Case Summary
| Case ID | 23F-H043-REL |
|---|---|
| Agency | ADRE |
| Tribunal | OAH |
| Decision Date | 2023-08-08 |
| Administrative Law Judge | Adam D. Stone |
| Outcome | The Administrative Law Judge denied the Petitioner's petition, finding that the HOA's CC&Rs (Section 4.1) prohibited nonresidential use, including short-term renting (deemed a business by the tribunal), unless the lot was rented or leased for month-to-month or longer terms. Therefore, rentals shorter than a month were prohibited. |
| Filing Fees Refunded | $500.00 |
| Civil Penalties | $0.00 |
Parties & Counsel
| Petitioner | Jennifer J Sullivan | Counsel | — |
|---|---|---|---|
| Respondent | The Village at Elk Run Homeowners Association, Inc. | Counsel | Michael S. McLeran |
Alleged Violations
Article 4, Section 4.1 of the Community’s CC&Rs; ARIZ. REV. STAT. § 33-1804(D)
Outcome Summary
The Administrative Law Judge denied the Petitioner's petition, finding that the HOA's CC&Rs (Section 4.1) prohibited nonresidential use, including short-term renting (deemed a business by the tribunal), unless the lot was rented or leased for month-to-month or longer terms. Therefore, rentals shorter than a month were prohibited.
Why this result: The tribunal determined the Petitioner failed to meet her burden, as her short-term rental operation constituted a prohibited nonresidential use/business under Section 4.1 of the CC&Rs, which only permits leasing for Month to Month or Longer Terms.
Key Issues & Findings
Challenging HOA Violation Notice for Short-Term Rental Restriction
Petitioner challenged the Courtesy Violation Notice issued by the HOA for operating a short-term rental (Airbnb) with a minimum rental period less than month-to-month, arguing the CC&Rs did not explicitly prohibit such rentals. The HOA maintained that Section 4.1 prohibited nonresidential use, unless leased for month-to-month or longer terms, thereby prohibiting short-term rentals/business use.
Orders: Petitioner’s petition was denied. Respondent shall not reimburse Petitioner’s filing fee.
Filing fee: $500.00, Fee refunded: No
Disposition: respondent_win
- ARIZ. REV. STAT. § 33-1804(D)
- ARIZ. REV. STAT. § 32-2199.02(A)
- ARIZ. REV. STAT. § 32-2199.01
- PAL versus Washburn 211 Arizona 553 2006
- Burke versus Voiceream Wireless Corporation 2 2007 Arizona 393 quarter of appeal 2004
- ARIZ. REV. STAT. §§ 32-2102 and 32-2199 et al.
- ARIZ. REV. STAT. § 32-2199.05
- ARIZ. REV. STAT. §§ 32-2199(2), 32-2199.01(D), 32-2199.02, and 41-1092
Analytics Highlights
- ARIZ. REV. STAT. § 33-1804(D)
- ARIZ. REV. STAT. § 32-2199.02(A)
- ARIZ. REV. STAT. § 32-2199.01
- PAL versus Washburn 211 Arizona 553 2006
- Burke versus Voiceream Wireless Corporation 2 2007 Arizona 393 quarter of appeal 2004
- ARIZ. REV. STAT. §§ 32-2102 and 32-2199 et al.
- ARIZ. REV. STAT. § 32-2199.05
- ARIZ. REV. STAT. §§ 32-2199(2), 32-2199.01(D), 32-2199.02, and 41-1092
Video Overview
Audio Overview
Decision Documents
23F-H043-REL Decision – 1050430.pdf
23F-H043-REL Decision – 1081482.pdf
23F-H043-REL Decision – 1081483.pdf
23F-H043-REL Decision – 1050430.pdf
23F-H043-REL Decision – 1081482.pdf
23F-H043-REL Decision – 1081483.pdf
Case Summary: Jennifer J. Sullivan vs. The Village at Elk Run Homeowners Association, Inc.
This matter (No. 23F-H043-REL) was a contested case before the Office of Administrative Hearings (OAH), heard on July 24, 2023, by Administrative Law Judge (ALJ) Adam D. Stone. Petitioner Jennifer J. Sullivan, a homeowner in The Village at Elk Run Homeowners Association, Inc. (Respondent), challenged a violation notice she received for operating a short-term rental (Airbnb).
Key Facts and Background
Petitioner Sullivan had owned her townhome since 2006 and began renting it on a short-term basis (minimum 3 days) through Airbnb in September 2021. She testified that she had registered for a Transaction Privilege Tax number and was pursuing a license under new city rules, acknowledging that the rental was a business. The Association issued a Courtesy Violation Notice on November 22, 2022, citing a violation of Article 4, Section 4.1 of the community's Covenants, Conditions, and Restrictions (CC&Rs) due to the short-term rental operation.
Main Issues and Arguments
The core legal issue centered on the interpretation of CC&R Section 4.1, titled "Residential Use":
> "All Lots shall be used, improved and devoted exclusively to Single family Residential Use. No gainful occupation, profession, trade or other nonresidential use shall be conducted on any Lot. This Section shall not preclude the Residential Leasing or Renting of a Lot for Month to Month or Longer Terms".
- Petitioner's Argument: Sullivan contended that the CC&Rs do not contain an explicit minimum rental period, and therefore, rentals shorter than 30 days are permissible. She argued that Arizona law (ARS 33-1806.01) requires HOAs to list a minimum rental period if they intend to restrict short-term leasing, which the Elk Run CC&Rs failed to do. She asserted that renting a home is considered a residential use.
- Respondent's Argument: The Association, represented by Michael McLeran, argued that Section 4.1 must be read in its entirety to uphold the community's character. They asserted that operating a short-term rental for profit (as evidenced by Petitioner's tax licensing) constitutes a "gainful occupation, profession, trade or other nonresidential use," which is prohibited. The final sentence of Section 4.1 allowing "Month to Month or Longer Terms" clarifies the *only* exception where renting for profit is permitted, thereby implicitly prohibiting shorter-term rentals. Testimony from the original CC&R signatory, John Vail, supported the intent for a minimum 30-day rental period.
Outcome and Legal Decision
The ALJ issued a Decision on August 8, 2023, denying the Petitioner's petition.
The ALJ found that Petitioner Sullivan failed to meet her burden of proving that the Association violated relevant statutes or documents. The tribunal concluded that Sullivan was "clearly running a business out of the home".
The ALJ adopted the Respondent's interpretation of Section 4.1: nonresidential use (i.e., operating a rental business for gainful occupation) is *only* permitted if the lots are rented or leased for month to month or longer terms. Thus, the ALJ ruled that, as currently written, any renting or leasing shorter than a month was prohibited.
The Petitioner's request for reimbursement of her $500 filing fee was also denied.
Questions
Question
If my CC&Rs allow leasing for 'month to month or longer terms', does that automatically prohibit short-term rentals like Airbnb?
Short Answer
Yes. The tribunal interprets 'month to month or longer' as an exclusive permission, meaning any rental term shorter than a month is prohibited.
Detailed Answer
Even if the CC&Rs do not explicitly state 'no short-term rentals', a clause permitting 'month to month or longer' terms generally implies that shorter terms are not permitted under the restrictions against non-residential use.
Alj Quote
Rather the tribunal reads the section to mean that nonresidential use is only permitted if the lots were rented or leased for month to month or longer terms. … Thus, as currently written, any renting or leasing shorted than a month was prohibited.
Legal Basis
Contract Interpretation / CC&R Section 4.1
Topic Tags
- short-term rentals
- CC&R interpretation
- Airbnb
Question
Can listing a home on Airbnb be legally considered 'running a business' or 'non-residential use'?
Short Answer
Yes. Applying for a business license and remitting transaction privilege taxes can establish that a homeowner is conducting a business from the home.
Detailed Answer
The ALJ found that applying for a municipal business license and paying transaction taxes (which are typical for rentals) demonstrated that the homeowner was using the property for a gainful occupation or business, rather than simple residential use.
Alj Quote
Petitioner was clearly running a business out of the home, as she has applied for a business license with Flagstaff, and was remitting Transaction Privilege Tax.
Legal Basis
Finding of Fact 6 / Conclusion of Law 6
Topic Tags
- business use
- taxes
- commercial activity
Question
Does an HOA have to explicitly use the phrase 'no short-term rentals' in the CC&Rs to ban them?
Short Answer
No. The absence of a specific exclusion for short-term rentals does not mean they are permitted if other language restricts leasing terms.
Detailed Answer
The ALJ rejected the argument that short-term rentals were allowed simply because the CC&Rs didn't explicitly name and ban them. The restrictions on non-residential use and specific permissions for monthly rentals were sufficient to create the ban.
Alj Quote
Further, tribunal was not convinced that simply because it does not mention the exclusion for short-term rentals that the same was permitted.
Legal Basis
Conclusion of Law 6
Topic Tags
- CC&R interpretation
- implicit restrictions
- rental rules
Question
Who has to prove their case in a hearing regarding an HOA dispute?
Short Answer
The homeowner (Petitioner) bears the burden of proof.
Detailed Answer
When a homeowner petitions for a hearing alleging the HOA violated statutes or documents, it is the homeowner's responsibility to prove the violation by a preponderance of the evidence.
Alj Quote
In this proceeding, Petitioner bears the burden of proving by a preponderance of the evidence that Respondent violated ARIZ. REV. STAT. § 33-1804(D).
Legal Basis
Conclusion of Law 3
Topic Tags
- burden of proof
- legal procedure
- evidence
Question
If I lose my hearing against the HOA, will I get my $500 filing fee reimbursed?
Short Answer
No. Reimbursement is typically denied if the petition is denied.
Detailed Answer
The ALJ ordered that because the petition was denied, the Respondent (HOA) was not required to reimburse the filing fee paid by the homeowner.
Alj Quote
IT IS FURTHER ORDERED pursuant to ARIZ. REV. STAT. § 32-2199.02(A), Respondent shall not reimburse Petitioner’s filing fee as required by ARIZ. REV. STAT. § 32-2199.01.
Legal Basis
Order / ARS § 32-2199.02(A)
Topic Tags
- fees
- penalties
- costs
Case
- Docket No
- 23F-H043-REL
- Case Title
- Jennifer J Sullivan vs The Village at Elk Run Homeowners Association, Inc.
- Decision Date
- 2023-08-08
- Alj Name
- Adam D. Stone
- Tribunal
- OAH
- Agency
- ADRE
Questions
Question
If my CC&Rs allow leasing for 'month to month or longer terms', does that automatically prohibit short-term rentals like Airbnb?
Short Answer
Yes. The tribunal interprets 'month to month or longer' as an exclusive permission, meaning any rental term shorter than a month is prohibited.
Detailed Answer
Even if the CC&Rs do not explicitly state 'no short-term rentals', a clause permitting 'month to month or longer' terms generally implies that shorter terms are not permitted under the restrictions against non-residential use.
Alj Quote
Rather the tribunal reads the section to mean that nonresidential use is only permitted if the lots were rented or leased for month to month or longer terms. … Thus, as currently written, any renting or leasing shorted than a month was prohibited.
Legal Basis
Contract Interpretation / CC&R Section 4.1
Topic Tags
- short-term rentals
- CC&R interpretation
- Airbnb
Question
Can listing a home on Airbnb be legally considered 'running a business' or 'non-residential use'?
Short Answer
Yes. Applying for a business license and remitting transaction privilege taxes can establish that a homeowner is conducting a business from the home.
Detailed Answer
The ALJ found that applying for a municipal business license and paying transaction taxes (which are typical for rentals) demonstrated that the homeowner was using the property for a gainful occupation or business, rather than simple residential use.
Alj Quote
Petitioner was clearly running a business out of the home, as she has applied for a business license with Flagstaff, and was remitting Transaction Privilege Tax.
Legal Basis
Finding of Fact 6 / Conclusion of Law 6
Topic Tags
- business use
- taxes
- commercial activity
Question
Does an HOA have to explicitly use the phrase 'no short-term rentals' in the CC&Rs to ban them?
Short Answer
No. The absence of a specific exclusion for short-term rentals does not mean they are permitted if other language restricts leasing terms.
Detailed Answer
The ALJ rejected the argument that short-term rentals were allowed simply because the CC&Rs didn't explicitly name and ban them. The restrictions on non-residential use and specific permissions for monthly rentals were sufficient to create the ban.
Alj Quote
Further, tribunal was not convinced that simply because it does not mention the exclusion for short-term rentals that the same was permitted.
Legal Basis
Conclusion of Law 6
Topic Tags
- CC&R interpretation
- implicit restrictions
- rental rules
Question
Who has to prove their case in a hearing regarding an HOA dispute?
Short Answer
The homeowner (Petitioner) bears the burden of proof.
Detailed Answer
When a homeowner petitions for a hearing alleging the HOA violated statutes or documents, it is the homeowner's responsibility to prove the violation by a preponderance of the evidence.
Alj Quote
In this proceeding, Petitioner bears the burden of proving by a preponderance of the evidence that Respondent violated ARIZ. REV. STAT. § 33-1804(D).
Legal Basis
Conclusion of Law 3
Topic Tags
- burden of proof
- legal procedure
- evidence
Question
If I lose my hearing against the HOA, will I get my $500 filing fee reimbursed?
Short Answer
No. Reimbursement is typically denied if the petition is denied.
Detailed Answer
The ALJ ordered that because the petition was denied, the Respondent (HOA) was not required to reimburse the filing fee paid by the homeowner.
Alj Quote
IT IS FURTHER ORDERED pursuant to ARIZ. REV. STAT. § 32-2199.02(A), Respondent shall not reimburse Petitioner’s filing fee as required by ARIZ. REV. STAT. § 32-2199.01.
Legal Basis
Order / ARS § 32-2199.02(A)
Topic Tags
- fees
- penalties
- costs
Case
- Docket No
- 23F-H043-REL
- Case Title
- Jennifer J Sullivan vs The Village at Elk Run Homeowners Association, Inc.
- Decision Date
- 2023-08-08
- Alj Name
- Adam D. Stone
- Tribunal
- OAH
- Agency
- ADRE
Case Participants
Petitioner Side
- Jennifer J Sullivan (petitioner)
Appeared on her own behalf - David Sheffield (petitioner attorney)
Provided legal opinion to Petitioner in 2020
Respondent Side
- Michael S. McLeran (HOA attorney)
Childers Hanlon & Hudson, PLC
Represented Respondent - Teresa Bale (board member)
The Village at Elk Run Homeowners Association, Inc.
Board President; Witness for Respondent - John R. Bale (developer/witness)
The Village at Elk Run Homeowners Association, Inc.
Original developer who drafted/signed CC&Rs; Witness for Respondent - Jason Miller (attorney)
Provided opinion letter regarding CC&Rs to the Board - Beth Moly (attorney)
Issued formal opinion letter regarding Section 4.1 - Melanie Lashley (property manager)
Homeco Rent
Contacted by Petitioner regarding rental rules - Betsy Snow (board member)
The Village at Elk Run Homeowners Association, Inc.
Won board election against Petitioner
Neutral Parties
- Adam D. Stone (ALJ)
Office of Administrative Hearings - Susan Nicolson (Commissioner)
Arizona Department of Real Estate
Recipient of decision transmission - AHansen (ADRE Staff)
Arizona Department of Real Estate
Recipient of decision transmission - vnunez (ADRE Staff)
Arizona Department of Real Estate
Recipient of decision transmission - djones (ADRE Staff)
Arizona Department of Real Estate
Recipient of decision transmission - labril (ADRE Staff)
Arizona Department of Real Estate
Recipient of decision transmission