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Condo | HOA Lawyers

Can I Use the Prohibition on “Commercial Activity” to Preclude Short Term Rentals?

Those of us involved in condominium management, whether as board members, officers, property managers or attorneys, know that VRBO and AirBnB have changed the way units are rented. Short term rentals are viewed by many associations as a problem that should be solved.  Specifically, these associations and managers would prefer that short rentals (most often defined as less than six months or one year, but I have seen it defined as less than 30 days) be prohibited.  The problem is getting enough people to agree on the various issues:

  1. How will we define short term rental?
  2. What will we use to define something as a violation?
  3. How will we police?
  4. What will be the fine for violations and will the fine structure be progressive?
  5. Will there be any exceptions?
  6. Who will assess the fines? and
  7. Will there be any right to an appeal?

Because Boards often can’t agree on the answers to all of these questions or because the Boards often want the fines to apply immediately (before the documents and procedures are all put into place), we are often asked, “Isn’t someone who regularly rents their unit engaging in commercial activity.” It would seem that the answer would be yes, but in 2017 the Wisconsin Court of Appeals, in the case of Forshee v. Neuschwander, at least for the facts presented to it, answered the question “no.”

The Court of Appeals found that the restrictive covenant was ambiguous as to whether short-term rentals were prohibited. The Court held that restrictive covenants must be clear and unambiguous in order to be enforced.  The Court went on to find that “commercial” means any activity that is concerned with buying and selling, or any activity by which a person makes, or intends to make, a profit.  The Court even recognized that the unit owners did not dispute making a profit from the rentals, but no evidence suggested that any profit was made on the particular lot at issue, which caused the court to rule that reasonable minds could differ as to whether the covenant precluded short-term rentals.

Lesson:  If your Board is looking to prohibit short-term rentals, you need to do the following:

  1. Review your existing documents to see what they provide relative to rentals and leasing of the units;
  2. Draft and have properly approved amendments to the appropriate documents to properly restrict short-term rentals; and
  3. Enforce any restriction you place on short-term rentals.

For more information on short-term rentals, including restrictions that can be placed on them, please contact an attorney that specializes in condominium law.

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