Fifth Circuit addresses short-term rental challenge

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This blog has previously discussed challenges by various cities, including cities in South Carolina, to short-term rentals in residential areas.

Vrbo and Airbnb are two go-to websites to find interesting short-term rentals in vacation locations. Sometimes a cabin or house seems much more appropriate and fun than a hotel room for a family get-away. Having a kitchen and room for dining is often a plus.

Arguments against such rentals often focus on noise and parking problems in otherwise quiet residential subdivisions.

Rules vary greatly in the cabins and houses we’ve rented, but a common theme seems to be that parties are not allowed. I’ve also seen limits on the number of cars that can be accommodated and, of course, the number of people permitted. Pets may or may not be allowed.

The Fifth Circuit Court of Appeals recently addressed such a challenge in Hignell-Stark v. City of New Orleans, 46 F. 4th 317 (August 22, 2022). Thanks to Professor Dale Whitman of the University of Missouri at Kansas City Law School via the Dirt Listserv for information on this case.

An ordinance in the City of New Orleans required an owner to be a resident of the city to obtain a license to become a landlord allowing short-term rentals. When the plaintiffs challenged this ordinance using a “takings” theory, the Fifth Circuit held that theory to be inapplicable because permission to make short-term rentals of a residential unit is not a property interest. It is instead, according to the Court, a privilege.

The plaintiffs also argued that the ordinance was an undue burden on interstate commerce, and the Court agreed, stating that an ordinance that discriminates against interstate commerce is per se invalid unless there are no available alternative methods for enforcing the city’s legitimate policy goals. The ordinance in question was a blanket prohibition against out-of-state property owners’ participation in the short-term rental market. The Court pointed out that the ordinance doesn’t just make it more difficult for non-residents to compete in the market for short-term rentals in residential neighborhoods; it forbids them from participating altogether.

The Court pointed to alternative methods for achieving the city’s legitimate goals of preventing nuisances, promoting affordable housing, and protecting neighborhoods’ residential character. More aggressive enforcement of nuisance laws, increased penalties for nuisance violations, increased taxes on short-term rentals, requiring an operator remain on the property during night hours, and capping the number of short-term rentals licenses in particular zoning district might be alternatives.

The ordinance was held unconstitutional and void because the city’s objectives could be addressed in other ways that did not burden interstate commerce.

What do you think? Would you be comfortable with short-term rentals in your neighborhood?

One thought on “Fifth Circuit addresses short-term rental challenge

  1. I’m a lawyer, so “It depends.” Overall, however, I think that STRs would damage the community connectivity and do not favor them where I live. That being said, i do use STRs and they are a wonderful vacation option for families. I know it’s a bit NIMBY of me, but I’m not that concerned. I do think an HOA could have rules limiting short term rentals for people concerned with them.

    In this case, however, the issue was not the existence of STRs, but rather the fact that only residents could have a STR while non-residents could not. In this matter, the ordinance limited STRs to property that the owner maintained as their primary residence. This seems to be very similar to what the City of Charleston has in place.

    If you can split your house, you can rent part of it out as a short-term rental. This is an attempt to keep long-term residents in place and allow them to make some cash by renting a room or ADU on the property. I know of several properties in Charleston or Mt. Pleasant where the smaller building is where the owner actually lives allowing them to supplement their income by renting the main house.

    Just my thoughts.

    Like

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