Can Private Entities Restrict Short-Term Rentals The Same Way As Governments?

Short-term rentals have become a big issue in California in the last few years – but a new, unpublished appellate court involving Lake Arrowhead suggest that there might be a big difference between short-term rentals regulated by cities and counties and short-term rental restrictions imposed by a private non-profit entity. In the unpublished ruling, the Fourth District Court of Appeal upheld a preliminary injunction against the Arrowhead Lake Association’s new rules preventing short-term renters – and homeowners who are not members of the association – from accessing the privately owned Lake Arrowhead beach. The case still must be tried on the merits, but the appellate court said the homeowners challenging the new rules are likely to win – and, in the process, the justices shot down comparisons between the Lake Arrowhead Association and formal local government bodies – at least as far as the definition of a short-term rental is concerned. Located in the San Bernardino mountains 80 miles from Los Angeles, Lake Arrowhead is owned and operated by the Arrowhead Lake Association, a nonprofit organization which provides users with a wide variety of membership opportunities. In 1964, the previous owner of the lake entered into an agreement with homeownersin the surrounding Arrowhead Woods community, as well as their “lessees” and “houseguests,” the right to access the lake and enjoy its recreational facilities. As the short-term rental boom ramped up in 2020, the Arrowhead Lake Association changed its bylaws to bar all access to short-term renters – defined as a person who rents a home for less than 30 days – as well as Arrowhead Woods property owners who are not members of the association (as most are not). The association also put up fences and restricted access with RFID cards. (Ochoa’s preliminary injunction did not extend to the fences and the cards.) A group of Arrowhead Woods property owners sued and won a preliminary injunction from San Bernardino County Superior Court Judge Gilbert G. Ochoa. The association appealed the issuance of the preliminary injunction and the appellate court ruled in favor of the property owners who sued, saying they are likely to win the case on its merits. The ruling kept the preliminary injunction in place while the case proceeds. The court’s ruling turned in large part on the question of whether county and state definitions of lodgers and short-term renters should be applied to the association’s bylaws, which do not define lessees or lodgers. The association argued that, according to San Bernardino County regulations, a short-term renter is a transient occupant similar to a hotel guest. But in granting the preliminary injunction, Judge Ochoa wrote: “he issue is not how the County defines short-term renters for purposes of regulating and licensing owners whose homes are used for short-term rentals. The issue is the construction and meaning of lessee within the 64 Agreement at the time of the contract.” He concluded that, in the absence of a stricter definition in the agreement with the association, a short-term renter is a lessee. The appellate court agreed, noting that the relevant section in the association’s bylaws “does not distinguish between short-term renters who are given exclusive legal possession of premises and are responsible for their care and condition from those who have only the right to use the premises, subject to the landlord’s retention of control over them.” The association also argued that the court have recently created a sharp distinction between a lessee and a lodger for the purposes of eviction and transient occupancy taxes. But the appellate court applied similar reasoning, saying: “How California statutes define tenants, lodgers, and transient occupants, without reference to the state of the law in 1964 , is irrelevant to interpreting the contracting parties’ intent as to the scope of those they intended to protect as ‘lessees’ in the 1964 Agreement.” The Case:Vertical Web Ventures v. Arrowhead Lake Association, No. G062727 (filed February 7, 2024) The Lawyers: For Vertical Web Ventures and other property owners: John P. Zaimes, ArentFox Schiff, John.Zaimes@afslaw.com For Arrowhead Lake Association: Scott W. Ditfurth, Best Best & Krieger, scott.ditfurth@bbklaw.com

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