Navigating Vacation Rental Legalities

Vacation rentals are to the travel industry what Uber is to the transportation industry. With the explosive growth of vacation rentals (also more properly known as short term rentals, STR's) special interests like hotel lobbyists and others are beginning to take action to try and regulate them. Regulations can vary from area to area but in about 90% of the areas we work in we have noticed a very similar pattern.

Most vacation rental regulations happen at the city level via city zoning ordinances. Many cities either don't issue short term rental permits or make it nearly impossible to get one. On Oahu for instance, we estimate that of the 4303 or so properties on VRBO.com about 80% are not permitted. So how do they continue operating?

You might notice that police don't go around knocking on doors hunting for illegal vacation rentals (they usually have more important things to do), and while some cities have talked about deploying a task force to hunt them down we have seen little impact from such initiatives. In fact, after dealing for years with hundreds of properties only a handful of the units we have worked with have ever had big problems with the city and it always happens the same way - neighbor complaints. The way most cities enforce these ordinances is by reacting to complaints from neighbors. The city may say that they are going to impose heavy fines, however I can't recall a single time one of our owners was fined by the city. What the cities we have worked in have done after a neighbor complains is issue a cease and desist letter to the owner, fines are only imposed if you continue after being told to stop.

Another factor to consider is an HOA. HOA's can act independently from a city. They work in the same way as the city government in that some have laws against vacation rentals. However, most of the time they act like the city and only enforce the law if a neighbor complains. The one difference we have found is that an HOA is much more likely to impose fines (though these normally are much smaller fines than those imposed by city governments).

So how do you navigate this? Please note that this is not legal advice. This is merely our observation of how we see owners in our industry behaving.

1) Know your neighbors: Most owners know the situation with their neighbors. If three people on your street are doing a vacation rental, or you don't think your neighbors would care or your property is very private so neighbors are not a factor, you are probably fine as enforcement is nearly entirely based on neighbor reaction.

2) Know the regulations: The other thing they do is speak with a real estate attorney about the current laws at the city, state and HOA level. Some states (like Arizona) have made laws at the state level that stop city governments from creating a ban, which essentially makes vacation rentals totally legal unless an HOA creates a ban. 3) Know how/where other people are doing short term rentals: Even if there is some kind of restriction on vacation rentals learn about how many vacation rentals are near yours and how long they have been around. While we have found that it is common for cities to have restrictions on vacation rentals, we have found that it is usually pretty rare and completely neighbor driven when they actually do get into any trouble from the city or HOA. 4) Find creative ways to comply: A common way that people remain compliant with a city that has a minimum rental period of 30 days is to only take one rental every 30 days. What an owner does is they book the property for 30 days but then only require the guest to pay for the dates of actual occupancy. Or they have them pay for the "entire 30 days" then refund back the dates they did not stay after they leave "early". As long as there is a signed contract showing that only one party is occupying the unit during a 30 day period, this will comply with most ordinances we have seen. While this results in you normally only booking 7-14 nights a month instead of 15-20 nights a month, it does make you compliant.

If you are interested in a great discussion about this topic as it relates to the market in Hawaii below is a great video interview that is very insightful.

Disclaimer: This document/blog states the opinion of the author only and should not be considered as legal advice in any way. For any legal advice or matters regarding your vacation rental please contact your attorney. All information above should be reviewed with your legal counsel prior to proceeding with any decisions that might be made in relation to it.