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While many localities throughout the nation struggle to regulate commercial short-term housing rentals through companies like Airbnb, a state appeals court recently upheld the authority of a California condominium association to charge fees to owners who rent their units for short-term occupancy. In Watts v. Oak Shores Community Association, a California appellate court recently held that a common interest development, such as a homeowners association, is entitled to impose reasonable fees to cover the extra costs of vacationers and other short-term renters, who use common areas and other facilities more than residents as such users are “less careful…because they are not concerned with the long-term consequences of abuse.” (Watts v. Oak Shores Community Association (2015) 235 Cal.App.4th 466.)
Oak Shores Community Association is an 851-lot subdivision consisting of single-family homes located alongside Lake Nacimiento in northern San Luis Obispo County. Only 20 percent of the homes are occupied by full-time residents. In 2007, the Association had a study performed that determined each rental cost the Association $898.59 per year. Increased costs from rentals arose from problems associated with parking issues, unfamiliarity with Association rules, increased noise, and abuse of subdivision amenities. In response, the Association began charging members $325 a year to rent their property and additional use fees such as a $25 daily rental fee and a $125 per week fee for renters to bring watercraft into the community. The rules also limited the number of watercraft that could be brought into the community during their stay. The operating rule that created such fees was challenged by three members who claimed it violated state law that limits collection of homeowners’ association assessment fees to “the amount necessary to defray the costs.” After a contentious trial, the trial judge found in favor of the Association and that the fees were reasonable charges. The trial judge also ordered the owners to reimburse the Association for $1.18 million in legal fees and costs the incurred defending the suit.
The appellate court affirmed the trial court’s judgment and attorneys’ fee award. In doing so, the appellate court noted plaintiffs could have avoided the $1.18 million debt obligation had they declined to “bring the instant unmeritorious action and by paying the Association a few thousand dollars it was properly demanding.” The appellate court also noted California law requires courts give homeowners associations’ leeway in decisions on property cost-sharing. (Watts v. Oak Shores Community Association, supra, 235 Cal.App.4th at 473 [“Common-interest developments are best operated by the board of directors, not the courts.”].)
Local and state governments throughout the nation continue to wrestle with issues relating to regulation of short-term sub-rentals and companies like Airbnb or VRBO that connect short-term renters with homeowners. This ruling is further evidence of the types of conflicts that can arise over housing governance, expenses and short-term rentals. The opinion also provides helpful language regarding the scope of the rule of judicial deference by expressly expanding it to protect discretionary board decisions beyond decisions that affect ordinary maintenance of common areas.