May 21, 2021

SBEMP Attorneys Prevail in High-Profile Appeal That Protects Short-Term Rental Rights When Homeowner Associations Change Governing Documents

By Bob Marra

Owners of homes who rent their properties on a short-term basis within homeowner associations (HOAs) in California potentially got a huge boost from the state Court of Appeal on May 12 when Palm Springs-based law firm Slovak Baron Empey Murphy & Pinkney (SBEMP) prevailed in a case arising from the emerging trend of HOAs enacting amendments to their governing documents (CC&Rs) to prohibit short-term renting.

Shaun Murphy, Chair of the Litigation Practice Group of SBEMP represented homeowner Nancie Brown of Rancho Mirage, California in the trial court and on appeal (Brown v. Montage (Rancho Mirage)). The Court of Appeals’ opinion is tentative, but if confirmed will overturn a trial court ruling that allowed the Montage homeowner association (Montage HOA) to deny her rights to rent her home on a short-term basis after the association changed its CC&Rs in 2018.

Ms. Brown purchased her property in Montage in 2002. She subsequently started renting it to tenants on a short-term basis and continued to do so for more than 15 years. In 2018, Montage HOA amended its CC&Rs to enact a provision that prohibits its members from using their property for short-term renting of less than 30 days. Ms. Brown objected and claimed to be exempt from the rules under Civil Code Section 4740 enacted in 2012 by the California Legislature because it recognized that HOAs were erecting barriers to prohibit homeowners from renting their properties as they had done before any amendments to the rules.

HOAs have been taking the position that changes in short-term rental restrictions did not prohibit renting, because their amendments typically enable the owner to still rent but on a minimum 30-day basis or longer, and therefore contended that Section 4740 did not apply to short-term rental restrictions. In Brown v. Montage, the Court of Appeal interpreted Section 4740 for the first time and concluded that short-term rental restrictions are subject to the statute. Owners are therefore exempt from rules having the effect of preventing an owner from renting on a short-term basis if the rules in place at the time that they purchased the property allowed it.

The Court of Appeals’ opinion is tentative and will not become final until after oral argument, which is to be scheduled. The appellate court very rarely reverses its position.

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