Inc., 878 P.2d 1275 (Cal. 1994).) A deferential standard of review also applies to properly adopted rules, but the burden of demonstrating reasonableness falls on the Association and not the challenging owner. (See, Libeler v. Point Loma Tennis Club, 47 Cal. Rptr.2d 783: [upholding rule banning non-resident owners from using common area recreational facilities.]).

    Under California's Davis-Stirling Common Interest Development Act, Civil Code section 4000 et seq., an association may petition the court to authorize adoption of amendments to the “CC&Rs” provided certain conditions are met. (See Civil Code § 4275.) In Mission Shores Association v. Pheil, 83 Cal.Rptr.3d 108, 113 (Cal. Ct. App. 2008), the association sought judicial approval of a rental restriction amendment. The Court held that a thirty (30) day minimum lease term and a provision giving the Association the right to evict tenants were both reasonable, in that anything less than a thirty (30) day rental was akin to hotel use and violated the CC&R provisions requiring residential use of the property.

    STRs, and fees and rules applying only to STRs, were considered in Watts v. Oak Shores Community Association, 185 Cal.Rptr.3d 376 (Cal. Ct. App. 2015). There, the Court found that different rules and fees for owners who engaged in STRs were reasonable. The Court observed that the impact of STRs on association property was more significant than that posed by owner occupied units and long term tenants, as short term rental guests necessarily involve increased burdens on staff regarding management of information, community supervision, and the enforcement of community rules, thereby increasing costs for the community. In addition, the Court affirmed the trial court's finding that short term rental hosts are generally uninterested in the care and upkeep of a community's common facilities and are not concerned with the long-term consequences of abuse. The holding in Watts confirmed that specific rules and fees enforced solely against STRs are fair and reasonable, thereby providing the association the ability to manage and regulate STRs internally. Watts contains an excellent discussion of the nature and quantum of evidence adduced at trial that demonstrates the practical effects of STRs on community association operations.3

  2. Florida: In Woodside Village Condominium Ass'n, Inc. v. Jahren, 806 So.2d 452 (Fl. 2002), the original CC&Rs for the Association provided that apartments could be leased or rented without prior approval for any period of one year or less. Two-thirds (2/3) of the unit owners then voted to amend the CC&Rs to require approval from the Board before an owners rental of a unit. The respondent owners who had already been using their units as rental properties prior to the amendment objected and sought an injunction against the Association to prevent enforcement of this restriction. The Court held, citing numerous precedents, that the owners are on notice that the unique form of ownership they acquired when they purchased their units was subject to change through the amendment process, and they would be bound by properly adopted amendments. While broad, this holding was modified by FS 718.110(13) –which like California Civil Code section 4740 cited above provides – “any amendment restricting unit owners' rights relating to the rental of units applies only to unit owners who consent to the amendment and unit owners who purchase their units after the effective date of that amendment.”

  3. Arizona: The rule under ARS 33-1260.01 is that a unit owner may use the unit as a rental property unless prohibited in the declaration and shall use it in accordance with the declaration's rental time period restrictions. There is no differentiation between rental restrictions adopted before or after the owner purchased the unit/lot/residence. However, amending CC&Rs to increase the allocated interests of a unit or the uses to which any unit is restricted, requires unanimous consent of the unit owners.

  4. Colorado: In Houston v. Wilson Mesa Ranch HOA, 360 P.3d 255 (Colo.App. 2015), the Association's governing docs provided that, “the lands within Wilson Mesa Ranch…shall be residential tracts.” Furthermore, “no lands within WMR shall ever be occupied or used for any commercial or business purpose nor for any noxious activity and nothing shall be done…on any of said lands which is a nuisance or might become a nuisance to the…owners of any said lands.” Houston, who owned a single-family residence in the community began renting out his property for short-term vacation rentals via www.VRBO.com. In response, the Board called an administrative meeting to clarify that “commercial” purposes include short-term rentals without prior Board approval. The Board also adopted an amendment to impose a $500.00 fine for each violation of this prohibition. Houston objected to the adoption of this amendment, and the Board responded that the short-term rentals were a “commercial use” that was already prohibited under the original CC&Rs.

    At issue was whether Houston's short-term rentals constituted a “commercial use” as prohibited by the original CC&Rs, or were otherwise not a “residential” use. The Court noted that prior decisions had held that “residential use” simply means using the unit for living purposes or as a dwelling place, regardless of the length of time, whereas other courts have held that a “transient” stay may or may not qualify as a “residential purpose.” (See Scott v. Walker, 645 S.E. 2d 278, (Va. 2007): [“If the restrictive covenant were intended to prevent the short term rental of lots …it would have been easy to say so, and it would not likely have been left to the uncertainty of inference.”].)

    Ultimately, the Court held that mere temporary or short-term rental of a residence does not preclude that use from being “residential.” It determined that short-term rentals were not barred by the commercial use prohibition in that Association's Declaration; just because Houston received income did not transform a resident use into a commercial one (citing the Colorado Supreme Court's holdings in Double D Manor, Inc. v. Evergreen Meadows Homeowners' Ass'n, 773 P.2d 1046 (Colo. 1989)).

  5. Other Jurisdictions: At least in jurisdictions in which restrictive covenants are not favored and doubts in interpretation are to be resolved in favor of the “free use of land,” the phrase “residential purposes” is ambiguous and will not be read to prohibit short term rentals. (See Dunn, et al. v. Aamodt, 695 F.3d 797, 799 (8th Cir. 2012) (applying Arkansas Law); See also Scott v. Walker, supra, 645 S.E. 2d 278 (Va. 2007); Youngman v. Parrott, 937 P.2d. 1019 (Ore. 1997).

The facts in Youngman are typical. Those emphasized by the Court are illustrative of cases holding that a prohibition on non-commercial activities does not prohibit short term rentals: the landlords had a vacation property; when not using it, they leased it on a short term basis for a daily or weekly fee; negotiations and payment are done elsewhere; no goods, staff or services are provided. The Court determined that the term residential was ambiguous because potentially it had multiple meanings (an abode, a place where one stays for a short or long period; and/or where one engages in residential activities like bathing, sleeping and watching television).

This “strict constructionist” approach is not universal. In Carr v. Trivett, 143 S.W.2d 900 (Tenn. App. 1940) an owner - despite a covenant imposing the residential purposes limitation - rented four of eight rooms in her home to 12 - 15 tourists per week. This was too much for the Court. While construing the ban to prevent this exorbitant level of activity, the Court suggested that renting “a room or two” would not be “violative of the spirt and purpose of the restrictions.”

In states where restrictions are given some level of judicial deference, the “residential purposes” limitation can be used to deny an owner the ability to do short term leases. For example, in Bernard v. Humble, 990 S.W.2d 929 (Tex. App. 1999) the owners rented homes on a weekly or weekend basis and this was held to violate a covenant which said no lot “shall be used except for single family residence purposes.” While the Court conceded the phrase “is elastic” and “extremely difficult to define” it resolved that ambiguity in favor of a construction that prohibited short term leasing.

Evolving STR Discrimination Issues

Studies conducted by two Associate Professors of Business Administration at the Harvard Business School have identified discriminatory conduct both by “hosts” and “guests” in the STR marketplace. One study found that applications from guests with distinctively African American names were less likely to be accepted, compared to those with the same guest profiles but distinctly white names. (http://www.benedelman.org/publications/airbnb-guest-discrimination-2016-09-16.pdf)

The other two studies concluded that white hosts were able to charge more (12% and 20% respectively) than black and Asian hosts. (See http://hbswk.hbs.edu/item/digital-discrimination-the-case-of-airbnb-com and http://jots.pub/a/2015090104/#Citation.)

While there are no known appellate decisions on the issue at present, there is a great deal of online discussion about discrimination in connection with STRs, mostly in the context of allegations that potential guests were discriminatorily denied accommodations. (http://fortune.com/2016/06/23/airbnb-discrimination-laws/)

Most community association practitioners are familiar with basic principles of discrimination law as applied to association operations. The Federal Fair Housing Act prohibits discrimination on the basis of race, color, religion, national origin, familiar status and other “protected classes,” all as part of Title VIII of the Civil Rights Act of 1968 at 42 U.S.C. sections 3601 et seq. The Act prohibits discrimination in the broadest possible range of activities relating to housing, including the refusal to sell or rent a dwelling and advertising a dwelling for rent. Similarly, the Americans with Disabilities Act of 1990, at 42 U.S.C. sections 12101 et seq., bans discrimination based on disability to “customers” in places of “public accommodation.”

It is not a stretch to wonder whether a community association that permits STRs or even more so, which shares income derived from advertisements and short term rentals (a trend we anticipate) could become embroiled in discrimination claims on a host of grounds: based on a host's refusal to rent to someone in a protected class, or where a host charges a member of a protected class more or imposes unreasonable conditions. 4Equally troubling is the possibility that an association which participates in an online rental program opens itself up to an argument that the community thereby is converted to a place of public accommodation. This argument, if sustained, could have a huge impact on how an association operates in the disability context and what expenses it would thus be required to incur to make “readily achievable modifications”. (See 42 U.S.C. § 12182(b)(2)(A) (defining discrimination) and § 12181(9) (defining “readily achievable”).)

Government Regulation of STRs

If STRs are specifically prohibited by a covenant, such a ban would not generally be overridden by legislation. (See Mullaly v. Ojai Hotel Co., 71 Cal. Rptr. 882 (Cal Ct. App. 1968)): [authorization for a business activity in a zoning ordinance or planning commission approval does not impair the enforceability of an existing deed restriction prohibiting the requested activity.].)

However, one notable exception concerns deed restrictions along the California coast. While unique to this state, the underlying principles probably have wider application. Land use jurisdiction along coast and contiguous shore is primarily (but not exclusively) vested in the California Coastal Commission (“CCC”). It was established by voter initiative in 1972 and, pursuant to the California Coastal Act of 1976, plans and regulates the use of water and land in California's “coastal zone” which covers 1,100 miles of California's coast—an area larger than the State of Rhode Island. On land, the coastal zone varies in width from several hundred feet in highly urbanized areas to five miles in certain rural areas (and offshore the coastal zone includes a three-mile-wide band of ocean). Thus, the CCC regulates homes within the coastal zone that are typically marketed for sale and rental as providing beach access for swimming, surfing and general recreation.

One of CCC's many goals and policies is to provide maximum public access to the Pacific Ocean. CCC considers overnight accommodations in beach towns a critical component of providing beach access (“in all instances, short term vacation rentals increase the range of options available to coastal visitors” and “these types of rentals constitute a high-priority visitor service used to provide important overnight accommodations for members of the public and Coastal communities and support increased Coastal access opportunities.”) Section 30213 of the California Coastal Act states that, “[L]ower cost visitor and recreational facilities shall be protected, encouraged and, where feasible provided.” In addition, any person wishing to perform a “development” in the Coastal Zone must first obtain a development permit. Section 30106 of the Act defines a “development” as “change in the intensity of water, or access thereto.” (Emphasis added.) Under the California Coastal Act, if a violation is determined, the CCC can impose administrative civil penalties of up to $11,250 per day (with greater sums imposed if judicial relief is sought.) (See http://citizensjournal.us/notice-california-coastal-commission-ready-to-fine-community-association-over-short-term-rental-ban/)

While most jurisdictions do not prohibit STRs, the breadth of regulation is astonishing. What motivates them? Factors cited or implicit in local ordinances in Florida, Texas, California, Hawaii, New Mexico, Oregon, South Carolina, and undoubtedly elsewhere, include: preservation of a neighborhood's residential character; minimization of inadequate maintenance (from non-resident owners); generation of tax revenue; assuring fair competition with properly licensed hotel and similar facilities; promoting the safety of renters and facilities; controlling traffic and adequacy of parking; noise; dealing with trash; and more.

In 2015 the City of Santa Monica (a beautiful ocean front city in west Los Angeles and home of the original “Muscle Beach”) outlawed full-units that are rented for less than 30 days. Specifically, Santa Monica passed an ordinance in 2015 setting two rules:

  1. Home Sharing: Home-sharing, wherein the resident hosts the visitor in their home for a period of 30 days straight or less, while the primary resident lives on-site throughout the visitor's stay, is permitted as long as the resident obtains a business license;

  2. “Vacation Rentals”: These are prohibited. A vacation rental is a rental of any dwelling unit, in whole or in part, to any persons for exclusive transient use of 30 consecutive days or less, whereby the unit is only approved for permanent residential occupancy and not approved for transient occupancy.

    Santa Monica Municipal Code section 6.20.020 further states that notwithstanding the above, home-sharing is authorized as long as the host complies with the following:

    • Obtains a business license for home-sharing;
    • Operates the home-sharing activity in compliance with all business permit conditions;
    • Collects and remits a Transient Occupancy Tax;
    • Prevents nuisance activities;
    • Complies with all applicable laws; and
    • Complies with the regulations in this chapter.

In 2016, the City of Santa Monica prosecuted an owner who was renting out five STRs in the city, in violation of this prohibition. The owner was charged with misdemeanor charges of operating a business without city permits as well as ignoring multiple citations that had been issued against him. The owner entered a plea bargain and agreed to stop operating the rentals. Additionally, he also is required to pay the City $3,500 in fines and investigative costs, as well as hundreds of dollars in criminal fines and restitution, and was placed on 24 months of probation.

Similarly, Sonoma County (a famous wine country region about an hour north of San Francisco) adopted Ordinance 26-88-120 (“Sonoma Ordinance”) that attempts to manage and regulate STRs. The purpose of the ordinance is to ensure that vacation rentals are compatible with, and does not adversely impact, surrounding residential and agricultural land uses. Permit requirements for the Sonoma County California Code of Ordinances section 26-88-120 include, but are not limited to the following:

  • Maximum Number of Guestrooms. Vacation rentals may have a maximum of five (5) guestrooms or sleeping rooms. Vacation rentals with more than five (5) guestrooms or sleeping rooms may only be allowed if adequate sewage disposal capacity exists and neighborhood compatibility can be demonstrated, subject to the granting of a use permit.
  • Maximum Number of Guests and Daytime Visitors. The maximum number of total guests and visitors allowed at any time in a single vacation rental shall not exceed the maximum overnight occupancy, plus six (6) additional persons per property, during the daytime, or eighteen (18) persons, whichever is less, excluding children under three (3) years of age. Daytime visitors shall not be on the property during quiet hours.
  • Certified Twenty-Four Hour Property Manager. All vacation rentals operating within unincorporated Sonoma County must have a certified property manager who is available twenty-four (24) hours per days, seven (7) days per week during all times that the property is rented or used on a transient basis. In no case may a vacation rental operate without a current certified property manager. Operation of a vacation rental without a valid certified property manager shall be considered a violation of this section. The name and twenty-four-hour contact information of the certified property manager shall be provided to any interested party upon request.
  • Emergency Access. The owner of any vacation rental located behind a locked gate or within a gated community shall provide gate code or a lockbox with keys ("Knox Box" or similar) for exclusive use by the sheriff and emergency or fire services departments.
  • Enforcement: Three Strikes Penalty. Upon receipt of any combination of three (3) administrative citations, verified violations, or hearing officer determinations of violation of any of the permit requirements or performance standards issued to the owner or occupants at the property within a two-year period, the vacation rental zoning permit is summarily revoked, subject to prior notice and to appeal, if requested within ten (10) days. Should such a revocation occur, an application to reestablish a vacation rental at the subject property shall not be accepted for a minimum period of two (2) years.

    The Sonoma Ordinance provides insight and thought provoking ways that associations can amend their governing documents in an attempt to regulate, manage and control the impact of STRs in their communities. (Additional sections of this Ordinance are further discussed below.)

So how are other local municipalities around the nation governing or regulating STRs?5 Here are some ways in which local regulations seek to tackle STR issues; these are typical of many regulatory schemes in many states:

Geography: For example, in Venice, Florida, STRs are prohibited except in specified zoning districts where “rental activities in single family neighborhoods negatively affect the character and stability of a residential neighborhood.” Even where otherwise allowed, specified conditions require a permit and the permitted property must “prominently display on the primary structure on the subject property, a permanent notification, on an all-weather placard 11" x 17" in size located adjacent to the front entrance and with black lettering on a white background with at least 14 point type, alerting the public of the resort dwelling use “and setting forth eight (8) items of information including contact information, a warning against nuisance behavior, and the possibility of fines, as well as trash removal and parking requirements.” (Venice, FL Land Development Code § 86-51.) For those preferring a Hawaiian getaway on the island of Maui, be aware that short term rentals are only permitted subject to limitations and in specified areas (like Wailea, Makena, Kaanapali and Kapaulua Resort areas and Maui Meadows (which, as of November 2016, had reached its cap of STRs). (See Maui County Code, § 19.38.030(B) and 19.65.030.R.)

Septic Capacity, Occupancy Limits and Trash: Some jurisdictions predicate the number of permitted STRs on the size of a unit or number of bedrooms or the capacity of the septic system. (See, e.g. Isle of Palms, South Carolina City Code § 5-4-202(1) (two bedrooms plus two) and the Sonoma Ordinance.)6

Frequency, Parking and Noise: In Santa Fe, New Mexico for example, regulations relating to STRs (defined to mean rentals for less than thirty (30) days) are administered by the City of Santa Fe's Short Term Rental Office. City imposed conditions include: limits on where STRs are allowed in Santa Fe;7 the total number of persons that can occupy a unit (twice the number of bedrooms); and prohibitions on noise or other disturbances outside the unit after 10:00 p.m., among others. (To the authors, this standard seems vague; the measurable standards contained in the Sonoma Ordinance are far more specific, although, as practitioners we all know, these may be small comfort). Under the Santa Fe ordinance, no more than one rental is permitted within any seven (7) consecutive day period, in addition to many other limitations and requirements on things such as street parking, building code compliance and – echoing what we community association practitioners might recommend for our clients – that occupants be advised of City nuisance and other laws.

Notices/Property Management/Internet Posting: The Sonoma Ordinance requires the property owner to post the use restrictions contained in the ordinance in the leased premises and to include them in all rental agreements. At the owner's expense, the County mails notice of the permit to property owners within 300 feet. Only permitted properties can advertise and online advertisements “shall” list the occupancy standards, maximum number of vehicles, quiet hours and the ban on outside noise amplification.

Certain kinds of ordinances will be difficult to challenge. Ewing v. City of Carmel-By-The-Sea, 286 Cal.Rptr. 382 (1991) (cert. denied 504 U.S. 914 (1992) illustrates judicial deference to local zoning ordinances seeking to preserve the community's “residential purpose.” There, owners of single family residential property brought an action challenging a city ordinance which prohibited rental of residential property for fewer than 30 days. Specifically, the ordinance defined the “transient commercial use of residential property” as “the commercial use, by any person, of Residential Property for bed and breakfast, hostel, hotel, inn, lodging, motel, resort or other transient lodging uses where the term of occupancy, possession or tenancy of the property by the person entitled to such occupancy, possession or tenancy is for less than thirty (30) consecutive calendar days.” Citing Euclid v. Ambler Co 272 U.S. 365 (1926) and Miller v. Board of Public Works 234 P. 381 (Cal. 1925), the Ewing Court recognized that maintenance of the character of residential neighborhoods is a proper purpose of zoning: “We think it may be safely and sensibly said that justification for residential zoning may, in the last analysis, be rested upon the protection of the civic and social values of the American home. The establishment of such districts is for the general welfare because it tends to promote and perpetuate the American home. It is axiomatic that the welfare, and indeed the very existence of a nation depends upon the character and caliber of its citizenry. The character and quality of manhood and womanhood are in a large measure the result of home environment. The home and its intrinsic influences are the very foundation of good citizenship, and any factor contributing to the establishment of homes and the fostering of home life doubtless tends to the enhancement not only of community life but of the life of the nation as a whole.” (Miller, supra at 493.)

The Ewing Court recognized that the residential character of a neighborhood is threatened when a significant number of homes are not occupied by permanent residents. “Short term tenants have little interest in public agencies or in the welfare of the citizenry. They do not participate in local government, coach little league, or join the hospital guild, they do not lead a scout troop, volunteer at the library or keep an eye on an elderly neighbor. Literally, they are here today and gone tomorrow – without engagement in the sort of activities that weld and strengthen a community.” (Ewing, supra at 1591.) Based on this, the Ewing Court upheld Carmel's ordinance and affirmed the lower courts' findings that the ordinance was not an unconstitutional taking; the ordinance was not vague and overbroad; and the ordinance did not violate fundamental rights of association or privacy and did not warrant stricter scrutiny that was normally accorded zoning laws.

As is obvious from this random sample of cases nationwide, courts are split as to whether the concept of preserving “residential purpose” is sufficient to justify a ban on STRs. Therefore, associations should not depend on these types of very general provisions as the sole basis for prohibiting STRs.

Benefits and Burdens of STRs

One of the most obvious benefits to owners being allowed to engage in STRs is the additional income that is generated by such activity. The additional income translates to more disposable income for owners, which means owners are more likely to pay their mortgage and subsequently their assessments. In other words, more money for owners means more money for associations. In some communities this may be the number one reason the membership might adopt a covenant amendment allowing STRs.

Another benefit for communities allowing STRs might be marketability. While initially many thought that allowing STRs would decrease marketability of residences, if the “shared economy” is a concept that is here to stay, prohibiting STRs then may actually hurt property values. A better and possibly more forward thinking approach may be to restrict and regulate STRs as opposed to a complete blanket ban, as a way of attracting buyers in today's market.

A recurring complaint from clients and mangers about STRs concerns “nuisance” type behavior. In some cases, “guests” simply do not know the rules; in others, they may not care. Some have a “vacation mentality” and treat the property as a hotel. Short term guests may be relatively unconcerned about causing damage to common area, creating excessive noise and parking problems within a community. As a result – and as documented so well in the Watts case discussed above – there may be more wear and tear on common elements and objections from neighbors to noise or other “disrespectful” conduct. In addition, STRs potentially create more liability for an association given the possibility of bodily injury and other claims brought by short-term renters or associated third-parties. Accordingly, insurance rates for an association may increase both in premiums and deductibles when carriers are informed of the increase in STRs. Additionally, many association members may feel that STRs overshadow and negatively impact the residential feel of their communities, turning them into hotels with a constant stream of transient occupancy. Lastly, the Federal Housing Administration will not guarantee loans in associations that allow rentals for fewer than thirty (30) days. Thus any association wishing to broaden its pool of potential purchasers through FHA will likely be opposed to STRs.

Another perceived problem with STRs is the safety concern. Having a transient population in and out of a community means the identity of those in the halls, garage, parking lots and common areas at any given time cannot be known, resulting in less accountability and an increased likelihood of theft, vandalism and crime in general. This concern is not theoretical. At least since Reeves v. Carrolsburg Condominium Unit Owners Association, No. 96-2495, 1997 U.S. Dist. LEXIS 21762 (D.D.C. Dec. 18, 1997), we have understood that the “neighbor to neighbor” defense may not insulate an association from claims that it failed to properly address hostile behavior and threats from one resident against another. Rather, depending on the fact pattern, it is conceivable that an association that continues to permit a known harasser (or worse) to utilize the privilege of advertising and hosting STRs could itself be responsible for harassment or assaults.9

Generally speaking, long before the STR craze, long term rentals (“LTRs”) were viewed as the “problem child” in some communities. The consensus was that tenants are less likely to have pride of ownership and less of a desire to maintain property values as they have no vested interested in the residence or the surrounding common area. Historically, associations have sought to limit, prohibit or restrict LTRs long before vacation rentals were main stream. Until the recent birth of STRs, members may not have realized that LTRs are not inherently problematic. Unlike STRs, LTRs tenants may intend to reside in their rental for a lengthy period and may have “pride of residency” if not quite “pride of ownership.” Also, LTRs may not have a “party” mentality and are not treating the community as a hotel or temporary location to stay while on holiday. The cohesive and uniting factor of owners who occupy their units and LTRs is the desire and intent to make the property a “home.” STRs, on the other hand, may have a very different intended use of the property. STRs are visiting for a short time, sometimes only for a night or two, and most are on vacation. STRs may not care what the community's rules are and are more concerned with where they can find the pool towels. STRs are using the property as a vacation destination, not a home. This is what makes STRs so much more problematic than the LTRs that communities have been living with for many years.

Notwithstanding what might be a parade of horribles, the fact remains: the sharing economy is growing; the cork cannot be put back in the bottle. We can help our clients as much by showing how to ban STRs as we can by showing how they can work.

How Hosting Platforms are Being Part of the Solution to Address Association Concerns

Several home share platforms have taken extraordinary measures to address the concerns of owner associations. The industry's leading home share platform, Airbnb, created a special property management tool called the Friendly Buildings Program (FBP) in early 2016. Based on hundreds of interviews with property owners and managers throughout the United States, FBP was designed so that associations are able to:

  • Exercise control over home sharing activity in the building through rules that every guest and host must acknowledge prior to booking a short term stay, or creating a listing.
  • Receive an alert if a listing is created at an address within the community.
  • View a report of home sharing activity before and after it happens, including trip start date, duration, number of guests, and host name.
  • Create and monitor home share frequency limits established by the association or local law.
  • Earn a commission (% determined by the association) on all home sharing revenue created by association members (Airbnb direct deposits the commission to the association's account, for the benefit of all members).
  • Access to a neighbor hot-line that can be used to report any nuisance to Airbnb, who will act on that information by immediately contacting hosts to remedy.
  • Utilize $1 million of insurance that protects association property from damage and liability claims.

Taken together, this suite of features changes the game for associations – giving them the transparency, control, profit-share, and insurance that are essential for responsible home share operations. Because demographic trends (larger millennial and boomer populations) favor increased condo owner demand for home sharing amenities, real estate professionals will need to be familiar with best practice home share management tools like Airbnb's Friendly Buildings Program. Accompanying these materials is a further analysis of an approach taken by Airbnb to join with community associations seeking to permit and work with short term hosts.

Summary / Conclusion

There is a great deal of appellate authority addressing many issues arising out of STRs. While some is based on general principles of covenant enforcement, it appears that clearly and specifically worded restrictions on STRS will be upheld if challenged.

Still, it is worth asking whether the strictest limitations on short term renting truly serve the community interest. Soliciting membership input and identifying and evaluating competing considerations is prudent. As discussed throughout this article and the swath of short tern rental cases throughout the country, those considerations include: maximizing the “highest and best use” of property and income generation on the one hand and, on the other, preservation of the community character of a development and all that implies: minimizing conduct disputes and reducing and better managing expenses, traffic congestion and security concerns.

Cases reported to date deal primarily with relatively simple (albeit, perhaps ambiguous) restrictions; we practitioners will continue to be called upon to draft covenant amendments more reflective of our evolving understanding of how STRs impact our clients' operations.

An absolute ban on short term leasing might help foster “more community,” cut down on nuisance complaints and perhaps reduce expenses (like extra utility or trash costs). But, as with any absolute covenant, challenges arise: to avoid waiver, estoppel or discriminatory enforcement challenges or defenses, the ban must be enforced uniformly and fairly. This might mean a commitment to fund infrastructure improvements (controlled access, staffed security), higher management costs (to monitor residency) and litigation expenses (for mediation, arbitration or civil enforcement proceedings to avoid the precedent of inconsistent enforcement).

It might not be possible to persuade enough members to vote in favor of an absolute ban on STRs (in one author's experience, some members will oppose such an amendment simply because they oppose “government regulation” of any type). And, in some jurisdictions, an absolute prohibition contained in an amendment to the covenants might only be applied to owners acquiring title after the amendment, thus delaying for what might be many years before the amendment would have any significant impact.

The local regulations cited above provide excellent ideas for the drafting amendments that regulate STRs and create enforcement tools that could, in many cases, be applied to community associations. We have also included sample covenant amendment provisions dealing with both long term and short term leasing.

On the one hand, the law in this area is well established: rental limitations are permissible if clear and are consistently enforced. These principles which have been applied to long term rentals do not fit perfectly into the sharing economy model that encourages short term rentals. It is up to us to aid our clients in navigating the new rental landscape.

  1. This article, with minor modifications, was originally presented to the Community Associations Institute College of Community Association Lawyers Annual Law Seminar on January 21, 2017. Reprinted with permission. © Community Associations Institute.
  2. See the excellent article by Florida attorney Donna Dimaggio Berger: http://www.becker-poliakoff.com/airbnb-florida-condominium
  3. To support its claim that STRS caused extra expense and burden, the Association's witnesses included an expert who testified that STRs are “never” present with the owner and that long term guests are less destructive and burdensome and that STRs require greater supervision and increase administrative expense. Two certified public accountants testified. They said that expenses generated by owners with STRS “far exceeded” the income generated by those owners; the fees charged to deal with STR issues were reasonable and consistent with that charged by other associations; the fees did not exceed the costs for which they were levied (a statutory requirement in California) and that time and motion accounting nor a pro forma financial study to establish the exact amount of the extra STR costs was necessary. Yet another expert – a managing agent, consultant and former executive director of a large community association management trade group testified that the Association met the standard of care for giving members notice of rule and fee changes that were at issue in the case.
  4. “Courts have applied the (Fair Housing) Act to individuals, corporations, associations and others involved in the provision of housing and residential lending, including property owners, housing managers, homeowners and condominium associations, lenders, real estate agents, and brokerage services.”
    http://www.hud.gov/offices/fheo/library/huddojstatement.pdf
  5. The Community Associations Institute keeps track of legislation introduced throughout the country that might impact community association operations including legislation relating to short term rentals. As of October 25, 2016, legislation was reported on from Arizona, Florida, Hawaii, Idaho, Illinois, Kansas, Missouri, New Jersey, New York, Pennsylvania, Rhode Island, Utah, Virginia and Wisconsin.
    http://www.cqstatetrack.com/texis/statetrack/insession/viewrpt/main.html?event=5670724a1fbb
  6. The Sonoma County ordinance is extremely comprehensive and worth reading for those interested in compliance standards relating to noise, pets, parking, trash, lockboxes, recycling, outdoor fire areas, septic systems and sewer connections, occupancy taxes and enforcement.
    https://www.municode.com/library/ca/sonoma_county/codes/code_of_ordinances?nodeId=CH26SOCOZORE_ART88GEUSBUEXUILI_S26-88-120VARE
  7. STRs are allowed “in a development containing resort facilities approved pursuant to a special use permit which are owned in common by the owners within the development.” A “resort facility means any combination of swimming pools, spa facilities, golf courses, restaurants and tennis facilities.” Santa Fe City Code § 14-6.2(A)(5)(b).
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