December 2, 2011

In this week's tip, we explain a recent California case that gives the go–ahead for HOAs to impose a general rental fee on owners who lease out their property.

After a five–week trial, the court issued its judgment in Watts v. Oak Shores Community Association on October 11, 2011, likely putting smiles on many HOA board members' faces throughout California.

Some background: California law says HOAs can't impose or collect an assessment or fee that exceeds the amount necessary to defray the costs for which it 's levied.

In Watts, the plaintiffs argued that the board imposed illegal and unreasonable fees on owners who rent their units on a short–term basis in the gated HOA on the banks of Lake Nacimiento. The HOA has about 851 lots, 660 of which have homes on them. Of those, about 80 are occupied by full–time residents. The others, including those owned by the plaintiffs, are rented, some for short–term rentals of 90 days or less.

HOA rules state that owners can't rent their home out more than once in a seven–day period and set maximum numbers of cars, boats, and other watercraft per home at any one time. They also impose an annual fee of $325 on owners who rent their home and a mandatory garbage collection fee, boat and watercraft fees, building permit fees, and property transfer fees.

The court held that all the contested bylaws, rules and regulations serve important interests within the HOA. Specifically, the court held that the $325 fee on owners who rent was a valid charge to recover the increased costs that owners impose on the community when they rent out their home: "Among other things, short–term renters generate 'tremendous amounts of garbage' and impose a large burden on the marina, playgrounds, pool, golf course, courtesy slips and other areas. Tending to be 'clueless' when they arrive at Oak Shores, short–term renters seldom have guidance with respect to the rules, regulations and fees that are required. They often need and seek help from OSCA staff. They place an increased burden on gate staff, office staff and security staff."

James R. McCormick, Jr., a partner at Peters & Freedman LLP in Encinitas, Calif., who represents associations, likes this decision. Find out why, and find out what you need to know if your HOA isn't in California, in our new article: Can Your HOA Impose a Fee Just Because Owners Rent Their Unit?

Best regards,
Matt Humphrey
President