Court Invalidates Amendment to CC&Rs that Prohibited Short-Term Rentals

This case involved a dispute between a group of property owners (“Owners”) and their homeowners’ association (“Association”) over the validity of an amendment to Association’s CC&Rs that was adopted in 2021 which prohibited: (i) leases lasting less than 30 days; and (ii) leases to more than four unrelated individuals. Owners, who had previously leased their properties on a short-term basis, filed a suit against Association challenging the validity of the amendments.

The trial court ruled that: (i) the amendment to the CC&Rs that prohibited leases lasting less than 30 days was invalid; and (ii) the amendment prohibiting leases to more than four unrelated individuals was valid and enforceable. The trial court also denied both sides requests for attorney fees. Both parties appealed the trial court’s decision.

The central issue addressed by the appellate court was whether the 2021 amendments were “reasonable and foreseeable” recognizing the rule established by a prior case (Kalway v. Calabria Ranch HOA, LLC, (2022)  252 Ariz. 352) that a covenant in CC&Rs can be amended to refine it, correct an error, fill in a gap, or change it in a particular way, but it cannot be entirely new and different in character, and untethered to the original covenant. Applying the standard set by the earlier Kalway case, the appellate court stated that, for Association’s amendment to be valid: (i) the CC&Rs must expressly authorize amendments; and (ii) the amendment must be “reasonable and foreseeable.”

In assessing the reasonableness and foreseeability of an amendment the appellate court, citing language in the Kalway case, stated: