“Getting away” in an HOA: What can associations do about vacation rentals?

First, let’s understand the phenomenon. Companies like Airbnb (privately owned and valued at $24 billion), Homeaway (recently acquired by Expedia for $3.9 billion), VRBO, Housetrip, and Roomorama each provide an online service that connects hosts and paying guests for short-term vacation rentals. Another site, www.couchsurfing.com, offers something more like a dating service. A user creates a profile, including a photo, and sends a “couchrequest” to stay with another user whose profile looks interesting. If the recipient agrees, short-term accommodations are provided without charge. Vacation rentals may include an entire home or condo unit, or sometimes just a room (or couch).

Vacation Rentals and Community Associations

From the perspective of the homeowner hosts, these types of online rental services offer a convenient, low-cost way to earn additional income. In their view, it’s almost the same thing as having family or friends visiting, except that money usually changes hands. From the perspective of the community association, however, these arrangements look quite different. They put extra burdens on vehicle traffic, parking, trash, pet impacts, noise, common amenities, property management, and public services (police, fire, emergency medical response), and the visitors are strangers with no ties to the community. They don’t coach kids’ teams, volunteer at the library, or help neighbors; they use and leave, potentially damaging the residential character of the community.

Aren’t Vacation Rentals Prohibited in Condominiums?

Homeowners in community associations often believe that vacation rentals are forbidden by their CC&Rs. After all, the CC&Rs typically prohibit “short-term rentals and leases” and restrict the property to “single-family residential use” and do not permit “commercial use”? And if that’s what the CC&Rs say, isn’t an Airbnb rental a prohibited short-term commercial use?  In the eyes of the law, probably not.

First, these arrangements are typically not rentals or leases. A lease or rental involves conveyance of a real property interest and the exclusive right to possession. These arrangements are mere licenses to use someone’s home (or a portion of it) for a short time, without the exclusive right to possession. In this respect, they are quite similar to a hotel or motel booking. A careful analysis of the CC&Rs for each association is always necessary, however, because some CC&Rs define the terms “rental” and “lease” broadly to include granting the right to “use” a unit in exchange for the payment of money. In such cases, the CC&Rs may, in fact, prohibit short-term vacation rentals.

Second, in Wilkinson v. Chiwawa Communities Association, the Washington Supreme Court held in 2014 that an owner’s receipt of money from a vacationing guest for the use of the owner’s unit does not change the use from residential to commercial, at least where the owner does not provide “on-site services.” Unfortunately, the court did not specify the nature or extent of on-site services that would convert the use from residential to commercial, but it did say that sleeping and eating are residential uses. Would the provision of maid service or meals by the host convert the use to commercial? Would “concierge” services such as giving tourist advice and making restaurant reservations qualify? These services resemble what is provided by hotels, but it is not clear if they would constitute commercial use. Hopefully, future court decisions will provide more guidance on what distinguishes commercial use from residential use.

The court in Wilkinson also held that a restriction for “single-family use” does not mean that people unrelated to each other cannot reside on the property. Rather, “single-family” refers to the type of structure permitted on the property, not who may reside there.

If an association’s CC&Rs do not prohibit short-term rentals, a possible strategy is to determine if the local zoning code prohibits them. Regardless of the uses that are permitted under a given set of CC&Rs, most CC&Rs require compliance with state and local laws, including local zoning codes.  For example, CC&Rs often provide that “owners shall not permit anything to be done in the units that would be in violation of any applicable laws or regulations.” If “hotel” use is not permitted in the zone where the association is located, and the zoning code defines “hotel” to include any place maintained for the purpose of furnishing lodging to transient guests, the association may be within its rights to prohibit short-term vacation rentals on that basis, through enforcement of the CC&Rs. Enforcement of the CC&Rs is properly viewed as something different than enforcing the zoning code itself, which is a municipal function.

Can an Association Change its CC&Rs to Prohibit Vacation Rentals?

An association can amend its CC&Rs to prohibit short-term vacation use, but such restrictions typically require supermajority approval. For example, under the Condominium Act, an amendment that changes the uses to which a unit is restricted requires 90 percent total voting power approval, plus the approval of each affected unit, pursuant to  RCW 64.34.264(4) and Filmore LLLP v. Centre Pointe Condo (2015). In homeowners’ associations and “Old Act” condos (those created prior to July 1, 1990), the CC&Rs will specify the percentage of approval required to amend. It is not going to be a viable strategy to amend the CC&Rs to restrict vacation rentals if the approval of owners who are already using their units in that manner is required.

Short of amending the CC&Rs to prohibit short-term rentals, what can associations do to mitigate their impacts? In many cases, depending on the governing documents, associations can adopt rules that regulate how vacation rentals are conducted and impose fees to cover the extra burdens such rentals impose on the community, so long as they do not effectively prohibit the use. For example, an association may adopt rules requiring homeowner hosts to register each vacation renter, certify that the occupancy limits imposed by local law are not being exceeded, pay a per-user or annual fee to defray the additional cost burdens created by short-term renters, and maintain property and liability insurance naming the association as an additional insured for any claims arising out of the rental activity. Reasonable fines could be imposed for violation of these rules.

Other Remedies

Another potential remedy may be found in the political process. Some cities are adopting ordinances prohibiting short-term vacation rentals. Seal Beach, California’s ordinance states: “No residentially zoned property, or any portion thereof, shall be leased or rented for a term of 29 days or less for any purpose, including but not limited to any residential or commercial purpose such as vacation rentals, weddings, or other event rentals.” Other cities such as Los Angeles see vacation rentals as a source of additional revenue and are collecting taxes. Others, such as Palm Desert, are requiring hosts to obtain city-issued permits and imposing large fines ($5,000, for example) and suspensions for violations of the permit conditions, which include the host being available 24/7 to respond to any complaints concerning his/her guests. Airbnb recently spent $8 million successfully opposing San Francisco’s Proposition F, which would have limited all private rentals to 75 nights per year and required payment of hotel taxes. If a city does adopt a zoning ordinance prohibiting short-term rentals, rentals then in existence would ordinarily be permitted to continue as nonconforming uses, provided all requirements for doing so are met and the nonconforming use is not discontinued or abandoned.

Airbnb: Movement or Monstrosity?

The popularity of online vacation rentals driven by sites like www.airbnb.com and www.homeaway.com — termed a “movement” by some — is creating serious challenges for community associations. For many associations, it is too late to garner the high percentage of votes needed to amend the governing documents to prohibit such use. In those cases, enforcing CC&R provisions requiring compliance with zoning laws and adopting reasonable rules to mitigate the impacts caused by vacationing guests may be the best available options, absent adoption of municipal laws banning short-term rentals entirely.

The market for low-cost vacation rentals is rapidly increasing on both the supply and demand side and putting pressure on community associations, municipalities and the courts to come up with solutions to address the impacts. Individuals buying into communities will be increasingly sensitive to whether and how vacation rentals are addressed in the association’s governing documents. Communities that have the ability to get “in front” of the issue should act promptly before the window of opportunity closes.