Prohibiting Short-Term Rentals

We are routinely asked whether a homeowners association or condominium association can prohibit short-term rentals, including occupancy arrangements through home-sharing platforms such as Airbnb and Vrbo.

Short-term rental platforms have become increasingly popular lodging options.  However, they have also caused an influx in concerns among residents about the potential adverse impact of “vacation rentals” on a community.  In particular, concerned homeowners cite issues such as increased noise, nuisances, congestion and parking issues.  Homeowners have reasonable – and, in many cases, substantiated – fears that their neighboring home or condominium unit will become a badly neglected “party pad,” resulting in a constant deluge of “new neighbors” and an eventual loss in property values.

A common source of confusion is Indiana Code §36-1-24, et seq., which was adopted by the Indiana Legislature in 2018.  This statute, in essence, limits the ability of municipalities to regulate and prohibit short-term rentals.  Importantly, however, the statute sets forth an exemption for restrictions contained in the governing documents of a homeowners association or condominium association.  As such, community associations have the right to limit or prohibit short-term rentals.

To be valid, short-term rental restrictions should be incorporated into a community’s covenants.  Boards should first review their existing covenants and bylaws to determine if there are any applicable restrictions.  In some cases, a community’s original covenants may contain language prohibiting short-term or “transient” rentals.  However, if there are no such restrictions, the association should formally amend their covenants.  This typically requires approval of two-thirds or 75% percent of the association’s members, though the specific requirement will vary by community.

If the covenants are properly amended, all current and future owners will be bound by the short-term rental ban.  The restrictions will thereafter be enforceable in the same manner as other covenants, up to and including the right to obtain an injunction to prevent the owner from renting the home.

In addition to prohibiting short-term rentals, some association boards wish to consider broader restrictions.  Examples include a rental cap limiting the total number of rentals in a community or even a full-fledged rental ban.  Adding such restrictions will require formal amendment of the covenants.

Prior to pursuing new restrictions – a short-term rental ban or otherwise – it is advisable that the board of directors first survey the community’s owners or discuss the proposed restrictions with the membership to gauge interest.  Other considerations may include the number of existing rentals and whether rental properties have posed any particular problems to the community.

Covenant amendments entail a technical and complex process and should not be attempted without the assistance of legal counsel.  Boards should thus consult with the association’s attorney before attempting to amend their covenants to ban short-term rentals.