Minnetonka lawsuit shows struggle for homeowners associations in Airbnb era

From Burnsville to Duluth, cities across Minnesota are grappling with the regulation of short-term rentals — an issue pitting homeowners associations against condo and townhouse residents who get the benefit of mowed lawns but also must deal with restrictions on who may use their units and for how long.

While the most publicized cases concern short-term rentals driven by hugely popular draws, such as the Ryder Cup golf tournament in Chaska this fall or the 2018 Super Bowl in Minneapolis, the growing issue has been crystallized most recently in a courtroom battle centered on a townhouse in Minnetonka.

There, the homeowners association at Sherwood Court Townhouses is cracking down after spotting a resident's post on Airbnb advertising a spare room. That, in turn, has prompted Teri Ross to sue her homeowners association.

Ross said that even though she had been renting out an extra room for the past 20 years, the board took action only when it saw her online post and told her she can't lease the bedroom for less than a year. She wants to have shorter-term guests, and has rented out her spare bedroom for anywhere from a week to four years.

"I've lived like this for 22 years and they suddenly tell me I've violated a rule," she said. "And their interpretation is arbitrary."

Attorneys for the association argue that her townhouse is not for "transient" use. But her attorney, Dan Greenstein, counters that isn't clearly defined and that the issue wasn't in play when the association's documents were written long before sites like Airbnb made short-term renting popular and easy.

"This is a very new issue that I think all townhouse and condominium associations are going to have to address," said Greenstein.

He added that the popularity of online sites has shown that short-term renting is a "blind spot" for condo and townhouse associations: "This is something most associations haven't anticipated."

The association fined Ross $50, charged her more than $3,800 for attorney's fees and costs, and put a lien against the unit. "That they've let a $50 fine turn into a $50,000 lawsuit is unconscionable," she said.

Joel Starks, president of the Minnesota Chapter of Community Associations Institute, which provides information for associations, said that many don't have rules to address short-term renting and usually require rentals to be at least for a year.

"This is a good subject for awareness for all boards," he said.

Ross said she's had roommates since she bought her three-bedroom Minnetonka townhouse in 1996, advertising in newspapers or on Craigslist. When Airbnb surfaced, she said, it seemed a safer way to find roommates. Only then, she said, did she get a notice about the violation.

"I've been singled out on this," she said.

The association's governing document states that single-family units aren't for "transient, hotel, commercial, business or other nonresidential purposes," and that any lease for less than seven days would be considered transient.

Greenstein argues that Ross is simply using her home as she's allowed to do — housing guests in a spare bedroom, not running a hotel.

But the association's board, which declined to comment through an attorney, said she's conducting business by allowing short-term leasing. It cites rules passed in 2012 that say a lease can't be for less than a year.

Ross and her attorney argue that the one-year leasing rule conflicts with the association's governing document, which state law says can only be changed by a vote of residents. She disputes that she's running a business, adding that she continues to live in her townhouse and hasn't leased out the whole unit. She also says she needs a roommate for medical reasons.

In Minnetonka, city code doesn't address the issue. Ross' lawsuit, filed in Hennepin County District Court last November, asks for a summary judgment by September.

Ross said that others in the 48-unit association have rented rooms without issue, and that she's being targeted for being a single woman. The association's attorneys deny that claim.

In the end, the case is a lesson for associations to better define short-term renting, Greenstein said.

"This case is not only a warning for special occasions," he said, referring to events like the Super Bowl, "but it's time for all associations to figure out how their community should run."

Kelly Smith • 612-673-4141