By Jonah Hunt, Orten, Cavanagh & Holmes, LLC
Many associations are struggling with the decision regarding whether or not to regulate short term rentals in their community. Short-term rentals are generally defined as rentals which are 30 days or less in duration.
With the rise of companies such as VRBO, HomeAway and Airbnb, vacation rentals have soared, with the short-term rental market in the U.S. expected to exceed $36 billion in 2018. Short-term rentals are growing at nearly twice the rate of the traditional tourism lodging market, climbing 11 percent in 2016. It is fair to say that short-term rentals are here to stay.
To Regulate or Not
Positive impacts of short-term leasing include that with increased visitors and tourists comes increased visibility and dollars spent in the community. Many owners who rent their units on a short-term basis do so primarily or solely for the income, which keep them solvent and lessen the probability of foreclosures in the community.
Opponents of short-terms rentals argue that their inherent nature is not harmonious with community associations, which emphasizes bringing people together, strengthening neighborhood bonds and promoting a sense of community. In contrast, short-term visitors with no ties to the community may not be contractually bound to the association's governing documents nor financially invested in the overall good of the community. Similar concerns include the change in character from a residential community to a transient one, increased noise, trash, and parking problems. Security and maintenance issues are also concerns for associations.
Regulation and Case Law
While some associations have covenants which address short-term rentals, most associations who choose to regulate do so through their rules and regulations. Colorado’s Common Interest Ownership Act specifically confers upon associations the right to “(a)dopt and amend… rules and regulations.” C.R.S. § 38-33.3- 302(1)(a). Rules must also not conflict with the association’s governing documents. See Pagosa Lakes Property Owners Assoc. v. Caywood, 973 P.2d 698 (Colo. App. 1996), cert. denied.
Rules are typically enacted because owners who rent on their own are receiving association benefits while not paying a commission or fee to the association or its rental management program. Typically, there is also added impact on the physical components in the community. In Watts v. Oak Shores Community Assn., 235 Cal. App. 4th 466 (2015), the Court ruled in favor of an association which had adopted rules and implemented fees to address the negative impact short-term renters were having on the community.
The Colorado Court of Appeals has held that in order for short-term vacation rentals to be prohibited, “the covenants themselves must be amended … the board’s attempt to accomplish such amendment through its administrative procedures was unenforceable.” Houston v. Wilson Mesa Ranch Homeowners Association, Inc., 360 P.3d 255 (Colo. App. 2015). Houston also found that short-term rentals are not a commercial use of property. This is not necessarily the law elsewhere. See Eager v. Peasley, et. al., published opinion of the Michigan Court of Appeals, issued November 30, 2017 (Docket No. 336460) (holding that short-term rentals violate “residential use” and “non-commercial use” restrictions contained in restrictive covenants).
In Colorado, if an association is seeking to ban short-term rentals, it must do so through a covenant amendment. If an association is merely seeking to regulate such rentals, it may do so through rules and regulations, provided such rules are not arbitrary, capricious, unduly burdensome, or discriminatory.
Associations should work proactively with owners looking to rent on a short-term basis to ensure all owners are adhering to the same regulations, in ways that work best for the community. The Association should poll the community on the issue and have meetings and discussions to address owner concerns and needs. From there, the association can make the determination if it is appropriate to amend the covenants, or if there are appropriate rules or policies that can be adopted to address the issues.
Jonah G. Hunt
Community Association Attorney
Orten, Cavanagh & Holmes, LLC
Orten Cavanagh & Holmes advocates a proactive approach in providing legal representation to community associations throughout Colorado. The firm provides communities and associations with timely, value-oriented legal services.