In Houston v. Wilson Mesa Ranch Homeowners Association, Inc., the Colorado Court of Appeals held that short-term rentals did not violate a covenant prohibiting commercial use of a unit. However, this ruling did not indicate that all restrictions on short-term rentals are unenforceable. Although this case was decided in Colorado, and it is not binding in Washington, it could be an indication of how a Washington court would decide a similar issue.
This case involved a subdivision governed by the Wilson Mesa Ranch Homeowners Association, where Houston was a homeowner. Houston was renting his home for short-term vacations and using a website to advertise the property. The association’s board heard about what Houston was doing, and it adopted a rule prohibiting rentals for fewer than 30 days without prior board approval. The new rule included a $500 fine for each violation of the new rental restriction.
Houston felt that the board was illegally trying to change the covenants by passing the rental restriction. The board argued that short-term rentals were a commercial use that was already prohibited by the covenants. The board denied Houston’s request to continue with the short-term rentals. Houston took two more reservations for rentals, and the board fined him $500 for each reservation.
Houston filed a lawsuit seeking to have the court rule that the board could not prohibit short-term rentals based on the covenants’ commercial use restriction. The association also filed a lawsuit asking the court to declare that the covenants prohibited rentals fewer than 30 days, the leasing rule was enforceable, and Houston violated the covenants and rules by advertising and taking reservations for short-term rentals.
The trial court found that the covenants contained no expressed or implied prohibition of short-term rentals, so the issue should be resolved in favor of the free use of the property. The court ruled in Houston’s favor, and the association appealed.
The appeals court agreed with the trial court that there was no clear prohibition of short-term rentals in the covenants. Also, the appeals court ruled that short-term rental of the home did not make the use “commercial” when the rental was for residential use. The court added that the board could not pass a rule governing leases in this way; it must amend the covenants.
We believe Washington courts have also ruled that you cannot prohibit rentals using an argument that renting (short or long-term) is a prohibited business or commercial use. We need to rely on other provisions within the governing documents to restrict VRBO, Airbnb and other short-term rentals.
Hi Valerie,
I’m a little surprised at this ruling. Maybe the condo group where I live has solid footing to avoid any short-term rentals, but if you have time I would like your view?
Several years ago our condo got hit with a lawsuit over a conversation an absent owner had with a potential lessee. At the time we did not regulate how owners who held properties for leasing advertised or interviewed, though our CCRs established the board had to be informed and provided a copy of the lease.
Subsequently we passed an Amendment to our Covenants requiring owners to only go through a professional management company for any lease, and board approval of the company prior. We now require background checks and also restricted lease terms to a year minimum.
In addition, in the Amendment we tightened the CCRs to restrict the percentage of units available as rentals, by stating that any resident owners with an interest in turning their unit into a rental must first gain Board approval.
So far, so good. Even several owners with plans to move and do short-term renting while the property was listed decided to vote in favor of the Amendment, so it’s filed with Washington State (2013 if I recall).
The piece I’m a little concerned over is how do we enforce the 1-yr min. lease term?
Thank you!
Hi Holly,
That’s a good question. There is more than one way to enforce your governing documents. One is by communicating with your owners (i.e., warning letter or even a conversation) trying to gain voluntary compliance. Another is fining units that are not in compliance. In extreme situations, litigation may be an option, but the board in cases like that will need to serious consider the costs to the association, potential for success, and the perceived benefit of winning before going down that road.
If you’re looking for specific advice on a situation you’re dealing with you’ll need to have your board consult with counsel. If not, congratulations on having a currently drama-free renting environment! 🙂
Hope that helps.
Thank you! Encouraging.
(I need to compliment your quick response, not just to me but so many. Plus, excellent, short, informative responses. Besides, I love it when writers use “i.e.,” correctly!)