August 2014 Bar Bulletin
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August 2014 Bar Bulletin

Case Affects Vacation Rental Rules in HOAs

By Jennifer T. Karol

 

The Washington Supreme Court recently issued an opinion in Wilkinson v. Chiwawa Communities Association,1 which directly affects the ability of a homeowners association to permit or exclude vacation rentals in its community.

The association in question was located in Chelan County and had been in existence for many years. At the time the original CC&Rs for the community were drafted, rentals in the community were permitted. However, the CC&Rs were silent with regard to vacation or nightly rentals.

Sometime before 2008, many owners in the association began renting their properties to unrelated individuals on a nightly basis. Other owners in the community complained and the association responded with a majority vote to bar all rentals in the community less than six months long. The rationale for the association's prohibition was that anything shorter than six months constituted a prohibited commercial use.

After significant litigation at the trial court and Court of Appeals, the case reached the Washington Supreme Court. The Supreme Court determined that vacation rentals are consistent with single-family residential use and are not considered commercial uses. The Supreme Court also ruled that the way in which the association sought to bar the vacation rentals violated the individual property rights of each owner in the community.

Even though the community's development plan allowed a simple majority of owners to change the CC&Rs in whole or in part, the Supreme Court determined that a complete prohibition on vacation rentals constituted a new covenant that required unanimous consent of all owners. Since the Chiwawa Association did not obtain unanimous consent of all owners in restricting the vacation rentals in the community, the Supreme Court determined the vacation rental restriction was invalid.

This case raises many questions such as: (1) when does a rental constitute a commercial use (nightly, monthly, bed and breakfast, yearly); and (2) does the nature of the "use" of the property make a difference (the vacation rentals were mainly for recreational snowmobile users; would it be different if the use did not include noisy machines)?

Also important is the analysis of how and when covenants can be changed by an association, and whether modifications or new covenants can be successful without a unanimous vote where an association has a grandfathering provision to allow existing uses to continue for a specific period of time so as not to violate the property rights of individual owners.

For clients who invest or have invested in property with the intent to rent it for income on a nightly or vacation rental basis, this case may have significant impact. The holding could potentially affect the ability of the owner to continue to generate the income necessary to sustain the property.


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