A common question that many HOA communities face today is how to treat short-term rentals. The sharing economy has given a boost to Arizona’s economy, especially to its tourism industry. But one man’s blessing may be another man’s burden. Although short-term rentals have increased Arizona’s real estate values, opponents argue that transitory rentals are a nuisance to neighborhoods.
Unlike many states, Arizona has taken a welcoming approach to short-term rentals to protect property rights and encourage tourism in the state. With the passage of SB1350 signed into law by Governor Ducey in 2016 (codified at A.R.S. § 9-500.39), the state, cities, and towns are prohibited from restricting short-term rentals. Thus, as a matter of law, short-term rentals are legal in any neighborhood within the state. That means that property owners in Arizona are welcome to rent their property for any duration, including nightly rentals.
Although SB1350 prohibits the State from prohibiting short-term rentals, individual property owners and HOAs are still authorized to restrict property rights via recorded deed restrictions and CC&Rs. But since most planned communities and condominiums were established prior to the launch of Airbnb and VRBO, most CC&Rs are silent as to short-term rentals. As a result, many communities today are wrestling with the question of how to address short-term rentals in their community. More specifically, many HOAs are considering whether to amend their existing CC&Rs to expressly prohibit short-term rentals. For example, some communities have recently tried to amend the existing CC&Rs to outright prohibit rentals for less than 30 days (or in some cases for less than six months). Putting aside for the moment the famous rock band U2’s question of “just because I can build an atomic bomb, should I?” – this article focuses instead on the legal implications that property owners and HOAs should consider before trying to amend existing CC&Rs.
The Arizona Court of Appeals addressed the question of CC&R amendments in the case Dreamland Villa Community Club, Inc. v. Armiey, 224 Ariz. 42, 226 e. 3d. 411 (Ariz. 2010). The Dreamland community includes dozens of residential properties subject to recorded deed restrictions. The deed restrictions contained numerous property restrictions but did not expressly impose a mandatory HOA or monthly assessments. But the deed restrictions contained a common provision regarding amendments that simply stated: “the covenants and restrictions may at any time be changed in whole or in party or revoked in their entirety by a vote of the majority of the owners….” Id. at 44, 413.
In 2003, a group of homeowners in the Dreamland community initiated an effort to amend the CC&Rs to create a mandatory HOA and regular assessments to help pay for maintenance and improvements to common areas. The group successfully secured affirmative votes of a majority of the property owners and those opposed filed suit to contest the amendment.
The Arizona Court of Appeals held that the amendment was invalid because the original CC&Rs cannot be amended to create new obligations or restrictions that did not already appear in the original CC&Rs. The Court reasoned that before a “restriction may be imposed on a lot owner regarding the use of his or her lot, the restriction must appear in the declaration.” Id. at 49, 418 (citing Shamrock v. Wagon Wheel Park Homeowners Ass’n, 206 Ariz. 42, 75 P.3d 132 (App. 2003).
Applying the Court’s holding in Dreamland, if an HOA’s existing CC&Rs do not already restrict rentals in the community, the CC&Rs cannot be amended to add a new restriction regarding short term rentals. As a result, before taking action to try and amend existing CC&Rs, property owners and HOA boards should consult with legal counsel to confirm whether any proposed amendment would withstand legal scrutiny.
If you or someone you know has questions regarding short-term rentals or any other real estate matter, contact us today to schedule an office meeting or virtual consultation with one of our real estate attorneys.
Christopher J. Charles is the founder and Managing Partner of Provident Law ®. He is a State Bar Certified Real Estate Specialist and a former “Broker Hotline Attorney” for the Arizona Association of REALTORS ® (the “AAR”). Mr. Charles holds the AV ® Preeminent Rating by the Martindale-Hubbell Peer Review Ratings system which connotes the highest possible rating in both legal ability and ethical standards. He serves as an Arbitrator and Mediator for the AAR regarding real estate disputes; and he served on the State Bar of Arizona’s Civil Jury Instructions Committee where he helped draft the Agency Instructions and the Residential Landlord/Tenant Eviction Jury Instructions. Christopher regularly teaches continuing education classes at the Arizona School of Real Estate and Business and he can be reached at Chris@ProvidentLawyers.com or at 480-388-3343.