Short-Term Rentals in North Carolina and South Carolina HOAs and Condominiums

We live in an increasingly sharing world and culture. For a small fee we share rides to get to work, can leave our pets at someone’s house while on vacation, or we can rent our neighbor’s car, high-end household items like cameras or kitchenware, and even musical instruments (although I’m not sure I would want to share some of those).  With the explosion in our sharing economy, it should come as no surprise that owners in homeowners associations and condominiums have found ways to take advantage of technology to market their homes to those in need of lodging on a shorter, and often more profitable, basis.

Homeowners associations and condominiums wrestled for years with the best approach to limit rentals within their community. Most associations have traditionally been concerned with the negative impacts connected with owners leasing their homes to tenants, and typical lease terms ranged anywhere from 6-12 months or more.  Now, with the rise of Airbnb, Vrbo, Flipkey, Homeaway, and other similar platforms devoted to helping owners market their homes on a short-term basis, homeowners associations and condominiums are again wondering how to limit these new types of rentals.

The traditional method for associations to prevent rentals within a community was by enforcing a residential use restriction. These come in various forms and use similar wording, but the gist of a residential use restriction is that it is designed to prohibit use of the Lot or Unit for purposes other than residential purposes.

In North Carolina, courts have treated simple residential use restrictions as requiring that the Lot or Unit be used for noncommercial purposes. In other words, so long as the occupant of the Lot or Unit is using it for normal residential things (eating, sleeping, watching TV, doing chores and homework, cooking, cleaning, etc.) then the use would be considered residential.  In order to limit rentals within the community, associations in North Carolina must have more specific rental restrictions.

South Carolina is a bit more nuanced (or perhaps the courts there just can’t make up their minds). Several cases have looked at the character of the lease itself—the length, the frequency of similar leases, the location and character of the community, and the overall purpose of the lease.  In these cases there is an assumption that leases are permitted.  However, short-term or vacation leases may be a violation of a basic residential use restriction, especially for condominiums.  At least one court in South Carolina has held that a rental within a condominium is, in and of itself, a commercial use (and would therefore violate a residential use restriction).  While I believe that case can be distinguished, condominium associations should be aware that their approach to limiting rentals may take more analysis of all the relevant facts than in other homeowners associations.

Because the law in North Carolina does not generally allow a homeowners association or condominium to limit leasing based on a simple residential use restriction, North Carolina associations will likely have to be more creative and many will want to amend their restrictions to specifically address short-term rentals. Another common variation is a single-family residential use restriction.  Courts apply a specific test to this version of the residential use restriction and an association’s ability to limit rentals will depend on several fact-sensitive elements.

Depending on the facts, South Carolina associations may be able to rely on a basic single family use restriction to prohibit short term rentals. To restrict or prohibit more traditional long-term rentals associations in South Carolina will need to amend their documents to address those types of leases since the case law has treated these types of leases differently.

Not to be outdone, many municipalities are passing their own local ordinances that either restrict or outright prohibit short term rentals. Some have pointed to the fact that companies like Homeaway and Airbnb reduce hotel/motel revenue, especially in locations where tourism is a key element of the local economy.  Others have created rules restricting short term rentals in an effort to put all companies on the same playing field by requiring them to be licensed, insured, etc.

If you are curious what rules your homeowners association or condominium may have or whether your HOA or condominium may need to adjust the rules you already have to keep up with the times, please contact me. I work closely with HOAs and homeowners on a regular basis and would be glad to review your HOA or condominium’s restrictions to determine the best approach to work for your community.

HOA & Condo Associations