Chan v. The Hideout: a board can’t regulate rentals the declaration doesn’t authorize

What happened

The Hideout is a planned community in Wayne County, Pennsylvania, established under a Declaration of Protective Covenants adopted in 1970. Slip op. at 2–3. In 2022 the Association’s board proposed amending the bylaws with a section titled “Owner Rental Rights and Restrictions.” It defined a short-term rental as “any rental of a single-family dwelling for no more than 28 consecutive overnights,” limited short-term rentals to 10 per year, and required owners to enroll in a program before offering short-term rentals and to pay annual fees while enrolled. Slip op. at 4; 323 A.3d at 96. The membership approved it by 58.7% of ballots returned. Slip op. at 6.

A group of lot owners sued, arguing the amendment altered property rights that could only be changed by amending the declaration. Slip op. at 6. The association answered that it had regulated rentals for decades and that the declaration’s “single-family” language was inconsistent with turnover of occupants. Slip op. at 15. The trial court sided with the association. The owners appealed.

What the court decided

1. A building restriction is not a use restriction

Pennsylvania law divides restrictive covenants into building restrictions (the physical structure) and use restrictions (how the property is used and occupied). Quoting the Supreme Court, the Commonwealth Court explained that the two are “wholly independent of one another,” and one is not extended to include the other “unless the intention to do so is expressly and plainly stated.” Slip op. at 17 (quoting Schulman v. Serrill, 246 A.2d 643, 646 (Pa. 1968)); 323 A.3d at 103.

The Hideout’s declaration allowed only a “Single-family Dwelling” on residential lots and listed restrictions on dwelling size and setbacks. The court held these were restrictions on construction, and that the definition of “Single-family Dwelling” “pertains solely to the physical aspects of the building and not its use.” Slip op. at 19–20. As the court put it, “a definition is not the place to state a substantive legal requirement.” Slip op. at 20.

2. Restrictions on use must be plainly expressed

“[i]f any restriction on use is intended it should be plainly expressed and not left to implication.”

3. The bylaw amendment was void

“The bylaw amendment sought to regulate short-term rentals, but authorization for such regulation is not provided in the Declaration. Where there is a conflict between the declaration and the bylaws, the declaration prevails. 68 Pa. C.S. §5203(c). This renders the bylaw amendment void and unenforceable.”

The court reversed and directed entry of a declaratory judgment that the association’s bylaw amendment on short-term rentals is void and unenforceable. Slip op. at 22. Because that resolved the case, it did not reach the owners’ procedural objections to how the amendment was adopted. Slip op. at 21 n.13.

4. Fees paid can be part of the remedy

The court affirmed the denial of a preliminary injunction, reasoning that while the case was pending owners could rent freely, and that if the owners prevailed “they can recover any fees paid to the Association under authority of the bylaw amendment.” Slip op. at 14.

Why it matters for short-term rental fees

The amendment the court struck down did more than cap rentals; it also required enrollment and annual fees for owners who rented short-term. Chan shows that the starting question for any rental charge is not whether the board thinks it is reasonable, but whether the recorded declaration gives the association authority to impose it. A formal bylaw amendment approved by a majority vote still failed that test. A rule or fee adopted by the board alone, which ranks below a bylaw, faces the same question.

What Chan did not decide

• It did not hold that every HOA rental rule or fee in Pennsylvania is invalid. It turned on The Hideout’s declaration, which expressly contemplated renting and contained only building restrictions.
• It did not address a declaration that expressly restricts use or rentals, or that expressly authorizes rental regulation or fees. Associations have argued that their declarations are different, and at least one trial court has distinguished Chan on that basis (see Reilly v. Arrowhead Lake, now on appeal).
• It did not decide the procedural challenges to the vote (slip op. at 21 n.13).

That is exactly why we review the actual declaration before telling anyone a fee is unlawful.

Pin cites are to the slip opinion filed August 20, 2024 and, where indicated, to the reported decision. This summary is educational and is not legal advice.