HOA May Adopt Reasonable Rules and Fees

Overview:  Homeowner associations in California govern most subdivisions, and are granted latitude by the courts, as was reflected in a new Court of Appeal case, Watts v. Oak Shores Community Association where the Court upheld reasonable restrictions and fees imposed to address the growing trend of owners doing short term rentals often through companies like Airbnb and VRBO.

Many of us live in subdivisions managed by a homeowners association. The rights and duties of association members and the board of directors are spelled out in the unwieldy Davis-Stirling Act.

My biggest beef with the Act is that it applies to little subdivisions as well as giant subdivisions with thousands of owners, one size fits all, so it’s overkill and unduly burdensome on little HOA’s. To make matters worse, the Davis-Stirling Act codes were all renumbered a couple of years ago.

HOA Rules

Subdivision CC&R’s give the board of directors of associations the power to adopt rules. Advance notice must be given to owners and an opportunity to critique and contest rules is required.

Associations are granted powers to impose fees and assessments but any fee may not exceed “the amount necessary to defray the costs for which it is levied.” For example, if the cost of making road improvements in the subdivision is $25,000, the association may not impose a fee of $90,000.

Short-Term Rentals

One of the more recent issues causing angst in some associations is the increase in short-terms rentals, sometimes through VRBO or Airbnb. Studies have documented that short-term renters require greater supervision and increase association expenses and add burdens like noise, parking complaints, excessive use of facilities and the like.

One study concluded that each owner’s short-term rentals in a subdivision costs an association $900 per year. May HOA’s charge an extra fee to owners who rent their units on a short-term basis, may they charge such renters additional fees for the renter’s boats? May they restrict some parking lots to owners only? May such increased fees be enacted simply by adopting a budget for the year?

Yes, Yes and Yes

The answer to all of those questions is Yes. Last month the California Court of Appeal, San Luis Obispo County, ruled on a case called Watts v. Oak Shores Community Association: if the association follows its own procedures in its CC&R’s and bylaws, it may address all of those issues generated by short-term rentals. The Court cited the well known Lamden case, “Generally, courts will uphold decisions made by the governing board of an owners association so long as they represent good faith efforts to further the purposes of the common interest development, are consistent with the development’s governing documents, and comply with the public policy.”

The Court in Oak Shores relied heavily on the association’s evidence documenting the additional costs associations take on from managing short-term rentals of their owners. Of course, any fee imposed must be “roughly proportional” to the cost it is intended to offset.

Short-Term Legislation

As we go to print, cities like Los Angeles and San Francisco are proposing new laws to regulate companies like Airbnb and VRBO.

$1 Million in Attorney Fees

The Court awarded Oak Shores Community Association attorney’s fees in excess of $1 million for defending the lawsuit filed by Watts, the disgruntled owner who objected to the additional fees imposed due to his short-term rentals. If Watts was grumpy before, think how he’ll feel as losing party after forking out $1 million for the association’s attorney.

Porter a Bargain

I must be doing something wrong. I couldn’t rack up fees that high if the case was appealed to the California Supreme Court and U.S. Supreme Court, then to the International Court of Justice.

                Jim Porter is an attorney with Porter Simon licensed in California and Nevada, with offices in Truckee and Tahoe City, California, and Reno, Nevada. Jim’s practice areas include: real estate, development, construction, business, HOA’s, contracts, personal injury, mediation and other transactional matters. He may be reached at porter@portersimon.com or www.portersimon.com.

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The content contained and opinions expressed in this blog are solely those of the author. This blog contains content and opinions concerning the law generally, and is not intended to constitute legal advice or to create any attorney‑client relationship with the reader. The reader should consult with an attorney about any specific legal issues prior to embarking on any course of action or inaction involving legal matters.