J. Patrick Sutton Cases & Issues Blog

Court decisions hold that short-term rentals are not a "business or commercial use" under typical, basic HOA declaration wording

Two very recent cases bolster the other extant cases in holding, uniformly, that a homeowner's engaging in short-term rentals with a residential dwelling house is not a "business or commercial use" under typical, basic HOA wording that grants express leasing rights but does not otherwise regulate leasing. Typically, the only restriction found in declarations -- especially older ones that HOA's haven't amended -- is for "business or commercial uses." That's a common municipal ordinance restriction too. With the rise of HomeAway, VRBO, and other rental and home-sharing sites, short-term renting is a contentious issue. The problem in the HOA context is that many declarations are simply silent as to any leasing restrictions, leading the average homeowner to believe he or she has an untrammeled right to lease out a home for whatever term, short or long, so long as the renters aren't causing problems. If an HOA declaration is silent, an HOA needs to amend its declarations to address the issue. A silent declaration does not allow an HOA to take away rental rights.
Two recent cases decided in Alabama and Arkansas, plus several other cases that have considered the argument that short-term rentals equate to a business or commercial use under typical bare-bones subdivision declarations, have uniformly rejected the argument under the rule of restrictive covenant interpretation that favors the free use of property. The cases speak with one voice: "residential use" under a subdivision declaration is not transformed to "business use" when an owner engages in short-term rentals.

  • The Alabama appellate case is Slaby v. Mountain River Estates Residential Ass'n, Inc., 2100498, 2012 WL 1071634 (Ala. Civ. App. Mar. 30, 2012) (reversing trial court). Said the court:

[S]o long as the renters continue to relax, eat, sleep, bathe, and engage in other incidental activities, as the undisputed evidence indicates renters did in this case, they are using the cabin for residential purposes. . . . When the Slabys rent their cabin, they no doubt realize some pecuniary gain, but neither that financial benefit nor the advertisement of the property or the remittance of a lodging tax transforms the nature of the use of the property from residential to commercial as the trial court concluded.

  • The Arkansas federal diversity case is similar: Dunn v. Aamodt, 3:10-CV-03119, 2012 WL 137463 (W.D. Ark. Jan. 18, 2012).

The forerunner cases these two new cases rely upon also hold that "residential use" does not become "business use" through short term rentals.

  • Pinehaven Planning Bd. v. Brooks, 138 Idaho 826, 830, 70 P.3d 664, 668 (2003) (rejecting revenue-earning theory) (same);
  • Lowden v. Bosley, 395 Md. 58, 68, 909 A.2d 261, 267 (2006) (owners being sued included business entities holding properties out for short-terms);
  • Mullin v. Silvercreek Condo. Owner's Ass'n, Inc., 195 S.W.3d 484, 490 (Mo. Ct. App. 2006) (witnesses testified to history of short-term rentals in subdivision for years);

The common law rules of construction applicable in the Third Court of Appeals district (encompassing Travis County) favoring the free use of property represent the same standard of decision as in the above cases. See Reagan Nat'l Adver. of Austin, Inc. v. Capital Outdoors, Inc., 96 S.W.3d 490, 493 n. 2 (Tex.App.-Austin 2002, pet. granted, judgm't vacated w.r.m.); Cedar Oak Mesa, Inc. v. Altemate Real Estate, LLC, 03-10-00067-CV, 2010 WL 3431703 (Tex. App.--Austin Aug. 31, 2010, no pet.) (reversing trial court's banning of short-term rentals).

These controlling cases are therefore to be distinguished from the Texas (Beaumont) Benard case, which had said that had the interpretive rule that favors free land use been applied, the case would have been decided to allow short-term rentals. See Benard v. Humble, 990 S.W.2d 929 (Tex.App.-Beaumont 1999, pet. denied) ("Were we to give construction against the drafter of the covenant, we would be required to reverse the trial court's judgment.").
J. Patrick Sutton Cases & Issues Blog