Court of Appeals Rejects HOA STR Amendment Based on "Character of the Community"
Court finds condo
amendment "unreasonable" in light of language in original declaration
coupled with fact that short-term renting was "commonplace" in the
condominium prior to the amendment.
A
new, albeit unpublished decision by the North Carolina Court of Appeals
sheds fresh light on how a court might analyze and resolve the highly
contentious issue of a homeowner's association’s attempt to amend its
declaration to prohibit short-term rentals of homes within the community
As “AirBnB”-type short-term rentals (STRs) become more popular in
communities bound by restrictions and covenants contained in so-called
“declarations,” the covenant communities are striving to prohibit STRs
by way of amendments to those declarations. Neither North Carolina
statutes nor case law has definitely provided guidance as to whether or
not communities can prohibit current owners from doing STRs by amending
their declarations. (It seems less contentious whether amendments
can prohibit future owners in the same communities.)
In Mileview, LLC v. Rsrv. II at Sugar Mt. Condo. Owner’s Ass’n,
2024 N.C. App. LEXIS 148, the Court of Appeals, like the trial court
below, relied entirely on a conservative reading of the North Carolina
Supreme Court’s opinion in Armstrong v. Ledges HOA, Inc.,
360 N.C. 547 (2006), to hold that the prohibition of short-term rentals
at the condominium association was “unreasonable” and therefore
void. In rejecting the amendment, the Court emphasized the
importance of a case-by-case determination of the “character of the
community” together with a close reading of the original declaration.
Quoting extensively from Armstrong, the Court of Appeals in Mileview explained
that, when examining the permissibility of an amendment to an
association's declaration, “we must determine whether the amendment
preserves the original nature of the bargain [of the covenanting
parties] by remaining faithful to the purpose of the original
declaration. To make this determination, we ascertain the
reasonableness of the amendment from the language of the original
declaration of covenants, deeds, and plats, together with other
objective circumstances surrounding the parties’ bargain, including the
nature and character of the community.” It found the following
“hypothetical” in Armstrong compelling:
“[I]t may be relevant that a particular geographic area is
known for its resort, retirement, or seasonal 'snowbird' population.
Thus, it may not be reasonable to retroactively prohibit rentals in a
mountain community during ski season or in a beach community during the
summer.”
The challenged amendment prohibited owners from renting
their homes for less than 30 days between November and March (presumably
high season for skiing).
Applying that analytical framework to the facts before it,
the Court was cognizant of the fact that the condominium was indeed
located in a ski community, that the original covenants expressly
contemplated renting units generally and that no language in the
declaration was consistent with the prohibition of short-term rentals.
In practice, finally, short-term renting was “commonplace” in the
condominium prior to the amendment.
Accordingly, the amendment prohibiting short-term rentals
during the ski season was “unreasonable” and therefore void.
As mentioned above, Mileview is an unpublished
decision meaning that it is not intended to have any value as a
precedent. Still, the opinion is instructive as an insight into
the analytical framework that a trial court or other appellate panel may
apply when confronted with a similar situation.
And what we learn from Mileview is that the principles set out in the now nearly 20-year-old Armstrong
case are alive and well in 2024 and that the “character of the
community” prior to the challenged amendment ‒ is the association
located in a resort or otherwise special community, and are short-term
rentals already “commonplace” in that community? ‒ are clearly among the
paramount considerations in any such analysis.
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