With the issue of government regulation of short-term rentals such as Airbnb and VRBO in San Francisco coming up in the November election as Proposition F, we are revisiting a recent California court decision that affirms the ability of a condominium homeowners association (“HOA”) to regulate short-term rentals. The right of an HOA board of directors (“Board”) to impose rules and regulations regarding short-term rentals and charge fees for short-term rental activities without member approval was affirmed in the case of Watts v. Oak Shores Community Association (2015) 235 Cal.App.4th. 466.
The Oak Shores community is a common interest development governed by Covenants, Conditions and Restrictions (“CC&Rs”) which provide like most CC&Rs that the HOA Board may adopt rules and regulations concerning the use, occupancy and maintenance of the project; for the general health, welfare, comfort, and safety of members; and to interpret and implement the CC&Rs, and establish penalties for violation of such rules.
The HOA Board determined that short-term rentals imposed a greater burden on the HOA and its members than long-term rentals or owner-occupied units, including problems with parking, lack of awareness of HOA rules, noise and abuse of common facilities. The HOA Board imposed certain rules and fees on owners who rent their homes on a short-term basis, as well as restrictions on short-term renters’ activities.
Absentee owners who rent their homes on a short-term basis challenged the HOA rules and fees on the basis that the Board exceeded its authority in adopting such rules and fees, and that the fees exceed the amount necessary to offset the actual costs incurred by the HOA related to short-term rentals, thereby violating California Civil Code Section 1366.1 (now Section 5600(b)) which prohibits an association from imposing or collecting an assessment or fee that exceeds the amount necessary to defray the costs for which it is levied.
The court applied judicial deference to the decisions of the HOA Board, stating that courts will generally uphold decisions made by the governing board of an owners association so long as they represent good faith efforts to further the purposes of the common interest development, are consistent with the development’s governing documents, and comply with the public policy. After the HOA produced experts and evidence establishing that short-term rentals cost the HOA more than long-term rentals or owner-occupied units, including costs associated with using the common facilities more intensely, taking more HOA staff time, and being less careful in using the common facilities, the court found that the Civil Code Section 1366.1 standard was met, as the fees imposed on short-term rentals were reasonably related to the costs incurred by the HOA in connection with these impacts. Moreover, the HOA fees did not have to exactly match the costs incurred by the HOA, but only be reasonably close to the costs such fees were intended to offset.
The plaintiff owners also challenged the HOA’s authority to establish rules setting minimum leasing periods for tenants (which had been set by the HOA at 7 days). While the court did not expressly discuss the minimum leasing period rule, it did throw out plaintiff’s case, suggesting HOAs do in fact have the ability to restrict or prohibit short-term rentals.
The Watts case generally affirms the right of an HOA to impose rules, regulations and fees on short-term rentals intended to offset impacts of short-term rentals on the community, so long as such rules and fees are reasonably related to the burdens imposed on the HOA.
The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient. Readers should consult with legal counsel before relying on any of the information contained herein. Reuben, Junius & Rose, LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.