Background
Baoan Andy Gia Le and Linda Sinat Som purchased two units in North Shore Condominiums, a planned condominium community in Tempe, Arizona, as investment properties intending to operate them as short-term rentals. The community’s 2009 Declaration required units to be used exclusively for residential purposes, prohibited hotel or transient uses, and permitted leasing — but did not define “transient” and contained no explicit minimum lease duration. A prior 2005 declaration had barred leases of less than one year, but a 2008 amendment removed that language while leaving the prohibition on hotel or transient uses intact.
After the Owners purchased their units in 2020 and 2021, the Association’s board replaced an existing one-year minimum lease rule with a 30-day minimum lease rule in February 2022. The Owners sued for declaratory and injunctive relief, arguing the 30-day rule was invalid because the Declaration contained no express durational restriction and that the 2008 amendment had eliminated any temporal limit on leases.
The Maricopa County Superior Court granted summary judgment for the Owners, finding the 30-day rule invalid under Kalway v. Calabria Ranch HOA, LLC, 252 Ariz. 532 (2022), because the Declaration’s lack of any specific durational restriction meant prospective buyers had insufficient notice that such a rule could be adopted. The court further barred the Association from enforcing any minimum lease duration rule absent a formal Declaration amendment. The Association timely appealed.
The Court’s Holding
The Court of Appeals reversed and remanded with instructions to enter judgment for the Association. The court held that the 30-day rule was validly adopted under A.R.S. § 33-1242(A)(1), which authorizes a condominium association to adopt rules consistent with its declaration, and that the Declaration expressly empowered the Board to adopt rules restricting unit use. Because the 30-day rule reinforced rather than conflicted with the Declaration’s existing prohibition on residential, non-transient uses, the Board acted within its authority.
The court further held that the 30-day rule passes the Kalway reasonableness-and-foreseeability test. Although Kalway arose in the context of CC&R amendments rather than board-adopted rules, the court extended its reasonable-expectations framework to board rules, reasoning that a restriction imposed by a minority board should be no less subject to the foreseeability requirement than one approved by a majority of homeowners. On the merits, the court found the rule was a foreseeable clarification of the undefined term “transient”: the Declaration used but never defined that term, much as the CC&Rs in Kalway used but never defined “garage,” and a later rule filling that definitional gap was reasonably anticipated. The court also noted that defining “transient” as sub-30-day occupancy aligned with Arizona’s transaction privilege tax statute and Tempe’s own zoning code.
The court rejected the Owners’ argument that the 2008 amendment evidenced an intent to eliminate all durational restrictions, finding that amendment merely removed a separate minimum-term provision while leaving the transient-use prohibition untouched. The court also rejected the contention that requiring renters to sign written leases removed those rentals from the category of “transient” use. Because the facts were stipulated, the court directed the superior court to enter judgment — including attorney fees — for the Association.
Key Takeaways
- Under Kalway’s reasonable-expectations framework, an HOA or condominium board may adopt a rule that defines or clarifies an undefined term in the original declaration without homeowner approval, provided the rule is tethered to and consistent with the original restrictions.
- A prohibition on “hotel or transient purposes” in a condominium declaration provides sufficient notice to support a subsequently adopted 30-day minimum lease rule, particularly where Arizona statutes and local zoning ordinances define “transient” occupancy as less than 30 consecutive days.
- The removal of an express minimum lease term from a declaration by amendment does not necessarily signal an intent to eliminate all durational restrictions on rentals if the declaration separately retains a prohibition on transient uses.
- The existence of written lease agreements between an owner and short-term renters does not, by itself, render those rentals non-transient for purposes of a declaration’s hotel or transient use prohibition.
Why It Matters
This decision is significant for condominium associations and HOAs throughout Arizona that wish to restrict short-term rentals without undertaking the often-difficult process of formally amending their governing documents. By holding that a board-adopted rule clarifying an undefined term in the declaration satisfies Kalway’s foreseeability test, the court gives associations a viable path to regulating platforms like Airbnb and VRBO where the original declaration contains a transient-use prohibition but no explicit minimum lease duration.
For unit owners and real estate investors, the case is a cautionary reminder that the absence of an express minimum lease term in a declaration does not guarantee the right to operate short-term rentals. Where a declaration bans hotel or transient uses — even without defining the phrase — purchasers take on the risk that the board may later adopt rules defining and enforcing that prohibition, and prior amendments that removed durational language may not insulate them from such rules if the transient-use restriction itself remains intact.