Short-term rentals, once a small segment of the hospitality industry, are becoming increasingly common as peer-to-peer websites like Airbnb make it substantially easier for homeowners to rent out their homes to vacationers. Airbnb, for those unfamiliar, connects homeowners via the internet with travelers seeking accommodations outside of traditional hotels at competitive, and often lower, prices. The website currently has over 1,500,000 listings in 34,000 cities and 190 countries.

While Airbnb and similar websites such as vrbo.com provide a valuable service to travelers, the rapid expansion of the short-term rental market has caused considerable controversy. The home-sharing market has been accused of contributing to housing shortages in California and opening up travelers to scams. Accordingly, city and municipal governments are rushing to implement new regulations of short-term rentals, with varying degrees of success.

Of course the short-term rental market is having a growing impact on community associations. Residents often complain that short-term renters – who are transient by definition – do not treat association common areas with the same care as owners and are unaware of association rules. Homeowners often complain of problems related to security, trash removal, parking, and noise caused by short-term renters. Associations are often faced with higher security, maintenance, and administrative costs due to the increased burden of handling short-term renters. And, on an emotional level, residents are often uncomfortable with the fact that their neighborhoods are filled with unfamiliar faces, with some renters on site for only brief periods of time.

At the same time, however, some homeowners support short-term rentals arguing that they can provide homeowners with supplemental income and can prevent unoccupied units from staying empty for extended periods of time. In circumstances where an association owns a home acquired through foreclosure, short-term rentals can mitigate budget shortfalls. Additionally, there is at least an argument that allowing short-term rentals augments property values by enhancing a property’s ability to produce income.

While the arguments against of short-term rentals in community associations vary, every association should be aware of its authority to address short-term rentals and the means by which it may do so. A recent California Court case, Watts v. Oak Shores Community Association, provides some guidance. In Watts, absentee property owners within the Oak Shores Community Association, regularly rented out their homes to short-term renters, many of whom used the recreation facilities and amenities. Some brought boats onto the property for use during their short term stay. After studying the problems caused by short-term renters in the community, including increased wear on association roads and parking lots, the Association enacted regulations to minimize the impact of short-term rentals on the community. For example, the Association enacted a rule that the minimum short-term rental period must be 7 days; assessed an annual fee of $325.00 on owners who rented out their homes adopted a rule limiting the number of vehicles, including watercraft, that could be brought onto the property by renters; and instituted mandatory fees for trash collection, boats and watercraft as well as parking restrictions for non-owners.

Two off-site property owners who rented out their units sued the association arguing that the new rules were invalid. The Court, however, ruled in favor of the Association, finding that (1) Associations have the right to regulate short-term renters and (2) that Associations have the right to impose reasonable fees to offset increased costs associated with short-term renters. The Court’s ruling noted that the Association’s governing documents provided its Board with the authority to adopt, amend, or repeal rules for the use, occupancy, and maintenance of the property and for the general health, welfare, comfort, and safety of its members. The Court also cited long-standing law that judges should generally defer to an association’s decisions regarding maintenance of association property.

The Watts ruling is particularly significant because it has extended the policy of judicial deference to an association’s control over short-term rentals. Citing the key 1999 decision on judicial deference in Lamden v. La Jolla Shores Clubdominium Homeowners Association, the Watt Court remarked that nothing in Lamden limits judicial deference to maintenance decisions. Common Interest developments are best operated by the board of directors, not the courts.

The Watts decision supports an association’s authority to enact reasonable rules governing transfers in order to preserve the quiet enjoyment of the premises. And while the Court held that associations have the authority to enact reasonable rules regarding short-term rentals and that courts should generally defer to such rules, the decision also underscores the importance of having specific evidence to support the rule. An essential part of the Watts decision was that the Oak Shores Association proved that its short-term rental rules were reasonable by presenting specific evidence that the short-term rentals had a significant impact on the enjoyment of the premises by other residents. The Association was able to show that the short-term rentals cost more money than long-term rentals or permanent residents and that the fees imposed against owners who rented on a short-term basis were roughly proportional to the fees imposed by the Association. Thus, while Watts supports an Association’s ability to address the impact of short-term rental on their community, it is clear that boards must do their due diligence before imposing rules and fees related to short-term rentals.

There are also many other factors an association should consider when seeking to manage, regulate, or restrict home-sharing and short-term rentals. For instance, some associations already may have provisions in the CC&Rs prohibiting transient rentals. Others may prohibit operating a business. Both of these provisions have been used effectively to curb or prohibit short term rentals. Additionally, there is debate as to whether association rules alone, as opposed to CC&Rs, should govern a homeowner’s rental of their home. In some instances, an association may need to amend its CC&Rs. Accordingly, associations seeking to curb or prohibit to home-sharing and short-term rentals in their communities are advised to seek the advice of legal counsel for assistance in drafting or enforcement.

Written by Jonathan R. Davis

Jonathan R. Davis, Esq. is a Senior Associate Attorney at Richardson|Ober|DeNichilo.