LONG-TERM


Short Term Rentals and Long Term Impacts:


With the rise of vacation rental platforms such as Airbnb and VRBO, short term rentals ("STRs") have become commonplace in many communities. For purposes of this articles, an STR is a particular kind of rental where the property owner rents out the property for a term that is less than 30 days. As associations respond to the changing landscape of STRs, issues have arisen regarding when, and against whom, associations can enforce restrictions or prohibitions on STRs. This was precisely the question in the 2021 opinion issued in Brown v. Montage at Mission Hills, Inc.


Case Background and Basics


Montage at Mission Hills, Inc. ("Montage") is a CID in Cathedral City, California. Nancie Brown ("Brown") purchased a property in Montage in 2002. At the time Brown purchased her property, Montage's governing documents did not prohibit any form of renting. From 2002 to 2017, Brown consistently rented her property for STRs.


In 2018, Montage amended its governing documents to prohibit its members, including Brown, from renting or leasing their properties for periods of less than 30 days. Despite this amendment, Brown continued to rent her property for STRs. When Montage notified Brown that it would enforce the new prohibition against her, Brown brought suit against Montage with the goal of preventing Montage from enforcing the prohibition on STRs against her.


California Civil Code Section 4740


Brown's primary argument was that she was exempt from Montage's newly enacted amendment prohibiting STRs pursuant to California Civil Code Section 4740. In relevant part, Section 4740 states:


An owner of a separate interest in a common interest development shall not be subject to a provision in a governing document or an amendment to a governing document that prohibits the rental or leasing of any of the separate interests in that common interest development to a renter, lessee, or tenant unless that governing document, or amendment thereto, was effective prior to the date the owner acquired title to their separate interest. Montage argued that its amendment was a rental restriction and not a prohibition as contemplated by Section 4 7 40. Conversely, Brown argued that the amendment prohibited


30 May | June 2022


the rental of her property. Brown further argued that because the amendment prohibiting STRs was not operative when she purchased her property in 2002, pursuant to Section 4 7 40, Montage could not enforce the amendment's prohibition against her.


Therefore, the question the court had to answer was whether the 2018 amendment "prohibited" rentals or merely "restricted" rentals. If the amendment "prohibited" rentals, Brown would be exempt from enforcement under Section 4 7 40.


"Prohibition" or "Restriction"?


The court first looked to the plain language of Section 4 7 40 to find its answer. However, the court determined that "with regard to STRs, the plain meaning of Section 4 7 40 is not clear and unambiguous." The court reasoned that:


"On the one hand, if a regulation forbids any category of rental, such as a short-term lease, that regulation 'prohibits' that type of rental, even if it does not prohibit all rentals. On the other hand, the section's language could be read to bar only complete 'prohibitions' on leasing but not 'restrictions' on leasing that fall short of outright bans on all leasing."


Without a clear answer from the plain language of Section 4 7 40, the court turned to an analysis of the legislative history of Section 4 7 40 to glean the Legislature's motivation behind the law. The court found that the "history indicates that the Legislature intended broad protection for owners against restrictions on renting, including [restrictions on STRs]." In particular, the court focused on the fact that the Legislature's intent with Section 4 7 40 was to ensure that, "[i]f members of a [homeowners association] vote to pass a restriction on rentals the restriction would not apply to an owner that had the right to rent or lease when they purchased unless they agree to waive that right."


From this historical review, the court concluded that "the statute's legislative history demonstrates that the statute's goal is to exempt CID property owners from any kind of rental prohibition or restriction that did not exist when the owner acquired title to the property." As a result, the court found in favor of Brown, holding that Montage's 2018 amendment to its governing documents prohibiting STRs was unenforceable against Brown.


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