South Ridge HOA v. Brown — What’s a "Short-Term" Rental?

In an opinion issued about a month ago, the Utah Court of Appeals decided that “a weekly rental is clearly similar to nightly rentals and timeshares, when considering those terms together.”

The case arose from language contained in the South Ridge Homeowners’ Association’s Declaration of Covenants, Conditions and Restrictions (C, C & Rs) that provided, in relevant part, “No timeshare, nightly rental or similar use will be allowed on any single family lot.”  The court thus considered its task to be to determine “whether Brown’s weekly rentals were uses similar to a nightly rental or timeshare.”  The court concluded that “a weekly rental is clearly similar to nightly rentals and timeshares, when considering those terms together.”  In coming to this conclusion, the court focused on the fact that the “common thread” of these short duration rentals is that “people will be coming and going for short periods of time.”

The court ultimately ruled in favor of the association, and surprisingly affirmed the lower court’s broad injunction, despite the fact that the court found “the breadth of the trial court’s injunction more troubling…”  Under the injunction, Ms. Brown was to notify the association of the identity of her visitors and the duration of their visits.  The association’s counsel argued that the requirement of notification was only to apply to those guests who were not accompanied by Ms. Brown, but that was not in the order.  The dissent agreed with the majority’s interpretation of the C, C & Rs, but would have limited the injunction to prospectively prohibit the disputed short-term rentals, without a requirement of advance disclosure of occupancies.

I’m not certain whether I disagree with the court’s ultimate conclusion in this case, although I’m a bit disappointed as to how they got there.  First of all, in order to interpret the contract as a matter of law, they had to find the contract to be unambiguous.  I’m troubled that they quickly disregarded the provisions which allowed an owner to “rent or lease said owner’s residential building from time to time.” Brown’s counsel asserted, and it was apparently not challenged, that the rentals happened “occasionally” and “fewer than six” times a year.   Thus it appears uncontested that the frequency of the rentals was not in violation of the covenants, leaving only their duration of possible violation.  In that regard, the court relied upon the “timeshare” language to expand the prohibition of “nightly” rentals.

What the court appears to have disregarded is that a “timeshare” is a particular type of ownership, and not directly related to rental periods, or even really related to a rental of a unit by its owner.  Timeshares are specifically defined and regulated by an entire chapter of the Utah Code, (Utah Code Ann 57-19), and that a timeshare unit is intended primarily to be owned among a wide variety (presumably 52) groups of owners, whereas Ms. Brown’s rentals were occurring at about 10% of that frequency.  I think it’s a stretch, at best, to conclude “as a matter of law,” that the uses are similar.  The  conflict between the “time to time” language and the “nightly” prohibition seems to have created an ambiguity which, under traditional jurisprudential rules, must be determined by a jury.  See, e.g. Rubey v. Wood, 15 Utah 2d 312     (1964).    

Live Blogging The Managers’ Munch — Rentals

I’m attending the Utah Chapter of the Community Association Institute’s monthly Manager’s Munch today; the subject is Rentals in Community Associations. The first speaker, Paul Smith of the Utah Apartment Association is advocating the regulation, but not the prohibition of, rentals in associations.

Paul recommends using a local, attorney-reviewed lease contract; he also recommends that the board suggest the screening, by owners, of the potential tenants. If you do that, he says, make certain that the information regarding tenants is kept confidential. Next, require owners to identify their tenants.

Paul suggests that tenants should also be kept abreast of the owners’ deficiencies; he suggests that associations advise tenants of pending amenity disruptions. Leases should inform unit owners of the association’s governing documents.

According to Paul, cities are actively encouraging participation in the Good Landlord programs, in which municipalities provide disproportionate fees for non-participating landlords, in order to encourage training and education.

Paul contends that most cities won’t touch a definition of a family; that’s the first matter upon which he and I differ significantly. I suggest that my associations look to and incorporate those definitions into their restrictions; Paul’s co-presenter, Kirk Cullimore more or less retracted that assertion.

Now Kirk Cullimore is up, taking on the difficult task of attempting to explain conflicts and overlaps between municipality, state and federal laws. His advice, with which I agree, is that you find the most restrictive requirement, and comply with it.

Kirk recommends that associations should inspect units more than they traditionally have. He suggests that utility companies may be willing to provide information as to the recipients of bills. Kirk also suggests using the state DMV database; I’d recommend extreme caution in that area, because the subscription agreement on that information contains significant limitations on its proper and improper use.

Kirk is now talking of nuisance evictions; he contends (and I agree) that they are difficult in Utah. A “three day comply and vacate” notice is often ineffective by itself; even if it’s not, they make a good trail, and can lead to the service of what Kirk calls a “Three Day Get the Hell Out” notice. (I like that term, but probably wouldn’t put it on a pleading…)

Kirk suggests a required lease addendum for the community; I agree that this approach is superior to the imposition of a form lease.

Rental Restrictions in Bylaws?

The Wisconsin Supreme Court, in an opinion released last Friday, issued an opinion which affirms the validity of rental restrictions included in a community association’s bylaws, as opposed to the association’s declaration. Several courts around the country have dealt with this issue in the past several years, with opinions coming down on both sides of the issue. And in this case, the Court was divided, with a dissenting justice arguing that the amendment to the bylaws were contrary to the declaration and the statutes, and that the restrictions needed to adopted, if at all, as an amendment to the declaration.

The case, Apple Valley Gardens Association, Inc. v. MacHutta, involved an association formed in July of 1979, by Steven MacHutta (yes, that MacHutta). The original declaration included a sentence providing that “Any lease…shall not relieve an owner from his obligation to pay common expenses or any other obligations…”

In 2002, the Association members amended the Association’s bylaws to prohibit rental of units. Ms. MacHutta, the declarant’s spouse was renting her unit, and challenged the amendment. Existing tenancies were “grandfathered”, as the dispute did not ripen until 2004, when the board refused her petition to enter into a lease with a new tenant. Nonetheless, she rented the Unit and the Association sued.

The Court framed the first question as to whether lease restrictions must be included in the declaration; the court held that the rental restriction fell within the statutory provision providing that bylaws could include “any restriction on or requirement respecting the use and maintenance of the units…,” which the Court held could include rental restrictions.

The Court next held that the provision respecting the joint liability of owners for assessments, by allowing leases, was contrary to the restriction against leases.

“Condominium ownership is a statutory creation that obligates individual owners to relinquish rights that they might otherwise enjoy in othr types of real property ownership”, the Court stated. Amendments to the bylaws were foreseeable and enforceable, even if not as readily discoverable by virtue of recordation, and even if more easily achievable than declaration amendments. “The fact that lenders and purchasers rely on recorded declarations is irrelevant. If lenders and purchasers wish to know whether and under what conditions a condominium unit may be rented out, they may easily inquire as to both the declaration and the bylaws.”

Next, the Court held that the declaration’s reference to the conditions under which leases must be made did not mandate that they be allowed. The Court stated: “this provision neither grants a right to rent one’s unit nor prohibits it…”

Lastly, the court dismissed a statutory-based challenge to the provision, holding that a marketability statute did not prohibit the bylaw.

The dissent disagreed, arguing first that restrictions such as rental restrictions must be in the declaration to be valid. Furthermore, the dissent argued, the amendment was contrary to, and hence prohibited by, the Declaration.

Apple Valley provides support for the Association that cannot, for whatever reason, provide rental restrictions in a declaration as opposed to bylaws. Nonetheless, this author, and the majority of practitioners in the area, encourage associations to make such significant changes in the declaration, rather than the bylaws.

South Salt Lake Doesn’t Want Renters, Either.

The Salt Lake Tribune is reporting that the City of Salt Lake is jumping onto the anti-rental bandwagon:

Rentals: All units will now pay fees

By Cathy McKitrick
The Salt Lake Tribune
Article Last Updated: 08/24/2007 01:05:44 AM MDT

SOUTH SALT LAKE – Landlords of single-family homes and duplexes now will be expected to obtain business licenses through the city.
In January, the City Council passed an ordinance to require the new licenses and associated fees for rentals with three units or more. Wednesday night, council members extended the law to apply to one- and two-unit rentals as well.
The program also requires that landlords evict tenants who engage in criminal activity, said City Attorney David Carlson.
In this older urban area directly south of Salt Lake City, 62 percent of its 23,000 residents rent rather than own. A study identified an estimated 1,156 units that fall in this category – at $24 each, those units would net the city $27,744 in revenue.
However, the new law is aimed more at reducing crime than filling the city’s coffers.
“We’re not doing this to get money,” said Council Chairman Casey Fitts. “We’re doing it to clean up a problem.”
Carlson expects enforcement to be largely complaint-driven.
“We don’t expect 100 percent compliance,” said Councilman John Weaver. “This is an added tool for our staff to make headway on something citizens have deemed a priority. We can assess its effectiveness in the future.”
At least one council member, Mike Rutter, is a landlord. He said he plans to comply.
“I applaud what’s being done – even though it will cost me a little more money. It’s important,” Rutter said.