Arizona Court of Appeals, Division One invalidates HOA ban on short-term rentals as unreasonable and unforeseeable.

A homeowners’ association (HOA) amended the Covenants, Conditions, and Restrictions (CC&Rs) of a residential community to prohibit short-term leases lasting less than 30 days and to limit occupancy to no more than four unrelated individuals. Several property owners challenged the amendments as unreasonable or unforeseeable under the existing CC&Rs pursuant to Arizona common law.

Ruling on cross motions for summary judgment, the trial court held that the CC&R amendment prohibiting short-term leases was invalid, but that the amendment limiting occupancy based on blood relation was valid.

The appellate court affirmed and clarified that Arizona’s Planned Communities Act, A.R.S. §§ 33-1801 to -1819, does not displace the common law—specifically, the application of Kalway v. Calabria Ranch HOA, LLC, 252 Ariz. 352 (2022), to CC&R amendment challenges.

Under Arizona common law, as explained in Kalway, a CC&R amendment is valid only if it is reasonable and foreseeable. Amendments may refine, clarify, fill gaps, and alter the existing provisions, but they cannot impose entirely new obligations. The requirement’s purpose is to ensure homeowners have adequate notice of potential changes when they purchase property.

Here, the appellate court agreed that the ban on short-term leases was not reasonable or foreseeable because the original CC&Rs allowed property owners to lease their homes without specifying a minimum lease duration. Imposing an entirely new prohibition through an amendment was a significant, unforeseeable change that property owners could not have reasonably anticipated when they purchased their properties.

In contrast, the appellate court upheld the amendment restricting occupancy to no more than four unrelated individuals. The court reasoned that the original CC&Rs already defined “Single Family” and limited the use of homes to “Single Family residential use.” Consistent with Kalway, the occupancy amendment refined the definition of “Single Family” by specifying that it could not consist of more than four unrelated persons. The appellate court affirmed the trial court’s decision that this was a reasonable and foreseeable clarification rather than a new, unrelated restriction.

Accordingly, the appellate court held that the amendment prohibiting short-team leases was invalid and struck it from the CC&Rs, and the amendment limiting occupancy was valid.

Judge Thumma authored the opinion of the Court, in which Judges Campbell and Brown joined.

Posted by: Payslie M. Bowman