Short-Term Rentals: A Thorny Issue for HOAs and Members

June 14, 2019 Stephen Aron Benson Michael J. Harris Real Estate Law

Short-term rentals – generally defined as rentals for a period of less than 30 days – have become a source of discord in many communities.

In many cases, homeowners who are not renting out their homes on a short-term basis may object to the possibility of late-night parties, increased traffic and parking, trash, and the perception that short-term rental properties tend to decrease the overall value of a particular neighborhood. On the other side of this issue, of course, are those homeowners who want to generate income from their property and generally see the issue from a property rights perspective.As the “sharing economy” continues to heat up, we can expect to see more and more friction among residents, their neighbors, and homeowners associations.

In Arizona, the legislature has passed legislation prohibiting towns and cities from regulating “vacation rentals or short-term rentals.” See A.R.S. § 9-500.39(A). While that legislation does not prevent the legislature itself from regulating short-term rentals, thus far there has been minimal regulation. It is generally thought – although no cases have so far been decided – that the legislature’s preemption does not forbid private organizations such as homeowner associations (HOAs) from enacting or enforcing regulations in this area. Some HOAs have operated under that assumption and taken it upon themselves to regulate the issue, creating a hodgepodge of regulations that often vary from neighborhood to neighborhood.

Deed restrictions and CC&Rs are generally viewed as contractual arrangements among the homeowners in a particular development subject to those regulations, and, if the existing deed restrictions or CC&Rs prohibit short-term rentals, then it is likely that the association will be successful in shutting down members who wish to rent out their properties on a short-term basis.

On the other hand, there are many housing and condominium projects where the issue is simply not addressed in the deed restrictions. In those cases, the remedy might be to enact an amendment to the CC&Rs to address the issue (we think it unlikely that simply enacting a rule or regulation by the condo or homeowners association board would be sufficient). However, because there is usually a fairly high vote threshold (often two-thirds) to pass an amendment to the CC&Rs, and the procedures for amendment (usually set forth in the CC&Rs themselves) need to be followed strictly, this can be easier said than done.

The above regulatory framework requires condominiums and homeowner associations to deal with these issues in a proactive manner (and we predict that new developments will address this issue at the outset, so as to avoid the amendment process). From the point of view of an owner who wants to list his or her property as a vacation or short-term rental, homeowners should review the governing documents to determine whether any applicable restrictions exist. And, of course, prospective purchasers and investors should obtain a copy of the governing documents, prior to purchase, to determine whether there are any restrictions on vacation or short-term rentals.

As this is an active area and a hot-button issue, we recommend that interested parties keep a close watch on the legislature, as it may change the applicable law during future sessions.