Local Regulation of Vacation Rentals and Other Transitory-lodging Uses in Residential Districts

• Publication year: 2017
• Author: Todd Leishman and Matthew Richardson

Local Regulation of Vacation Rentals and Other Transitory-lodging Uses in Residential Districts

Todd Leishman and Matthew Richardson

Todd Leishman is an Of Counsel attorney in Best, Best & Krieger's Irvine office. He represents cities, developers, and other private clients on issues relating to land use law, in particular fair housing and disability laws in the context of recovery homes and short-term rentals. He received his Master of Real Estate Development at USC Price and his JD at Brigham Young University.

Matthew Richardson is a partner and office managing partner at Best, Best & Krieger's Irvine office. He serves as city attorney to the cities of Stanton and Lake Forest and advises the firm's other municipal clients on land use and development law. He received a Master of Arts in Comparative Literature from Brigham Young University and his JD from UCLA.

I. INTRODUCTION

A recent trend affecting both public-law and real-estate-law practitioners is the surge in transitory-lodging businesses in residential neighborhoods. This trend is driven largely by the growing popularity of online services that advertise and facilitate short-term rentals for homeowners, companies such as Airbnb and Homeaway (owner of VRBO.com). Other industries that focus on providing lodging to particular groups are also a driving force. For example, some addiction-recovery companies buy or lease homes in residential neighborhoods and operate them as short-term rentals or boarding houses to provide transitory lodging to patients or graduates from their recovery programs. Less common but still worth noting, some immigration-entrepreneurs buy or lease homes and operate them as boarding houses for persons with transient status. Transitory lodgings can take many forms, each presenting unique issues.

Transitory lodging in residential neighborhoods present pros and cons and often sparks intense community opposition. Long-term residents have safety and health concerns about a constant influx of strangers. The traditional accountability among neighbors can often go missing where vacation renters change periodically sometimes every weekend. Commercializing residential units for transitory lodging often violates City general plans, zoning ordinances, and business license and home occupation regulations, which anticipate a sometimes delicate balance of competing residential, environmental, and economic considerations, with assumptions about public safety, property maintenance, parking, and neighborhood stability reliant on that balance. Converting a dwelling that was anticipated to be an owner-occupied, long-term residential unit into a mini-hotel, bed and breakfast inn, boarding house, or medical treatment center can disrupt this balance.

HOAs and city policymakers must balance property owners' desires to put their property to profitable use with long-term residents' desires to retain their residential neighborhoods' long-term residential character.

Certainly, cities have strong police power authority to regulate or even ban short-term lodging activities in the legitimate interests of public safety, health, and welfare. For similar reasons, HOAs may enforce private CC&Rs that similarly restrict transitory-lodging and other business uses of residential properties. That legal authority must be balanced against policies to allow for economic innovation, fair-housing and disability laws, and private property rights in general.

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II. SHORT-TERM RENTALS

A. Authority to Regulate

Local agencies have the fundamental authority to regulate vacation rentals under the broad police power granted them by state constitutions or statute. Cities¹ use the police power to enact zoning regulations restricting short-term rentals ("STRs") in residential areas, and courts have upheld those regulations when they are substantially related to land use impacts in the area. Courts have also upheld outright prohibitions on STRs in single-family areas.² Thus, absent legislation expressly limiting a city's ability to regulate STRs, such regulation is broadly permitted.³ Through its CC&Rs, an HOA has similar authority to regulate.

1. The Regulatory Tool Kit

Regulation of transitory lodgings may take many forms, including:

• The most simple—a total prohibition (unless some other law, such as the California Coastal Act, prevents it).
• Quantitative restrictions—raw-number cap; a ratio cap (limiting transitory lodgings relative to the number of long-term residential properties); or a maximum-percentage cap. Any of these can be applied citywide, by street, or by zone.
• Concentration restrictions—minimum-distance restrictions may be imposed to preserve the overall long-term residential character of the neighborhood. Ideally, the distance selected will be supported by planning or other studies.
• Operational restrictions—occupancy caps (generally based on room counts, square footage, lot size, or off-street parking).
• Rental-period restrictions (focus on limiting turnover)—minimum rental periods (e.g., requiring that rental of an STR be at least seven days long); maximum number of consecutive rental periods; minimum time period between consecutive rentals; maximum number of rental periods in a given timeframe (a month or a year); or a maximum number of total rental days in a year.
• Owner-occupancy restrictions (focus on owner accountability)—require an owner to be present during rentals ("home sharing"); require that the transitory lodging be the owner's primary dwelling; require a 24/7 emergency contact that can be available immediately by phone, or onsite at the property within a certain time.
• Permitting restrictions—require simple registration, or a special license or a special-use permit, or both, revocable if license or permit conditions are not met. (Consider the administrative burden of processing discretionary licenses and permits and of revocation conditions and processes.)
• Home-occupation restrictions—limit transitory-lodging uses to what would comply with a typical home-occupation ordinance; e.g., limit use to less than 20 percent of dwelling's square footage, owner must use the dwelling as owner's primary residence and legal domicile, require a home-occupation permit, with conditions (imposed ministerially or through a discretionary process) and revocable.

2. Potential Legal Pitfalls—Takings Claims

While municipalities have broad authority to regulate STRs, they must also be aware of potential legal limits on that regulatory power. The Fifth Amendment is a significant one. However, a well-crafted short-term rental regulation will almost always survive a takings challenge. The central test in a takings case was established by the U.S. Supreme Court in Penn Central.⁴ The Penn Central factors for evaluating takings claims include the following: (1) the economic impact of the regulation; (2) the extent to which the regulation interferes with the owner's investment-backed expectations; and (3) the nature of the action in question (physical vs. regulatory takings).

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