A California appeals court has ruled that a Cathedral City homeowners association does not have the authority to add restrictions on short-term rentals to properties that were purchased before such rules were in place.

The ruling, issued by the Fourth District Court of Appeals, found in favor of Nancy Brown, a condominium owner within Cathedral City’s Montage at Mission Hills homeowners association. Brown, who had purchased the condo in 2002 and rented it short-term since that time, sued the HOA after it put new restrictions in place banning its members from renting properties for less than 30 days in early 2018.

While Brown was unsuccessful in the initial suit, the Aug. 20 appeals ruling found in her favor. Brown’s case hinged on the California Civil Code  Section 4740 , which forbids HOAs from prohibiting their members from renting properties unless those prohibitions were in place before they purchased the property.

The trial court sided with Montage’s interpretation of the code, which was that the ban on rentals less than 30 days was a restriction and not an outright prohibition on rentals. The appeals court reversed that decision, instead ruling that Montage’s ban on short-term rentals amounted to a prohibition.

Despite the ruling, it is uncertain whether Brown will now be able to short-term rent her property. In the time since she first filed her case, Cathedral City has voted to phase-out all short-term rentals by 2023 and is no longer issuing new short-term rental permits.

Shaun Murphy, a Palm Springs-based attorney who represented Brown in the case, said it was unclear whether Cathedral City would grant Brown an exception and issue her a new short-term rental license under the circumstances. He noted that Brown had held a short-term rental license prior to her HOAs’ ban in 2018.

“If they do (issue her a license), then obviously she’ll continue to be able to rent,” Murphy said. “If not, then the recovery (charges) would be against the association because they not only prevented her from renting from 2017 to the present, but their actions prevented her from taking advantage of the phase-out period as well.”

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Murphy said the issue of possible compensation for Brown’s missed revenue during the period when she was unable to short-term rent would likely go on to trial at a later date.

The attorney noted that the ruling, which is focused specifically on HOAs, provided “no protection” to city prohibitions on short-term rentals.

The ruling also does not restrict the ability of HOAs to make new rules allowing short-term rentals. In some cities where such rentals are prohibited, including Cathedral City, the local ordinance includes an exception for HOAs that wish to allow short-term renting in their communities. According to Murphy, HOAs that previously did not allow short-term rentals would still be allowed to open to short-term renting, regardless of the status at the time members’ properties were purchased.

“(In that situation) the people that bought thinking that they were going to be in a development without short-term rentals, they’re going to be disappointed,” Murphy said. “But there’s really nothing that they could do to challenge that.”

Originally Published By   Palm Springs Desert Sun By James B. Cutchin

James B. Cutchin covers business in the Coachella Valley. Reach him at james.cutchin@desertsun.com.

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