Arizona Short-Term Rentals: Recent Court Ruling

Arizona Short-Term Rentals: Recent Court Ruling

The topic of short-term rentals continues to generate considerable debate in Arizona, both among residents and in the courts. A few years back, the Arizona legislature restricted counties and cities from enacting laws that limit short-term rentals, typically defined as rentals lasting 30 days or less. Many speculate that this legislative decision resulted from pressure by online vacation rental platforms, though there is no concrete evidence of such activity.

This state-level decision has been a source of frustration for many municipalities. Local residents often push for tighter controls on short-term rentals due to issues like noise, waste management, and parking challenges that have escalated alongside the growth of the short-term rental market. While cities have managed to introduce some regulations targeting nuisances and noise complaints, an outright ban on short-term rentals at the municipal level remains elusive.

Homeowners associations (HOAs) have attempted to address this issue in lieu of broader municipal efforts. For new developments, associations often include short-term rental bans directly in their governing documents, like the Covenants, Conditions, and Restrictions (CC&Rs). However, for established HOAs, changing rules often requires a supermajority vote (commonly 67%), making amendments difficult if some homeowners either prefer to rent their properties or are uninterested in voting. Still, some associations have managed to implement such bans, adhering to the necessary procedural steps like proper notice, voting, and recording.

The legal landscape for these disputes has evolved, notably through cases like Kalway v. Calabria Ranch HOA, LLC (2022), where the Arizona Supreme Court clarified that amendments to CC&Rs must be reasonable and foreseeable under the common law. The recent Gross, et al v. The Shores at Rainbow Lake Community Association (2024) case further explores this standard. Here, the court ruled that banning short-term rentals outright was not reasonable or foreseeable, as the original deed restrictions did not address short-term rentals. This outcome was a setback for residents seeking such a ban.

However, the court in Gross did uphold an amendment prohibiting more than four unrelated individuals from leasing a property, even though short-term rentals themselves were not banned. This restriction indirectly limits many group rental scenarios, offering a partial victory for those opposed to short-term rentals.

Looking ahead, the Gross decision remains a Court of Appeals ruling, and an appeal to the Arizona Supreme Court could reshape the situation. For now, HOAs without an explicit short-term rental ban in their original CC&Rs may face challenges in enforcing new restrictions. Nevertheless, associations which find other provisions in their CC&Rs to achieve a similar outcome might still succeed. Of course, if everyone in the community agrees and is willing to sign a properly drafted amendment, the CC&Rs can explicitly prohibit short-term rentals. This approach ensures that the restriction is legally enforceable and reflects the unanimous decision of the homeowners.  However, achieving unanimous consent is challenging, especially in larger communities where opinions on the impact of short-term rentals vary.

The legal and regulatory landscape for short-term rentals in Arizona remains fluid, and further developments are likely as communities and courts navigate this complex issue.