When Is an HOA or Condo Rental Restriction Unreasonable (Part II)
/This article was originally published on August 7, 2024 by Harmony Taylor in HOA & Condo Associations Real Estate Blog for Law Firm Carolinas.
As attorneys, we are regularly asked by homeowner and condominium associations to assist with restrictions on rentals, whether complete or percentage bans, restrictions on short-term rentals, or limiting corporate rentals. (See past articles, including HOA/Condo Rental Restrictions, Corporate Owners & Institutional Investors and Short-Term Rentals in North Carolina and South Carolina HOAs and Condominiums). In February of this year, the NC Court of Appeals struck down a condominium rental amendment as unreasonable. (When Is an HOA/Condo Rental Amendment Unreasonable?)
Yesterday, August 6, 2024, the NC Court of Appeals again visited the issue of whether a specific declaration amendment restricting rentals is reasonable.
McDougald v White Oak Plantation HOA (“White Oak Plantation”) is an “unpublished opinion,“ which means the decision is not controlling legal authority and should not be cited in other cases. However, even unpublished opinions give a sense of the Court’s thinking as to specific issues and how subsequent courts may rule.
White Oak Plantation is a planned community in Buncombe County, NC. The original 1992 restrictive covenants predated modern rental platforms such as VRBO or Airbnb and contained no language regarding rentals. Instead, the covenants contained general language related to “residential use” and prohibitions against “business operation.” Many owners believed the business operation prohibition already restricted rentals. The covenants were amended at various points, but no specific rental restrictions were added. Plaintiffs are lot owners who began to rent their properties on a short term basis. Thereafter, the membership in 2019 adopted a declaration amendment to prohibit rentals of less than 90 days. Plaintiffs filed suit seeking a declaration that the amendment was invalid as to them and their lots. The trial court granted summary judgment in favor of the homeowners, and the association appealed.
The Court of Appeals analyzed the rental amendment to determine if it was “reasonable” using the standard established by the Armstrong v Ledges case. Noting that reasonableness may be determined from the language of the original covenants, deeds and plats, as well as other objective circumstances, the Court determined that nothing in the original development scheme precluded short term leasing. Thus, the court concluded, the new rental restriction was not reasonable and would not be applicable as to the Plaintiffs who brought suit.
So, what does the case mean or not mean? Again, as an unpublished decision, the opinion only applies to the parties involved and does not have precedential value. Fundamentally, the decision does not change our firm’s approach to rental amendments. ALL amendments must be reasonable, which means that circumstances matter. Associations that have never had any rental restrictions should approach them carefully. Any rental restrictions should be tailored to address membership wishes while protecting vested usage rights. This is why we always encourage associations to discuss such issues with the membership before pursuing any rental amendment to solicit input on the scope of the change and how it should be applied to existing owners (see Rental Amendment Concerns).
With any decision, it’s always best to read the actual case if you want to know how it might impact a specific association. The White Oak Plantation decision can be found here: McDougald v White Oak Plantation HOA.
If your association is considering a rental amendment, you should consult an experienced community association attorney at the outset to make sure that any amendment is pursued correctly–both as to the procedure and as to the substance of the amendment. Please contact any of our community association attorneys in North or South Carolina to discuss such issues.
Harmony Taylor
Law Firm Carolinas, LLC
