Laying Down the Law – Supreme Court Issues New Ruling Protecting Short-Term Rentals

Written by Columnist:

Christopher J. Charles, Esq.

The Supreme Court of Arizona recently handed down a landmark decision that effectively prevents HOAs from restricting short-term rentals in the vast majority of communities. In 2016, Governor Ducey signed into law SB1350 which authorized short-term rentals in the State of Arizona. Per SB1350 (codified at A.R.S. §9-500.39) short-term rentals are legal in Arizona and the state, county, and local municipalities may not take any action to restrict short term rentals.

“Short-term rental” is defined by the statute as “any individually or collectively owned single-family or one-to-four-family house or dwelling unit or any unit or group of units in a condominium, cooperative or timeshare, that is also a transient public lodging establishment or owner-occupied residential home offered for transient use if the accommodations are not classified for property taxation under section 42-12001. Vacation rental and short-term rental do not include a unit that is used for any nonresidential use, including retail, restaurant, banquet space, event center or another similar use.”

Rental period durations for short-term rentals often range anywhere from twelve months to one night.

Following the enactment of A.R.S. §9-500.39, the legislature passed an additional law to further protect owners’ legal rights to rent their properties:

A member may use the member’s Property as a rental Property unless prohibited in the declaration and shall use it in accordance with the declaration’s rental time period restrictions.

A.R.S. §33-1806.01. But per the statutes and Arizona common law, although the State cannot take any action to restrict short-term rentals, the Governor and the legislature left open the door as to whether private parties (such as HOAs) could restrict short-term rentals through deed restrictions and covenants conditions and restrictions (CC&RS). As a result, since the passing of SB1350 in 2016, hundreds of HOAs have taken action to amend their existing CC&Rs to restrict short term rentals in their community.

But now in light of the recent Supreme Court decision, many, if not all, of the CC&R amendments which have been implemented to restrict short-term rentals are void and ineffective.

Below is a summary of the important ruling from the Supreme Court which provides guidance on whether an amendment to CC&Rs is valid and enforceable:

• • any “amendments [to the CC&Rs] must be reasonable and foreseeable”
  • “[W]e hold that an HOA cannot create new affirmative obligations where the original declaration did not provide notice to the homeowners that they might be subject to such obligations”
  • “The notice requirement relies on a homeowner’s reasonable expectations based on the declaration in effect at the time of purchase”
  • “The law will not subject a minority of landowners to unlimited and unexpected restrictions on the use of their land merely because the [CC&Rs] permitted a majority to make changes to existing covenants”
  • CC&Rs “must give notice that a restrictive or affirmative covenant exists and that the covenant can be amended to refine it, correct an error, fill in a gap, or change it in a particular way.”
  • “[F]uture amendments cannot be entirely new and different in character”

Kalway v. Calabria Ranch HOA, LLC, No. CV-20-0152-PR. Click the following link to read the entire Supreme Court opinion: Maarten Kalway v. Calabria Ranch HOA

Further, in light of the Kalway decision, in communities where amended CC&Rs have been recorded with the County Recorder’s Office, anyone who caused the amended CC&Rs to be recorded, and remain of record following the Kalway decision, may be subject to civil liability for slander of title per A.R.S. §33-420, including damages and attorneys’ fees. Unfortunately, in most cases where amended CC&Rs have been recorded to restrict short term rentals, legal action will be required to clarify the property owners’ rights and responsibilities and to clear title to the properties.

Attorney Christopher Charles regularly represents property owners and property managers in regarding to short term rental properties. If you or someone you know has a short term rental issue, 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.