In a recent decision [Houston v. Wilson Mesa Ranch Homeowners Association, Inc., 2015 WL 4760331 (D. Colo. August 13, 2015], the Colorado Court of Appeals held that an association’s covenants stating that homes could not be occupied or used for any commercial or business purpose did not prohibit a homeowner from renting out his property for short-term vacation rentals.

A homeowner in the community advertised and rented his home for rent through the VRBO website. In response to the homeowner’s actions, the association passed an amendment to its ‘administrative procedures’ prohibiting its members from renting out their properties for a period of less than thirty days without prior board approval and establishing a $500 fine for violations. 

 The Court found that a short-term rental constitutes a residential and not commercial use of the property and found in favor of the homeowner.  However, had the covenants contained a specific prohibition against short term rentals, it may have reached an opposite conclusion. Additionally, the Court found that the ‘administrative procedure’ adopted by the association was improper as it was contrary to the terms of the covenants. In other words, since the covenants did not prohibit short term rentals, the association could not restrict rentals absent a homeowner approved amendment to the covenants.

This case illustrates how caution needs to be utilized before an association attempt to interpret its covenants too broadly.  The dispute could have been avoided had the covenants specifically prohibited short term rentals.