Lastavich v. Nob Hill Homeowners Association et al. (Case No. D075466)

Short-term vacation rentals (STVRs), typically defined as residential rentals for less than 31 consecutive days, have grown increasingly popular in recent years, thanks to companies such as Airbnb and VRBO. Even in the COVID-19 era, STVRs have seen a surge in demand because travelers perceive STVRs as safer than hotels.[1]

With the growing prevalence of STVRs, some municipalities have begun prohibiting and/or regulating STVRs, including via standards set forth in city and county municipal codes and zoning ordinances. In addition, for many Californians, homeowners’ associations (HOAs) function as a secondary form of oversight, regulating many aspects of their daily lives. (Chantiles v. Lake Forest II Master Homeowners Assn. (1995) 37 CalApp.4th 914, 922.) For such properties, Covenants, Conditions & Restrictions (CC&Rs) may be recorded against the property, or the HOA may have other rules and regulations, that restrict or regulate rental activities. Some HOAs and CC&Rs prohibit residential rentals of less than 30 days.

Recently, the California Court of Appeal’s Fourth District held that the governing CC&Rs of a condominium complex located in the City of Carlsbad do not prohibit STVRs. (Lastavich v. Nob Hill Homeowners Association et al. (Dec. 2, 2020, D075466 [nonpub. opn.].) The condominium complex at issue is a four-unit complex located in Carlsbad’s coastal zone. GDB represented the defendants/respondents – the HOA and two members of the HOA who have rented their units as STVRs since as early as 2005. The plaintiff also is a member of the HOA and has lived in the complex since 1998; he brought this action against the defendants/respondents in 2017, alleging breach of fiduciary duty, fraud, trespass, negligence, intentional and negligent infliction of emotional distress, and violation of the CC&Rs.

The CC&Rs, recorded in 1986, restrict each of the complex’s units to “be used as a single family residence and for no other purpose or purposes.” The plaintiff claimed that this restriction prohibits “commercial” enterprises such as STVRs, and contemplates residential use of the units by owners, guests and tenants, but not “transient vacation lodgers.” The plaintiff sought an order prohibiting STVRs at the complex, a declaration that STVRs violated the CC&Rs, and both general and punitive damages. After a bench trial, the trial court entered judgment in favor of the defendants/respondents, finding that “short term vacation rentals are not a business and that their use do[es] not violate the CC&Rs.” The trial court also awarded the defendants/respondents attorney fees.

On appeal, the Fourth District affirmed the trial court’s judgment, as well as the award of attorney fees. In its independent review of the CC&Rs, the court noted that restrictive covenants, such as CC&Rs, must be construed strictly against those seeking to enforce them and in favor of the unencumbered use of the property. Restrictions on the use of land cannot be “read into” CC&Rs by implication. Here, the court gave the CC&Rs a “just and fair interpretation” and determined that they do not expressly or implicitly prohibit the use of the condominium units as STVRs.

For purposes of this appeal only, the court defined an “STVR” to mean a rental of less than 30 days. This is the definition used by the plaintiff and by the City of Carlsbad’s Ordinance No. CS-272, which permits STVRs in the coastal zone where the subject condominium complex is located.

In reaching its ruling, the Fourth District noted that multiple sections of the CC&Rs expressly contemplate the units can be rented and/or leased by non-owners without regard to any minimum number of days or time period. The court also considered sworn testimony from the drafter of the CC&Rs, who testified she had no intent to restrict or prohibit STVRs or other rental use of the units. Moreover, the undisputed evidence showed that most of the former and current property owners, other than the plaintiff, have used their units as STVRs, dating back to 2005. Further, the plaintiff was aware of such use since 2005.

In short, and based on the undisputed evidence before it, the Fourth District concluded that the CC&Rs of the Carlsbad condominium complex do not prohibit owners from using their units as STVRs. In doing so, the unpublished opinion upholds the free use of property by not imposing restrictions in the absence of clear, express intent to establish such restrictions in the applicable governing documents.

[1]           See, e.g., “Airbnb Is Seeing a Surge in Demand,” Los Angeles Times (June 7, 2020), available at https://www.latimes.com/business/story/2020-06-07/airbnb-coronavirus-demand; “California Is Banning Short-Term Rentals. Why Can’t Travelers Get Refunds?,” The New York Times (December 15, 2020), available at https://www.nytimes.com/2020/12/15/travel/airbnb-vrbo-refunds-travel-ban.html#commentsContainer.

Also, while beyond the scope of this update, public health orders such as California’s December 3, 2020 Regional Stay At Home Order may restrict non-essential travel and STVRs during the public health emergency.

[This alert does not constitute legal advice and no attorney-client relationship is created by viewing or responding to this alert.  Legal counsel should be sought for answers to specific legal questions.]