With the growing popularity of short-term rental sites such as Airbnb and VRBO it was inevitable that we would see a court case on whether or not a homeowners’ association (“HOA”) could prohibit the short-term rental of real property. I knew this would eventually be decided due to the numerous calls we receive from HOA boards and members concerning rental units. Whether these HOA rental concerns are fair or unfair is a question for another article, but regardless it is safe to say that HOA boards and members have real concerns about renters.
For years, the question in Idaho has been whether or not an HOA could prohibit the rental of real property? We now know, at least for short-term rentals, the answer is… Yes.
In Virgil Adams v. Kimberly One Townhouse Owner’s Association, Inc., the Idaho Supreme Court upheld an Ada County District Court’s decision that an HOA could prohibit the rental of property for periods of less than six months. The Kimberly One case concerns a property owner, Virgil Adams, who had been renting his subdivision unit to short-term renters as a vacation property. The Kimberly One HOA had objections to such use and in response amended its conditions, covenants and restrictions (“CCRs”) to prohibit short-term rentals. Mr. Adams filed suit alleging that such amendment was an unreasonable restriction on the use of his property and that the amendment was not in keeping with the original CCRs.
The Idaho Supreme Court examined the District Court’s ruling and held that because the original CCRs clearly provided for their amendment, that the HOA had the right to amend the CCRs and prohibit short-term rentals. The Court found this despite the fact that the original CCRs allowed for leasing or renting a subdivision property. The Court basically examined this issue as a freedom to contract argument and held Mr. Adams to a sort of caveat emptor standard in regards to what could possibly be restricted in HOA subdivisions.
So what are the practical implications of this case? The obvious implication is that an HOA can restrict short-term rentals. This of course could have a dramatic impact on property owners earning income and paying debt service by using Airbnb or other online sites such as VRBO. The other thing we have learned is that in the future a court may uphold a complete restriction on rentals in HOA controlled subdivisions. We do not know if the Court would uphold such a restriction but given this holding, individuals looking to purchase investment rental property should know this is a distinct possibility.
One final thought on this case. The Court did say that, “There is doubtless a point when a party has changed his or her position in reliance upon the covenants in effect to a degree that enforcement of an amendment would be precluded.” We do not know where this “point” lies but a potential purchaser of investment rental property could request a written statement from the current HOA board approving the property as a rental. This document could later be offered as evidence of reliance on the CCRs and potentially used to defeat an amendment restricting rentals. Just a thought and there are probably other methods to document this reliance in hopes that a Court would negate an amendment restricting long-term rentals.