Short-Term Rentals Don’t Violate Single-Family Residence Restriction

The California Court of Appeals recently shot down the argument that a single-family residence restriction prohibited short-term rentals (Lastavich v. Nob Hill Homowners Ass’n, Cal App. Dec 2, 2020). Many community associations trying to limit short-term rentals have found their battle complicated by the fact that their CC&Rs were drafted long before the days of Airbnb and VRBO. With CC&Rs that contain no provision explicitly addressing such rentals, some have turned to their single-family residence restrictions. “Associations try to hang their hat on that provision when they don’t have provisions with minimum rental terms,” says Jeffrey Beaumont, a partner with Beaumont Tashjian in Woodland Hills, Calif. “But that’s a really weak provision and a risky road to go down.” Read on to learn why the argument failed in the California case and why it might fail for your clients.

The Rationale

The circumstances leading up to the lawsuit are familiar to many community association managers. “Some owners were using their condo units as a short-term vacation rental when a neighbor became fed up with the increased foot traffic and alleged noise emanating from the unit and its various tenants,” Beaumont says. The owners were members of a four-unit association in a coastal zone of a Southern California beach town. The disgruntled owner filed a lawsuit against the association and two other owners who had rented their units as short-term vacation rentals as early as 2005. The plaintiff had lived in the community since 1998. The CC&Rs provided that each unit “shall be used as a single family residence and for no other purpose or purposes …” They didn’t, however, define the term “used as a single family residence.” “The owner argued that short-term vacation rentals aren’t single-family use, so there was an implicit ban on them,” says Kelly Richardson, a partner in the law firm Richardson Ober De Nichilo in Pasadena, Calif. The trial court ruled in favor of the defendants, finding that short-term vacation rentals weren’t a business and didn’t violate the CC&Rs. The plaintiff appealed.

CC&Rs Undermine the Argument

The appellate court noted that most of the former and current owners other than the plaintiff had used their units as short-term vacation rentals, so such use wasn’t “unanticipated.” Yet the CC&Rs didn’t explicitly limit the rental of units to a certain minimum number of days. (For purposes of the case, the court defined short-term vacation rental to mean a rental of fewer than 30 days.) That’s not to say the CC&Rs didn’t anticipate rentals. “Several provisions of the declaration distinguished among owners, tenants, and guests, so the court said the documents imply that the rental of units is allowed,” Beaumont says. For example, one provision stated that common areas may be used by owners and occupants of the units and their guests. Another distinguished between an “owner” and an “occupant of such owner’s unit” when addressing liability for damages to common areas. “But there was no language defining an occupant as only occupying a unit for more than 30 days,” Beaumont says. The court’s focus on CC&R references to rentals is worth noting even for your clients that don’t object to short-term rentals. “If a community has documents that address renters — and most do because they say owners are responsible for the actions of their renters — the documents better also have provisions that regulate the rental of homes.” That applies to both short- and long-term rentals. Without some regulations, associations can find themselves in very unpleasant situations.

A Better Approach to Controlling Short-Term Rentals

So if a single-family residence argument against short-term rentals likely is doomed to fail, how can your clients legally restrict them? “They should adopt amendments that specifically address not just minimal lease terms but also all the other important issues like the double use of amenities and tenant conduct,” Beaumont says. Of course, those terms must comply with applicable state laws. California, for example, has adopted a new state law

that limits the ability of community associations in the state to restrict short-term rentals (California Civil Code Section 4741). It generally bans “unreasonable” restrictions on rental of units, accessory dwelling units and junior ADUs. While the law ties associations’ hands to a degree, it does allow them to impose minimum lease terms of 30 days. It also permits caps that limit the total number of rentals to no less than 25 percent of the units in the community. “If a California association is doing a restatement of its CC&Rs,” Robinson says, “the board should work closely with attorneys who recognize that we don’t really know which rental provisions will be found not unreasonable, other than bans on 30-day or shorter rentals and 25 percent caps. “One-year minimum terms, a requirement that you own for a year before renting, requiring tenants to sign agreements to abide by the rules — are those reasonable? We just don’t know yet.”