I closely monitor issues related to short-term rentals (STRs) and believe that effective regulation and professionalization of the industry can help ensure responsible hosting practices while holding property owners accountable to the communities in which they operate.
This article examines past factors and conditions for those who want to offer their property as a short-term rental and the future of evolving state and local regulations.
Background: 2016 STR AZ Law
Before 2016, Arizona faced a complex landscape of varying local regulations on short-term rentals. Some municipalities allowed STRs with minimal restrictions, while others sought to impose stricter measures to address concerns such as noise, parking, and the erosion of the residential character of neighborhoods.
Amid this regulatory uncertainty, the Arizona legislature enacted a law in 2016, known as the 2016 STR AZ Law, to establish statewide guidelines for short-term rentals. This law sought to strike a balance between the interests of property owners, the tourism industry, and the concerns of permanent residents.
SB 1350 was passed by the AZ Legislature, which authorized short-term rentals in Arizona and specifically prevented cities and towns from prohibiting, restricting, or regulating short-term vacation rentals. The law allowed home owner associations (HOAs) and condominiums to enact their restrictions if they followed some general guidelines creating a hodge-podge of restrictions and rules across the valley.
Recent AZ Supreme Court Decision and its Impact on HOA Restrictions
With the enactment of the 2016 STR AZ Law, the regulation of short-term rentals continued to be a contentious issue in some communities. In 2022, the Arizona Supreme Court made a critical decision that questioned the authority of HOA’s to create and enforce their own restrictions concerning STRs and placed limits on their scope.
The Arizona Supreme Court case, Kalway v. Calabria Ranch HOA LLC et al, raised substantial questions surrounding the authority of homeowner's associations (HOAs) to implement and enforce changes to their covenants, conditions, and restrictions (CC&Rs). The Court's stance is explicit: CC&R amendments introducing "affirmative obligations" that establish new usage constraints must meet two criteria for enforceability – they must be both reasonable and foreseeable.
In simpler terms, this decision implies that HOAs cannot modify CC&Rs to introduce new obligations without prior notice in the original CC&R document, alerting owners to the possibility of such obligations. Importantly, as this ruling applies retroactively, HOAs are also prevented from enforcing any existing amendments that run afoul of the Court's criteria. This ruling bears significant weight, given that HOAs frequently amend their CC&Rs and subsequently enforce these changes with the presumption of their validity.
The Future of Short-Term Rental Management in Arizona
Among this uncertainty, the League of Arizona Cities and Towns, a group of elected officials from 91 Arizona communities, submitted proposed changes the group would like to see the AZ Legislature take up in the upcoming year regarding short-term rentals. The proposal includes three changes to state law:
Enforce Local Housing Market Caps: Implement regulations that limit the percentage of available homes that short-term rentals can occupy. For instance, a city may consider imposing a cap of 10 percent on less-than-30-day rentals, ensuring that the housing market remains accessible to long-term residents.
Neighborhood-Specific Density Limits: Extend the regulation of short-term rentals to specific neighborhoods within a city. This approach ensures that areas retain their residential character and aren't overwhelmed by short-term rentals, preserving the sense of community.
Mandatory Spacing Between Rentals: Enforce a minimum distance requirement between short-term rental properties. For example, cities can mandate that short-term rentals be at least three houses apart. This rule protects the quality of life for residents by preventing an over-concentration of rental businesses in one area.
Given this proposal, the 2016 STR AZ Law, and subsequent Supreme Court decisions, the stage is set for the future management of short-term rentals in Arizona. Here are some potential developments to watch for:
Continued State and Local Regulation: With the Supreme Court's decision and the League of Arizona Cities and Towns proposal, we're likely to see the state, municipalities, and HOA’s attempt to further regulate STRs, developing and enforcing rules tailored to local concerns and interests.
Technological Advancements: Advancements in technology, such as data analytics and online platforms, may offer better tools for monitoring and enforcing STR regulations, making it easier for property owners and local governments to manage the industry responsibly.
Public-Private Collaboration: As short-term rentals increase; we may see increased collaboration between the public and private sectors to balance promoting tourism and protecting community welfare.
Evolving Guest Expectations: Traveler preferences for short-term rentals may evolve, influencing the properties and experiences that become popular in the market. Property owners will need to adapt to meet these changing demands.
These factors have laid the groundwork for an evolving, regulated, and well-managed short-term rental industry here in Arizona. To balance the interests of property owners and local communities, we need a commonsense framework that allows for responsible growth in this dynamic sector. This ensures that short-term rentals continue to contribute positively to the state's tourism economy while preserving the essence of its neighborhoods and communities.
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