Short Term Rental Court Case Summaries

The following is a brief summary of cases from around the country. Each case deals with community associations and restrictions on renting. Watts v. Oak Shores Community Assn., 235 Cal. App. 4th 466 (2015)

A common interest development's homeowners association could adopt reasonable rules and impose fees on its members relating to short term rentals of condominium units because its covenants, conditions and restrictions gave its board of directors broad powers to adopt rules for the development, and nothing prohibited the board from adopting rules governing short-term rentals, including fees to help defray the costs such rentals imposed on all owners; That short-term renters cost the association more than long-term renters or permanent residents was not only supported by the evidence, but experience and common sense placed the matter beyond debate. Watts v. Oak Shores Community Assn., 235 Cal. App. 4th 466 (2015)

The Association has a rule stating that the minimum rental period is seven days. The Association's general manager testified that, based on his discussion with Board members, staff and code enforcement officers,  as well as his review of gate and patrol logs, short-term renters cause more problems than owners or their guests. The problems include parking, lack of awareness of the rules, noise and use, and abuse of the facilities. Expert James Smith testified that, unlike guests, who are typically present with the owners, short-term renters are never present with the owner. Guests tend to be less destructive and less burdensome. Short-term renters require greater supervision and increase administrative expenses. A $325 fee is charged to all owners who rent their homes. A 2007 study calculated each rental cost the Association $898.59 per year.

Slaby v. Mt. River Estates Residential Ass'n, 100 So. 3d 569 (2012)

Property owners who engaged in a short-term rental of their cabin were not in violation of a restrictive covenant that provided for "single family residential purposes only," as the covenant did not require only owner occupancy, there was no required duration of occupancy indicated, and the rental was not a commercial use.

Yogman v. Parrott, 325 Ore. 358 (1997)

The ordinary meaning of "residential" does not resolve the issue between the parties. That is so because a "residence" can refer simply to a building used as a dwelling place, or it can refer to a place where one intends to live for a long time. In the former sense, defendants' use is "residential." The people who rent defendants' beach house use it as a temporary [***6]  home, and their purpose is to engage in activities commonly associated with a dwelling place. For example, the record shows that they eat, sleep, bathe, and watch television there. On the other hand, if "residential" refers to an intention to live in a home for more than a temporary sojourn or transient visit, even defendants' own use of the property, as well as their rental use, is not "residential." Because of the different possible meanings of "residential," this portion of the restrictive covenant is ambiguous.

Seagate Condominium Association. v Duffy (1976, Fla App D4) 330 So 2d 484.

A provision of a condominium declaration which barred the leasing of any units except for limited periods of time under exceptional circumstances with the approval of the condominium association was held not to be unreasonable by the court.The court concluded that such a bar was not an unlimited or absolute restraint on alienation and was therefore to be judged in terms of its reasonableness. Noting that the problems of condominium living required a greater degree of control on the rights of individual unit owners than might be tolerated under traditional forms of ownership, the court concluded that the bar against leasing was neither an unlimited nor unreasonable restraint on alienation. The restriction was not unlimited inasmuch as the association could suspend its application in cases of hardship, and the court found it to be reasonable in view of the objective of inhibiting transiency and imparting a degree of continuity of residence.

Breene v Plaza Tower Asso. (1981, ND) 310 NW2d 730,

The court held that an amendment to a condominium declaration which prohibited the leasing of a condominium unit to a nonowner except in exceptional circumstances was invalid as applied to a condominium owner who purchased his unit prior to the adoption of the leasing restriction. Although the court noted that the condominium concept inherently required each owner to give up a certain degree of freedom he might otherwise enjoy in privately owned property, the court stated that such restrictions, to be enforceable, must be within the applicable statutory structure. Reasoning that the statutory provisions relating to condominiums contemplated that recording of the declaration, restrictions, and bylaws would place prospective purchasers and owners on notice as to the restrictions affecting their interest in the property, the court concluded that as a prerequisite to enforceability, the restriction must be recorded prior to the conveyance of any condominium unit. Consequently the leasing restriction adopted after the purchase of the condominium unit was not enforceable as an equitable servitude, the court said, except through the purchaser's acquiescence.

Re 560 Ocean Club, L.P. (1991, BC DC NJ) 133 BR 310.

Condominium association had no authority to restrict leasing of condominium units to certain minimum periods of time during summer months and during other times where restrictions on leasing, to be valid, had to be designated in recorded master lease and could not be inconsistent with state's condominium statute, and in instant case there was no specific reference in master lease to opportunity of association to restrict or limit duration of leases.

Woodside Village Condominium Ass'n, Inc. v. Jahren, 806 So. 2d 452 (Fla. 2002).

Condominium owners were bound by amendment to declaration that restricted leasing a condominium to nine months in a 12-month period, where owners were on notice when they purchased their units that the leasing provisions in the declaration could be changed byamendment, amendment was properly enacted under the amendment provisions of the declaration, and leasing restrictions did not violate any public policy or owners' constitutional rights.

Mullin v. Silvercreek Condominium Owner's Ass'n, Inc., 195 S.W.3d 484 (Mo. Ct. App. S.D. 2006).

Section of the condominium declaration stating that no business, trade, occupation or profession of any kind shall be conducted, maintained or permitted on any part of the property was not intended to restrict the right of any condominium unit owner to rent or lease his condominium unit from time to time.

Dealing with Short-Term Rentals

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.

FHA Certified Condominiums

Many condominiums throughout the United States are Federal Housing Administration (“FHA”) certified.  This allows prospective buyers to receive FHA-insurance loans and mortgages. If a condominium is FHA certified, that means that the condominium meets all of the FHA legal, financial, operational, and property requirements.

FHA certified condominiums allow for a larger demographic of potential buyers.  This, in turn, makes the condominium more valuable and marketable.There are certain requirements which must be met.  The requirements include:

1. Property Use and Type

Under federal law, FHA mortgages may be used only to purchase a primary residence.  You may not secure an FHA loan for the purchase of a timeshare, condo-hotel, or resort property.  There are other types of properties which FHA loans may not be used: condominiums where more than 25% is designated for commercial use or condominiums located in coastal barrier zones.

2. Financial Stability

To become FHA certified, the association must prepare and fully fund an annual budget.  At least 10% of the budget must be allocated to reserves. The reserve fund is used to maintain, repair and replace common elements of the condominium, such as the siding and roofs.  Lastly, no more than 15% of the condominium units may be more than 60 days delinquent on the payment of regular assessments.

3. Operational Stability

The condominium association must show that at least 50% of the units are owner-occupied. This means that if your association has a high number of rentals, FHA approval may not be an option.  In addition, FHA certification requires that all of the condominium buildings and common element are in good repair.

4. Insurance Requirements

Every association should have certain insurance policies.  Click here for more on insurance. FHA approval requires that the association maintain the following policies:

A. Property/Hazard Insurance

B. Liability Insurance

C. Fidelity Insurance (if there are more than 20 units)

D. Flood Insurance (if required)

5. Legal Requirements

There are a handful of legal requirements to become FHA certified.  First, any rental restriction in the governing documents must comply with the FHA’s governing statutes.  Second, litigation (other than routine litigation for delinquent assessments) must be disclosed and explained.  Lastly, the association must certify that it is in full compliance with any applicable state or federal law.

To see if your condominium has been FHA approved, visit:

Dealing with Renters in Community Associations

Most individuals in community associations fall into one of three categories:

- Owner/Occupants: motivated to maintain value and foster relationships

- Investor Owners: motivated by financial benefit; less regard for the quality of the community

- Renters: Often view community associations as apartment living

In many homeowner and condominium associations, there exists a stigma against renters.  Often this stigma is unwarranted.  If rental issues arise in your community, ask a few preliminary questions:

1. Do tenants receive governing documents?

2. What communications (if any) do tenants receive from the association?

3. What steps are taken to involve tenants?

4. Is there a record to support the idea that tenants cause more problems in the community?

Communicating and involving renters in the community may resolve rental issues facing the association and the membership.

What Constitutes a “Rental”

Under Oregon law, “rent” means “any payment to be made to the landlord under the rental agreement, periodic or otherwise, in exchange for the right of a tenant and any permitted pet to occupy a dwelling unit to the exclusion of others and to use the premises.”

If the association has a rental restriction and there is a question of whether an owner is in violation, it may be difficult to determine if an owner is actually “renting.” For example, if the owner’s child lives in the home and is not paying any rent, then that arrangement does not likely constitute a “rental.”

But what if someone other than the owner is residing in the property and it is difficult to determine whether the arrangement is a rental? One thing an association can do is have the owner sign a rental affidavit.  The affidavit is a signed and notarized document stating that the owner is not renting their unit.  This satisfies the board’s obligation to inquire whether the property is in violation of any rental restriction. Click here for: Sample Rental Affidavit

Adopting a Rental Restriction

Restricting an owner’s right to rent or lease their lot or unit requires an amendment to the governing documents. There are several things to consider before embarking on a rental amendment.  First, will the association get enough owners to vote “yes” to approve the amendment? Should the rental amendment be retroactive, or should existing owners currently renting be exempt?  Lastly, consider adding a “hardship” clause which gives the board discretion to allow a rental which exceeds the rental cap in the case of extenuating circumstances (military service, overseas job transfer, etc.)

Other Options

There are other options in addition to a blanket rental restriction.  First, the association could adopt an amendment regulating leases or rentals. Requiring, for example, all rentals must be at least 30 or 60 days, all lease agreements must include a provision that the tenants will receive and follow the governing documents (including rules and regulations), and owners who rent their property must provide the association with the tenant’s contact information.

In most cases, the association is better off focusing on the fair and equitable enforcement of the association’s governing documents.  If renters are causing parking issues, enforce the parking restrictions.  If tenants are creating noise complaints, enforce the nuisance or noise provisions.  In other words, deal with the effects of renters rather than attempting to restrict or limit rentals.

Renters and Rental Amendments

There are usually three types of occupants in condominium or homeowner associations:

1. Owners - motivated to maintain value and foster relationships

2. Investors - motivated by profit; usually less interested in quality of community

3. Renters - often view community association living as apartment living

The term “renters” often carries a stigma in condominium and homeowner associations. Not all renters are bad (and not all owners are good). If renters are a problem in your community, your best bet is to deal with the behavior rather than attempting to ban or limit rentals. If renters are causing parking issues, adopt a parking resolution. If renters are causing noise, enforce the noise or nuisance provisions in your governing documents.

In some cases, adopting a rental amendment makes sense. For example, prospective buyers in community associations may find it difficult to secure financing if the number of rentals is too high.

Adopting a rental amendment is no easy task. In most cases, at least 75% of the ownership must vote “yes” on the amendment. Grandfathering existing rentals will often increase the amount of yes votes. In addition, a good explanation to the ownership about why the board is proposing the amendment and the benefits to the community will go a long way in receiving support for the amendment. Have a lawyer draft or review any proposed amendment to your governing documents.

Here are some things to consider when contemplating a rental amendment:

1. Minimum lease periods - typically a 30 day minimum.

2. Grandfathering existing rentals - any owner renting their unit or lot when the amendment becomes effective is exempt from the rental cap unless that owner sells or transfers their interest in the property.

3. Tenants must receive governing documents - consider requiring owners to put a provision in the lease agreement mandating that tenants receive copies of the association’s governing documents.

4. Contact information - owners should be obligated to provide contact information of each tenant to the association or management company.

5. Hardship provision - think about including a hardship provision allowing an owner to rent their property in excess of the rental cap if circumstances require. A good example of a hardship is military service.