Believe it or not, short-term rental companies like Airbnb and Vrbo are sustaining their popularity during the pandemic. On its first day of public trading, Airbnb boomed, garnering a market capitalization of over $100 billion. Not all homeowners, however, are celebrating. Some neighborhoods and cities are citing the undesirable consequences of short-term rentals: noise complaints, destruction of property, and the impact on housing policy.

For example, the city of Austin, Texas attempted to ban short-term rentals entirely. In Zaatari vs. City of Austin, a Texas appellate court ruled against the city’s short-term rental ban because it violated property and privacy rights guaranteed under the Texas constitution. Further, the Texas legislature has proposed state-wide bills to address the issue, spanning from new occupancy taxes to HOA regulatory structures. Litigation around this issue does not look like it will disappear any time soon.

Even though Austin’s attempt to ban short-term rentals was legally thwarted, many HOAs also try to restrict homeowners from renting out their property. HOAs require homeowners to consent to a set of common rules, codified in the HOA’s governing documents as covenants, conditions, and restrictions (CC&Rs), but the rules around property rental can be confusing. Some HOAs have completely banned short-term rentals. Others permit short-term rentals with restrictions, and still others have failed to address the issue. Your HOA may benefit from addressing short-term rentals in its governing documents, particularly if state law has not made a definitive ruling on the matter.

The Good, the Bad, and the Ugly

The first question for your HOA board is whether or not you want to restrict short-term rentals in your community. A short-term rental is an arrangement for a residential stay at an individual’s home, typically for a term of days or weeks. The obvious advantage of a short-term rental is additional income. Homeowners can use this income to supplement their mortgage payment or monthly expenses. On the flip side, renters can use these unusual housing locations for affordable, short-term stays during tourism and travel. In fact, short-term rentals have turned out to be significantly more profitable than long-term leases, and as noted above, they are remaining popular through a very difficult travel season.

Short-term rentals can offer either a full-property rental or a partial-property rental. The full-property rental offers the renter access to the entire house. Let’s look at an example. If the homeowner’s mortgage is $900 a month, the homeowner would only need to rent out the property for 6 nights at $150 per night to break even. That’s an enticing proposition for someone who travels or spends time in another residence. The partial-property rental may be more applicable to a family homeowner. Empty nesters tend to have a bedroom or two that is unused. It would only take 10 nights a month at $90 per night to cover the mortgage. Another enticing scenario!

The greatest disadvantage for short-term rentals is the stress and inconvenience it can bring to a community. Consider the hustle and bustle of a hotel; now consider those additional cars, people, sights and sounds in your neighborhood. Unknown guests enter and leave residences. Cars fill up parking spaces. Community norms such as noise levels and safety measures are ignored. Short-term rentals can even affect property values, and collectively, these issues weigh heavily on community members.

Drafting A Policy

Once you decide to create a specific short-term rental policy, consider these simple guidelines to create a policy that aligns with your community.

1. Research the Elements

Before putting pen to paper, do your research. Take the time to examine the policies of HOAs in your surrounding area. Search for samples from other areas of your state. What elements are must-haves? What elements are unnecessary? Defining these elements focuses the policy-making process.

2. Analyze the Community

After identifying key elements for your policy, analyze them in light of your particular community. Take a survey of your homeowners. Are neighbors in support of short-term rentals? What are their concerns? Taking the temperature of your community before writing a proposal can avoid unnecessary headaches down the road.

3. Write the Proposal

Define Terms – Whenever you are writing an HOA policy, be specific with key terms. Identify what qualifies as a short-term rental in quantity and quality. Identify the requirements for maintaining a short-term rental residence. Identify the terms of minimum and maximum use.

Align Values – As always, ensure that the policy aligns with the greater values of the HOA. When placing restrictions on number of guests, noise, and parking, be mindful of the rest of the community. There should be no disconnect between the values in the CC&Rs and the values expressed on the short-term rental policy.

Identify Repercussions – A new policy will come with violations, intentional or not. Be sure to explicitly state the repercussions for violating the policy. Identify the system of warnings, fines, or legal action that accompanies non-compliant homeowners.

4. Consult a Lawyer

As always, be sure that any new policy or amendment to the CC&Rs is cleared with the HOA’s legal team. Both state and federal law apply to HOA policy, and only a licensed professional can ensure that your community adheres to those legal standards, particularly in this fluctuating area of the law.

5. Approve the Policy

After completing the short-term rental policy, consider floating a proposed policy to the community or a group of selected advisers. By allowing members of the community to provide feedback, the board may be able to identify and even eliminate contentious issues. When ready, follow the HOA’s governing procedures for amending governing documents. Provide the updated policy to the HOA’s management team and ensure employees are trained on the changes.

Your HOA may already be dealing with the implications of an expanded short-term rental market. While homeowners may be interested in the additional income, the community as a whole may not be pleased with its consequences. Consult with the board about the implications of short-term rentals in your HOA.

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