Defining short-term rentals may get harder

Q: I am hoping you can give me come direction here. I currently rent a home in midterm rental agreements (i.e. 31 day-plus, usually three to four months. Never less than 31 days.) The homeowners association sent me a violation notice for supplemental covenants, conditions and restrictions Section 1.14: running a business: short-term rental. The included a listing of mine that did state minimum of 30 nights, 31 days.

After a few back-and-forth written notices of hearing and final request for compliance, to confirm I have committed a violation, I attended the meeting and explained this is not a short-term rental per city of Las Vegas definition and per Section 1.14, I am in compliance.

I read them aloud the section 1.14:

“All Lots and Condominiums, other than the Common Area, shall be improved and used solely for Single-Family residential use; provided, however, that this provision shall not preclude any Owner from Renting or leasing all of his Lot of Condominium or any Apartment Unity thereon by means of a written lease or rental agreement subject to this master declaration. No such lease or rental of a Condominium or Lot shall be for a term of less than thirty (30) days. … “

At this point, the board said that the original CC&R supersedes any written conflict from the supplemental.

They then refereed to the original CC&R under section 4.3. Membership paragraph 3. They then read me this line only:

“… that such lessee shall have a written, recorded lease for a term of not less than one (1) year.”

I rebutted and said that is fully out of context and let’s read the entire passage, which I did:

“A Member shall have the right to delegate, subject to reasonable Rules and Regulations, his rights of use and enjoyment of the Association Property to a lessee of his Lot of Condominium; provided, however, (i) that such lessee shall have a written, Recorded lease for a term of not less than one (1) year. which lease shall expressly delegate to the lessee such Member-lessor’s right of use and enjoyment of the Association Property, and (ii) that such Member-lessor shall not be entitled to the use and enjoyment of the recreational or facilities or other association property during the term of the delegation. …”

I asked them to clarify that the HOA restricts any rental under 12 months and anything else is a “short-term rental.”

They said yes.

I asked the board if this was not overreaching and distorting the CC&R.

Everyone was silent except for the chair.

She said that was opinion of the HOA attorney and if I wanted I could hire an attorney and challenge it in court.

Obviously, I will only do that as a last resort.

Now my question: What other avenues do I have to challenge this before I hire counsel? Or, am I wrong and they are correct in their interpretation?

A: A couple of comments.

First, an association’s governing documents can be more restrictive than city, county or state code. The association’s governing documents cannot be less restrictive.

The fact that the city is allowing short-term rentals is irrelevant as the homeowner, by deed, is required to comply by the association’s rules and regulations.

Second, any supplemental addendums to the original CC&Rs would take precedence over the original CC&Rs. The supplemental states that the lease or rental agreement must have a minimum of 30 days. Based upon the supplemental, you were not in violation of the governing documents.

Now, the bigger picture. Associations, it’s coming! More than one court case has ruled in favor of the short-term rentals, stating that they are not a business use prohibited by the CC&Rs. A recent case in the Florida Court of Appeals held that short-term rentals do not violate the covenants in the case of Santa Monica Beach Prop. Own. Assoc. Inc. v. Accord, 2017 (WL1534769 Fla. District Ct App. April 28, 2017).

The homeowners (Accords) who received the violation from the association stated that short-term rentals were similar to the much longer lease agreement and therefore were not in violation. The association states that short-term rentals were a business use which was verified by the fact that the Accords were required to obtain a business license and collect and remit state and local bed taxes. The Accords state that even though they were licenses and collected taxes, they did not convert a residential use to commercial.

The trial court agreed with the Accords stating that the “critical inquiry is not the duration of the tenancy but the character of the actual use of the property by those residing thereon.” The court determined that the short-term tenants used the property in the same manner as tenants under a longer lease, i.e. they slept and ate inside the home. In addition, the court reasoned that residential use is not transformed into commercial use simply because the property is subject to a regulatory scheme requiring licensure. Finally, the court stated that the CC&Rs did not explicitly state that short-term rentals were not allowed.

The association appealed. This issue was the first time that the Florida Appellate Court was asked to determine whether short-term leases were a business use. The appellate court analyzed the issue by referencing a number of cased from other states which considered the matter under almost identical restrictive covenants, each of which determined that short-term rentals are a residential use. At this point, there are at least 14 other jurisdictions that agree.

Nevada has state law pertaining to “transient commercial use of units within certain planned communities, NRS 116.340. Section 1 states that an owner can use his unit for transient commercial use only if the governing documents of the association do not prohibit such use. (Associations may have to amend their governing documents to explicitly state and define short-term rentals as being in violation of the CC&Rs). In the case where transient commercial use if allowed, the law states that the unit must be properly zoned for the transient commercial use and if required has a license from the local government.

This law defines transient commercial use to mean the use of a unit for remuneration as a hostel, hotel, inn, motel, resort, vacation rental or other form of transient lodging if the term of the occupancy, possession or use of the unit is for less than 30 consecutive calendar days.

Where does that leave us? Associations can meet with their legal counsel to determine if explicit prohibition of short-term rentals will stand valid if challenged in a court of law. Associations can begin to acknowledge short-term rentals and create rules and regulations that would apply to them, similar to those of the longer lease agreements.

One last comment. Do not be surprised if a proposed law is introduced in 2019 which supersedes associations’ governing documents by allowing short-term rentals.

Barbara Holland is a certified property manager, broker and supervisory certified association manager. Questions may be sent to holland744o@gmail.com.