An issue that frequently arises in Condominium and Single Family Residence (“SFR”) planned communities is whether the rental of the units/homes can be prohibited or restricted. While there are still some unanswered questions regarding this issue in the State of Washington, the following legal principles should provide some helpful guidance:
1. In General. Any new use restriction, including those relating to rental of units/homes, can be imposed only by an amendment to the CCRs. See Shorewood v. Condominium Assoc. v. Sadri, 140 Wn.2d 47 (2000).
While no Washington case addresses the issue, an exception to this rule would likely apply if the CCRs themselves expressly authorize all use restrictions, or a specific type of use restriction, to be adopted in some other way (e.g., via amending Bylaws or adopting of Rules).
Such CCRs amendments need to be recorded to become effective.
2. Condominium Communities. In Condominium communities any amendment to the Declaration (CCRs) that changes “the uses to which any unit is restricted” can only become effective if the owners of all the affected units and 90% of all other unit owners vote in favor of the amendment. RCW 64.34.264(4).
Whether an amendment imposing additional restrictions on rentals in a Condominium community where the original CCRs imposed some lesser or different rental restrictions would be subject to the requirements of this statute remains an open question in Washington.
3. Non-Condominium Communities. In SFR communities any CCRs amendment imposing use restrictions, including rental restrictions, on the lots/homes in the community must always be adopted in accordance with the procedures specified in the current CCRs. There are no additional statutory requirements for SFR communities similar to the statutory provisions cited above regarding Condominiums.
On the other hand, a recent Washington case has ruled that even when a rental restriction prohibiting short-term rentals of homes is adopted in strict accordance with a particular SFR community’s CCRs, the restriction was invalid and unenforceable. Wilkinson v. Chiwawa Communities Association, Wn.2d (2014).
The Wilkinson Court made the following rulings in the case:
a. Short-term home rentals did not violate covenants barring commercial use of the homes and lots.
b. Short-term home rentals did not violate covenants requiring only single-family residential use of the community homes and lots.
c. The Association had exceeded its powers by amending the CCRs to prohibit short-term rentals, because the community’s “general plan of development [permitted] a majority to change the covenants but not create new ones.” The Court found that the existing CCRs reflected a “general plan of development” that could not be reconciled with a restriction on short-term rental of homes. Thus, the amendment “created” a “new” restrictive covenant and not just a “change” in the existing restrictions.
In order to accomplish a rental restriction that, in the Court’s view, runs counter to the “general plan of development” (as deduced from the CCRS), a unanimous vote of all owners would presumably be required for a SFR planned community.
This decision in Wilkinson was somewhat surprising to me inasmuch as the CCRs for the Chiwawa community plainly authorized amendments to “change” any use restriction, which would seem rather logically (to me at least) to include either increasing or reducing, adding or eliminating, restrictions. A restriction on short-term rentals would therefore arguably constitute a “change” in use restrictions implicitly authorized by the CCRs.
Nevertheless, in light of this recent Washington Supreme Court decision, which is now the law in Washington, a SFR Association’s authority to restrict rentals by amending the CCRs has been limited and rendered less certain.
If your Condominium or SFR community is considering imposing new or different use restrictions, including restrictions relating to rental of homes/units, you should wisely seek legal advice to assess the likely success of, and the proper procedure to accomplish, your objectives. In many cases your objectives certainly can be accomplished, but in other cases it may be most difficult or even impossible to do so.
Our firm provides legal representation to Associations and to owners of homes/units in Associations. Please contact us if you need help.