Lessons for Owners of Short-Term Rentals in California HOA’s
A Costly Lesson For Owners of Short-Term Rentals in California HOA’s
In an important decision handed down last year, the California Court of Appeal dealt a
blow to owners of vacation properties located within homeowner’s associations in California.
The case, WATTS vs. OAK SHORES COMMUNITY ASSOCIATION makes three significant
rulings: (i) associations have the right to restrict short-term rentals, (ii) boards can impose a
reasonable fee to offset expenses associated with renters, and (iii) courts should defer to boards
on decisions related to the maintenance, control and management of common areas.
The case involved a HOA in San Luis Obispo county. The development consists of Six
hundred sixty single-family homes. Only about 20 percent of the homes are occupied by full time
residents. Approximately 66 absentee homeowners rent their homes to short-term vacation
renters.
The Association passed rules and regulations regarding short-term rentals, including: 1) a
rule stating the minimum rental period is seven days; 2) an annual fee of $325 imposed on
owners who rent their homes; 3) a rule limiting the number of automobiles, boats and other
watercraft that renters are allowed to bring onto the property; 4) a mandatory garbage collection
fee; 5) boat and watercraft fees, 6) building permit fees; and 7) property transfer fees. These
rules and fees were challenged by several homeowners filing suit against he Association.
The court found that the Association’s rules and regulations are reasonable and comply
with the Association’s governing documents and the law. It should be noted that the Association
had retained expert’s to conduct studies regarding the impact of short-term renters on the
Association property. The experts concluded that the rules and fees imposed were appropriate to
offset the increased impact/burden of the Association property, and the court agreed with the
experts.
As if to make a point, the court awarded the Association a total of $1,208,376 in
attorney’s fees and costs as the prevailing party in the litigation, stating that Mr. Watts could
have avoided these fees “simply by declining to bring the instant unmeritorious action and by
paying the Association the few thousand dollars it was properly demanding”.
Takeaways
1. If your HOA has imposed fees, or is threatening to impose fees on owners of short- term
rentals, make sure they have conducted studies to back up these fees as being reasonable
and directly related to the short-term use of the property. HOA’s cannot arbitrarily
impose fees without justification.
2. If your HOA won’t allow short-term rentals, find out from the Board what their
objections are. If they allege that the short-term renters will increase the burden on the
common facilities, suggest that studies be conducted to determine what the increased
burden is and charge the owners of the short-term units accordingly. Paying additional
fees for the right to rent out your property short-term is better than not being able to rent
your property short-term.
3. The decisions of the HOA board will usually be enforced, even if the board’s decisions
don’t accurately reflect the sentiment of the majority of the Association members. In
Watts, only 20 percent of the homes were owned by full time residents, but the decisions
of the Board, which protected the full time residents, were held to be valid and
enforceable.
4. If you want to change the way your Association treats short-term rentals, the best tactic is
to change the make-up of the board by electing members that are sympathetic with your
position. Change the board – don’t challenge their policies.
Challenging the board’s decisions in court can be a costly experience.
About the author:
William Ballinger is a California attorney with over 30 years of experience handling business matters. He is actively involved in issues that arise in the new
“sharing” economy and is the founder of Guest Agreement.com, a website that creates and stores
contracts specifically designed for short-term rentals.