Short-Term Rentals: A Practical Guide

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On September 20, 2016, Vandeventer Black hosted its complimentary Coffee & Conversations discussion series for Community Associations to discuss the practical implications of leasing, including short-term leasing, in community associations.

Over the last several years, websites like AirBNB, VRBO and HomeAway have made it easier to lease our homes to others.  These websites have become big business and have billion dollar (yes, with a “b”) valuations.

The increase of short-term leasing is creating concern among volunteer leaders of condominium unit owners association and property owners’ association.  Anecdotal evidence supports claims that short term rentals impact the sense of community within a development, are inconsistent with the expectations of owners and change the residential character of a neighborhood.  Complaints about other issues – parking, noise, trash, smoking and other nuisances are routinely associated with these short-term rentals.  And, short-term rentals may cause a condominium unit owners association to run afoul of Federal Housing Administration project approval requirements.

Despite concerns related to short term rentals, in 2016 the Virginia General Assembly adopted the Limited Residential Lodging Act establishing a structure for hosting platforms (like Airbnb, VRBO and HomeAway) to:

  • collect and remit the taxes owed to the Virginia Department of Taxation (who will then reimburse localities their share); and,
  • establish short term rentals as a “limited residential” use, effectively removing authority for localities to ban short term rentals.

After significant debate, a re-enactment clause was added after passage requiring study and re-approval before the Act becomes effective in 2017.  Until reenacted by the General Assembly, restrictions on short term rentals will vary from locality to locality and community to community.

In most circumstances, prohibition of short-term rentals must be expressly provided in the recordedgoverning documents of an association.  Some governing documents (particularly condominium instruments) include minimum lease terms (e.g., 30 days, 6 months, etc.).  Short-term rentals may violate those lease terms (depending, obviously, on the duration of the lease).  And, some governing documents include other restrictions on leasing (i.e., a leasing cap) that should be reviewed.  May governing documents do not, however, contain specific authority sufficient to prohibit or limit short-term rentals.  In those instances, an amendment to the governing documents is required.

While courts in Virginia will enforce restrictive covenants, they are generally disfavored favored, and an association will have the burden of establishing behavior is governed by specific provisions of the governing documents.  Doubt or ambiguity will be resolved in favor of the free use of property and against restrictions against short-term rentals.  It is important, therefore, that governing document provisions be carefully scrutinized before rules are adopted and enforcement action is initiated.

In 2007, the Virginia Supreme Court held in the case Scott v. Walker (available here) that the short-term rental of their property did not run afoul of a restrictive covenant providing that a lot “shall [not] be used except for residential purposes.”  In that case, the Court rejected arguments that residential use includes a duration element or that limited duration stays (short-term rentals) were a commercial use of the property.

Regardless of the provisions of your governing documents, local ordinance may impact an owners’ ability to enter into a short term lease.  Richmond currently prohibits short-term rentals within city limits.  The Virginia Beach City Council is considering regulations that would that would require people who advertise on AirBNB to register to collect lodging taxes or be subject to $1,000 penalty.

If you have questions about how short-term rentals may affect your association, or would like assistance in the review of your governing documents or preparation of an amendment, please contact Deborah Casey, CCAL®.

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