Associations Confront the Continuing Challenge of Short-Term Rentals

The short-term rental phenomenon spurred by Airbnb, VRBO, and the like has turned out to be more than a fad. Rather, it’s an ongoing problem for some community associations, particularly those in popular areas for tourists. Read on to learn how some boards of directors and managers are addressing it.

A Sampling of Strategies

As in so many situations, the first step is to review the governing documents. Depending in part on when they were originally drafted, they may not address short-term rentals. In that case, some associations trying to crack down on short-term rentals turn to provisions prohibiting commercial use or allowing only residential.

“The problem is that short-term rentals sort of straddle a grey line,” explains Dan Artaev, a senior attorney at Fausone Bohn, LLP, in Northville, Mich. “They’re not true commercial use, but they’re not true single-family residential either.

“I would advise the association that wants to prohibit short-term rentals to actually go through the formal amendment process and spell out specifically what a short-term rental is, and the terms and conditions on which it can or can’t exist. That’s where you end up in court — if it’s not spelled out explicitly.”

Some associations have gone this route, amending declarations or bylaws. Others have stopped short, instead enacting rules and regulations. These might ban short-term rentals altogether or, for example, impose restrictions on the number of rentals allowed per year or require minimum lease periods.

“A majority of my associations have leasing restrictions of some sort,” says Jennifer Horan, a shareholder in the Naples, Fla., office of Becker & Poliakoff, PA who’s board certified in condominium and planned development law. “Most have minimum leases of six months, but I still have some that are 30 days and one that’s seven days.”

Rules requiring owners to obtain board or manager approval leases are gaining in popularity, too, but Horan warns approval rights can be “an administrative headache.”

Lease approval provisions raise the possibility of discrimination claims, as well. An owner could, for example, claim that a board’s reliance on criminal background checks is discriminatory because minorities are arrested and incarcerated at rates disproportionate to their share of the general population.

Associations also are getting creative with their guest restrictions. “When a renter steps into the shoes of an owner, he has the same right to use those amenities,” Horan notes. “Associations can change provisions to prevent owners from using facilities if they have rented out their unit.” That would prevent renters from taking advantage of amenities.

Enforcement Issues

Whatever the rules or covenants say, enforcement is difficult. “Often, by the time you’re getting a report of an unauthorized renter, they’re gone,” Horan says.

“If things become a problem, and renters aren’t approved, it’s difficult to take action toward the renter and the owner because the owner will say the issue is moot because the renter is gone.”

She says many communities have dealt with this obstacle by adding provisions to their documents stating that the board can deny leasing applications based on an owner’s continued violations of the rules.

“I also think communication does help a lot,” Horan says. “I know permanent owners think owners who rent out their homes don’t care about the community, but remember that they’re absentee so keeping them apprised is important. Some do care and will take action when they have a bad renter.”

Nonetheless, documentation is critical, especially if it’s an issue that could lead to litigation.

“It’s important to have documentation because the courts like people to be able to use their property as they want,” Horan says. “Document so you can show this drastic step is kind of the last resort.”

“Another issue that comes up is so-called waiver,” Artaev says. “Yes, enforcement can be expensive, but, if the association consistently fails to enforce and allows some short-term rentals, it becomes less likely that a court would enforce the prohibition in the future.”

Inconsistent enforcement also runs the risk of civil rights charges. “You might be accused of targeting a specific ethnic or religious group or other protected class,” Artaev says.

Legal Developments

Boards and managers need to keep a close eye on legal developments in their areas.

“The biggest issue right now is going to be legislation — how much the local municipalities or the state is going to involve itself and how that will impact associations,” Horan says.

For example, Florida recently considered several pieces of legislation regarding short-term rentals. “One bill that was controversial for associations said that property owners who choose to use their property as vacation rentals have constitutionally protected property rights and that only the state can regulate vacation rentals,” Horan says.

“The most disturbing part is that it also stated vacation rentals are a residential use and therefore allowed,” she adds. “That bill didn’t exempt associations in any manner.”

Court decisions also warrant attention. Artaev notes that courts in different states have interpreted the same issues differently.

“The Texas Supreme Court, for example, recently said that general language prohibiting commercial use or allowing only residential use isn’t enough to prohibit short-term rentals,” Artaev says. “But Michigan has a string of court of appeals decisions that basically say general language is enough.”

The takeaway from the rapidly shifting legal ground? “Every association thinking of amending deed restrictions or enacting some rules needs to consult with an attorney,” Artaev says.

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