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HomeMy WebLinkAboutRegulating Short-Term Rentals in New York.pdfRegulating Short-Term Rentals in New York, 24 No. 4 New York Zoning Law and... © 2024 Thomson Reuters. No claim to original U.S. Government Works.1 24 No. 4 New York Zoning Law and Practice Report NL 1 New York Zoning Law and Practice Report | January/February 2024 Volume 24, Issue 4 New York Zoning Law and Practice Report By Katie Hodgdon Regulating Short-Term Rentals in New York By now, most if not all local governments have encountered short-term rentals within their locality, be it officially through a regulatory framework established by the municipality, or unofficially, through property owners renting their properties without any short-term rental laws to comply with at the local level. While short-term rentals are not a new concept,1 their popularity has skyrocketed over the last decade, with marketplace provider Airbnb reporting revenue of $8.4 billion in 2022, a 40% increase from the prior year.2 Additionally, research has indicated that short-term rentals are more profitable to property owners than long-term rentals, with short-term rental properties bringing in the revenue typically generated from a long-term rental in less than a quarter of the time.3 Taken together, short-term rentals remain a lucrative option to both property owners and marketplace providers alike, and local governments that previously thought short-term rentals were relegated to vacation areas or major population centers are now contemplating the necessity of regulating the proliferation of these properties within their jurisdiction. What constitutes a short-term rental in one town may not be considered a short-term rental in the adjacent town, as local governments have the authority to define what constitutes a short-term rental within its borders. This article will provide an overview of the tools local governments have available to regulate short-term rentals, as well as a case study analyzing federal and state cases that have addressed the issues associated therewith.4 Additionally, this article will examine the current legislative attempts at the state level to regulate short-term rentals. Legislative Tools Available to Local Governments To Regulate Short-Term Rentals Comprehensive Plan A locality’s comprehensive plan provides the framework and backbone for its zoning regulations.5 A comprehensive plan does not need to be in one “comprehensive” document or even written at all, so long as a court can ascertain that the plan exists and the locality is acting in furtherance of the plan and in the public interest.6 Of course, a written plan that has been thoroughly reviewed and analyzed prior to adoption is recommended. Local governments are empowered to adopt regulations that align with their comprehensive plan. As it relates to short-term rentals, a municipality will be on solid legal ground if the comprehensive plan addresses short-term rentals and any local laws adopted in congruence with the comprehensive plan are challenged.7 Temporary Moratorium on Short-Term Rentals If the municipality’s comprehensive plan does not address short-term rentals and/or time is needed in order to determine how short-term rentals should be regulated, the locality can adopt a local law imposing a temporary moratorium on short-term rentals.8 A comprehensive plan must evolve along with the municipality and should be amended if a use arises that was not previously anticipated or in alignment with the plan—including short-term rentals. In fact, New York’s highest court has found that “sound planning inherently calls for recognition of the dynamics of change.”9 A moratorium functions to put a temporary pause on any of the activity addressed and is enacted by local law pursuant to the municipality’s home rule authority. The moratorium should have a valid basis,10 which, as it relates to short-term rentals, could be the locality asserting that it needs time to develop short-term rentals within the comprehensive plan and zoning structure within the locality, and the failure to Regulating Short-Term Rentals in New York, 24 No. 4 New York Zoning Law and... © 2024 Thomson Reuters. No claim to original U.S. Government Works.2 implement the moratorium could result in unrestricted growth that detrimentally impacts the character of the community. At the end of the moratorium, the municipality should be able to point to meaningful legislation that furthers its long-range goals. The duration of the moratorium should be reasonable in length, although reasonableness depends upon many factors, including the subject matter and the public policy being contemplated. The Court of Appeals has previously held that “[t]emporary restraints necessary to promote the overall public interest are permissible.”11 There should be a definitive end date in the local law, as the moratorium is a temporary land use tool and cannot be used in perpetuity. Courts have typically found a length of six months to a year to be reasonable, although this is ultimately a fact-specific analysis.12 If at the end of the moratorium, the locality needs additional time to formulate regulations or modify the comprehensive plan, the board can adopt another local law extending the timeframe an additional six months, though it should keep the reasonableness standard in mind. Procedural Considerations When Adopting Short-Term Rental Legislation In order to avoid any jurisdictional defects when adopting a moratorium, short-term rental local laws, or modifications to the comprehensive plan, any proposed actions must be referred to the county planning board before they are formally adopted by the legislative body.13 If the county fails to recommend an action after 30 days elapse, the legislative body may proceed forward. If, however, the county planning board recommends modification or disapproval of the action, the legislative body can override this decision by a vote of the majority plus one.14 Additionally, modification of the comprehensive plan and adoption of short-term rental moratoria are subject to New York State’s Environmental Quality Review Act (SEQRA). To comply with SEQRA, the lead agency (legislative body) should make a finding designating the moratoria as a Type II action with no further action required by the legislative body.15 Initial adoption of a comprehensive plan is a Type I action and warrants further environmental review.16 Modification of the comprehensive plan may also warrant a hard look at the potential environmental impacts.17 General Zoning Authority Local governments possess broad authority to adopt zoning regulations that suit the municipality’s unique needs that are consistent with the comprehensive plan.18 For short-term rentals, the locality can authorize their use in certain zones— e.g., that short-term rentals are permitted in all residential zones—or impose durational time limits, such as only allowing one short- term rental in a 14-day time period. In fact, this exact durational time limit was recently found to be a proper exercise of the town’s authority under Town Law § 261, as the time limit regulated the use itself, as opposed to the owners or users.19 It is important to ensure that any regulations adopted pursuant to the municipality’s general zoning authority regulate the use of the land and not the ownership.20 Permitting Authority and Fee Structures Other localities have enacted a permit system regulating short-term rentals through the general authority provided in Town Law § 261.21 Adopting a permitting scheme under this general zoning authority is separate and distinct from a special use permit, which has certain notice and public hearing requirements. When establishing fee structures for short-term rentals, the permit fees must bear a direct relation to the costs associated with issuing the permit and inspecting and enforcing the activity associated with the permit.22 Any fee structures that serve to generate revenue or to offset the cost of general governmental functions will be invalidated as an unauthorized tax.23 This is not to say that there cannot be a sliding fee structure based upon the number of properties; however, in establishing this structure the local government must be prepared to demonstrate that the cost of the permit is directly related to the cost of administration, is based on reliable factual studies or statistics and, additionally, that all similarly situated parties are treated equally.24 A permit fee structure based upon the assessed value of the property is not permissible, as this bears no direct relation to the administrative costs of the permit and instead amounts to an unauthorized tax.25 Special Use Permits Regulating Short-Term Rentals in New York, 24 No. 4 New York Zoning Law and... © 2024 Thomson Reuters. No claim to original U.S. Government Works.3 Special use permits allow localities to require authorization of a particular use that is otherwise permitted in the zoning code to be subject to the requirements imposed by the permit, in order to maintain harmony in the municipality’s zoning code.26 If a locality regulates short-term rentals through special use permits, it is essentially establishing a strong presumption in favor of the use, since the use is authorized, subject to conditions set by the permit.27 Local governments can place reasonable conditions and restrictions on special use permits, and the failure of the applicant to meet such conditions constitutes sufficient grounds to deny the permit application.28 Depending upon the conditions set by the legislative body, special use permits can, but are not required to, run with the land and, instead can be tied to a specific applicant or owner and be non-transferrable.29 When regulating through special use permits, the municipality designates the body that reviews the permits, such as the planning board or zoning board of appeals. Once a permit application is received, a public hearing should be conducted within 62 days, although this timeframe can be extended by mutual consent of the board and the applicant. At least 10 days before the public hearing, notice of the hearing must be sent to both the applicant and the county planning board.30 A decision must be filed with the clerk within five days from the date of the decision, and any aggrieved applicants can commence an Article 78 proceeding within 30 days of the decision.31 If the locality seeks to regulate short-term rentals through special use permits, the municipality should indicate in the enabling legislation that the permits are a privilege that can be revoked for failure to comply, and that all qualified applicants may not receive a permit if there is a limit on the number of permits issued. This clear directive in the enabling legislation establishes that entitlement to the special use permit is not a matter of right, despite the use generally being accepted as in alignment with the character of the locality.32 This ensures that any aggrieved applicants will not prevail on any unconstitutional takings claims. Other issues to address in the short-term rental special use permitting legislation can include, but are not limited to: the renewal process, refuse removal, safety requirements, inspection requirements, the length of the permitting process, the ability of local officials to impose reasonable conditions that relate directly to the use of the property, enforcement, penalties, creating a rebuttable presumption that a property is operating as a short-term rental if it is listed on a marketplace provider’s website, and conditions for revocation of the permit. Inspections as a Condition of Licensure/Permitting and Fourth Amendment Considerations Many short-term rental local laws filed with the Secretary of the State require an inspection of the premises by the local government prior to the issuance of a permit, as well as requiring random inspections during the duration of the permit. In response, some property owners have asserted that requiring a search of the premises prior to the issuance and during the duration of a permit constitutes an unreasonable search and seizure in violation of the Fourth Amendment.33 The Fourth Amendment provides, in pertinent part, for the “right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures … and no [w]arrants shall [be] issue[d], but upon probable cause. . ..”34 Indeed, it is well-settled that a warrantless inspection of residential rental property is unconstitutional (emphasis added).35 However, common law analysis of the interplay of the Fourth Amendment and warrantless inspections of private property has typically hinged upon the lease or rental of the property in a residential capacity.36 While many short-term rentals are located within residential zones, the very nature of the rental is transient and not residential. The Eastern District Court of New York recently found that a short-term rental does not constitute a “dwelling” subject to the Fair Housing Act, and that a residence is one where an individual intends to return, as distinguished from a place of temporary sojourn like a short-term rental.37 To this end, owner-occupied short-term rentals can rely upon the Fourth Amendment and common law to avoid warrantless inspections as a condition of a permit, as the premises are used as a residence even when the property is being used as a short-term rental. Inspections by Locality or Certified Professional Upheld as Constitutional While courts have consistently held that a warrantless inspection as a condition of a permit is unconstitutional, there are procedures localities can follow to ensure that an inspection is secured and the constitutional rights of the property owner are preserved. Specifically, a court recently found that requiring a property owner to either submit to an inspection by the town’s building inspector or produce a certificate of compliance by a state-licensed professional engineer as a condition of the issuance of a rental permit does not violate the provisions against unreasonable searches and seizures in the United States or New York Constitution.38 Accepting a certificate from a state-licensed professional engineer in lieu of an inspection constitutes a valid alternative to submitting to a government inspection that preserves the Fourth Amendment rights of the property owners.39 Regulating Short-Term Rentals in New York, 24 No. 4 New York Zoning Law and... © 2024 Thomson Reuters. No claim to original U.S. Government Works.4 Accordingly, to avoid any constitutional challenges, those localities that wish to conduct an inspection prior to granting or renewing a short-term rental permit should include the option to accept a certificate of inspection from a licensed engineer. Inspection When Property Owner Seeks To Expand Property Use Is Valid Additionally, requiring an inspection when a property owner seeks to expand their current use or occupancy of a property where they have no inherent right otherwise to rent the premises is not unconstitutional.40 In People v Bifulco, the property owner sought a rental permit to rent out her detached garage. This use was not authorized under the town code and, since there was no right to use the property in this manner, the property owner could not then assert that her Fourth Amendment rights were violated by requiring an inspection in order to use the property as a rental.41 The property owner also had a residence on the property where rentals were permissible in the code; the court found that the town could not require an inspection for the residence as a condition of the permit, as the property owner had the right to rent her house. Note that subsequent case law has indicated that one does not have the right to use their property in the most economically productive manner,42 and if the enabling local legislation provides that the rental permits are a revocable privilege as opposed to a right, the argument that one has the right to rent their property as a short-term rental falters. In the context of short-term rentals, localities can rely upon this case to require an inspection if a property owner seeks to expand or change the use of their property where short-term rentals are not authorized. Even still, it is constitutionally prudent to provide the option to produce a certificate of inspection by a licensed engineer, thereby avoiding any assertions of Fourth Amendment violations. Short-Term Rentals as a Commercial Enterprise and Fourth Amendment Considerations Non-owner-occupied units that are essentially used in a commercial capacity as short-term rentals may not enjoy the same constitutional benefits afforded to residential properties. The Supreme Court of the United States has found that “unlike searches of private homes, which generally must be conducted pursuant to a warrant in order to be reasonable under the Fourth Amendment, legislative schemes authorizing warrantless administrative searches of commercial property do not necessarily violate the Fourth Amendment.”43 There is a greater latitude to conduct warrantless inspections of commercial property because the expectation of privacy in a commercial property differs from the sanctity given to one’s home and, in certain circumstances, the commercial property owner’s privacy interest may be adequately protected by regulatory schemes authorizing warrantless inspections.44 If the inspection is a necessary component of the regulatory framework, the warrantless inspection will likely be upheld, so long as the justification is reasonable. The Fourth Amendment provides protection from unreasonable searches and seizures; it is not unreasonable for a locality to require an inspection of a short-term rental prior to granting a permit that, in some cases, gives the property owner the ability to operate a boarding house, hotel or bed and breakfast (depending upon the locality’s definition). The ability to use this less restrictive analysis hinges on an important question—is the short-term rental actually considered a commercial use? This can vary by locality and depends upon the definition in the local code as well as the use of the short-term rental—not all short-term rental properties are the same, and one may be operated similar to a hotel and run by a corporation, while another may be rented out several times a year in an owner-occupied residential structure. If the short-term rental is not designated as a commercial property, this authority cannot be relied upon to trump the right against unreasonable search and seizures and, even if the short-term rental is commercial, the locality may want to consider offering the option of producing a certificate from a licensed engineer in lieu of an inspection as previously discussed in order to avoid any constitutional implications. Using Non-Zoning Authority To Regulate Short-Term Rentals—Licensing and the Promotion of the Public Welfare For municipalities that do not have zoning, there are other sources of authority to rely upon to effectively regulate short-term rentals. In addition to the explicit zoning authority previously discussed, Town Law § 130 grants towns the authority to adopt ordinances that, among other things, promote the public welfare, address health and safety regulations, and regulate hotels, motels, boarding rooms and the like, specifying their manner of running and ensuring cleanliness and fire protection, while Town Law § 136 and Village Law § 4-412 provide the authority to adopt legislation that licenses and regulates inns, boarding houses, rooming houses and the like. In this regard, towns and villages are using their police power and general legislative authority to regulate short-term rentals. While these laws specifically empower towns to adopt ordinances—unlike villages, Regulating Short-Term Rentals in New York, 24 No. 4 New York Zoning Law and... © 2024 Thomson Reuters. No claim to original U.S. Government Works.5 which are prohibited from adopting ordinances—using this authority, towns also have the ability to adopt local laws under this framework pursuant to Municipal Home Rule Law.45 As local laws have the presumption of validity in court if challenged,46 any towns seeking to regulate short-term rentals using Town Law §§ 130 or 136 should do so by way of adopting a local law as opposed to an ordinance—even if prior legislation was adopted via ordinance. The Importance of Definitions When Drafting Short-Term Rental Legislation When drafting any local law regulating short-term rentals, clear and concise definitions are important. The local government should ensure that short-term rentals are specifically defined and encompass what the municipality is seeking to regulate. Indeed, whether a property is subject to the locality’s regulatory framework often turns upon the definitions incorporated in the local law, and vagueness will result in a finding against the municipality. In Fruchter v Zoning Bd. of Appeals of Town of Hurley, a property owner in a residential zone began listing his property for rent for timeframes ranging from one night to an entire season.47 When the property was rented, the property owner did not stay on the premises and did not serve any food or beverages. The code enforcement officer subsequently issued an order to remedy for illegally operating a bed and breakfast or hotel under the town’s zoning code, as this use required a special use permit. The zoning board of appeals determined that this use of the property was not authorized under the code without a special use permit, since the use of the property was as a bed and breakfast or hotel. The property owner then commenced suit, asserting that his use of the property was not captured by the town’s zoning code and, accordingly, did not require a special use permit. The court agreed with the property owner and the court found that his use of the property did not fall neatly within the town’s definitions of properties requiring a special use permit, as it was not operating as a bed and breakfast—as this required food to be served pursuant to the town’s definition—and it was not a hotel, as there was no common entrance area, as defined by the town. Because the property was not captured by the town’s regulatory framework, the property owner was not subject to the town’s order to remedy.48 The court’s holding in Fruchter indicated the property owner’s use of the property was not subject to a special use permit as the law currently stood. However, if the town thereafter modified their code to include a broader definition of those properties subject to a special use permit, the property owner would have to comply and would be unlikely to prevail on a vested rights claim if challenged, since the property owner would still be able to operate the property within the town’s regulatory structure.49 Some definitions to consider include: Transient rental occupancy: use of a dwelling unit by a person or group of persons who occupies it or is entitled to occupy a dwelling unit for remuneration for a period of less than 14 calendar days, counting portions of days as full days; or Vacation rental: a residence or room available for rent for periods of less than 14 days totaling more than 30 days of a calendar year. In Fruchter, the aforementioned definitions still may not have captured the use of the property, as the property was sometimes rented for an entire season. To this end, the locality should craft short-term rental legislation to encompass the manner that best suits how the properties are used in the municipality. The Fruchter decision solidifies how important definitions are when drafting short-term rental local laws; the omission of a potential use could mean that property operating as a short-term rental does not have to comply with the local government’s licensing scheme, since the property’s specific operations do not fall under the code. Accordingly, a local government’s short-term rental regulation should be written to address the unique needs and uses of the locality so that any short-term rental use contemplated therein will fall under the regulatory framework. Additional Tips To Consider: Short-term Rental Case Study Notes Despite all of these tools currently available to local governments to regulate short-term rentals, the legal landscape of regulating short-term rentals is fluid and ever-changing, as cases continue to be litigated on a rapid basis. While different jurisdictions have not uniformly made the same findings, the overarching premise is the same: when regulating short-term rentals, localities must exercise a delicate balance between protecting the health, safety and welfare of their residents and the constitutional rights afforded to property owners. Local governments should consider the following cases and principles when drafting short-term rental legislation. Regulating Short-Term Rentals in New York, 24 No. 4 New York Zoning Law and... © 2024 Thomson Reuters. No claim to original U.S. Government Works.6 Owner-Occupancy Requirements Violate the Dormant Commerce Clause of the United States Constitution In Hignell-Stark v. City of New Orleans, a group of property owners challenged the city of New Orleans short-term rental regulation, asserting, in pertinent part, that the regulation: 1. Violated the Takings Clause of the Constitution, as the property owners had a vested property interest in the renewal of their licenses; and 2. Violated the dormant Commerce Clause of the Constitution and discriminated against interstate commerce by imposing a residency requirement for any short-term rental.50 In filing, the property owners sought a permanent injunction against enforcement of the regulation and a finding that the regulation was unconstitutional. The Takings Clause The Fifth Amendment to the United States Constitution provides, among other things, that “private property [shall not] be taken for public use, without just compensation.” In this case, the property owners argued that the city violated the Takings Clause by failing to renew their short-term rental licenses. The court found that while the Takings Clause protects property interests, it does not create them. To prevail on their claim, the property owners had to demonstrate that their property interests were “so deeply rooted in custom that ‘just compensation’ for appropriating [the licenses] … includes money damages.”51 Here, the court found that the plaintiffs had no property interest in the renewal of their short-term rental licenses, as the regulation provided that the licenses were “a privilege, not a right” and that even applicants that met the requirements for a license were still not entitled to one. Additionally, the regulation indicated that the license could be revoked or not renewed due to non- compliance with the city’s comprehensive zoning code or the regulation itself. Moreover, the property owners failed to establish that their licenses were so longstanding that they could claim that custom had elevated the license to a property interest; in fact, the licensing regulation had only gone into effect in 2017 and was modified in 2019. Accordingly, the property owners could not prevail on the assertion that the denial/non-renewal of the licenses violated the Takings Clause, as the regulation provided that the licenses were a privilege and the property owners could not claim a longstanding interest in the license. Takeaway for Localities in New York Legislation regulating short-term rentals through a permit system should include language indicating that the permit is a privilege, not a right that can be revoked at any point for non-compliance with the requirements set forth in the legislation. The Dormant Commerce Clause The Commerce Clause gives the federal government the authority to regulate commerce with and between the states (among others), while the dormant Commerce Clause prohibits states from passing legislation that discriminates against or excessively burdens interstate commerce.52 The court noted that these restraints upon states apply to municipalities as well. In this case, the property owners asserted that the residency requirement in the city’s licensing scheme violated the dormant Commerce Clause because it discriminated against interstate commerce. The lower court found that the regulation violated the dormant Commerce Clause but found that the burden was incidental to interstate commerce and thus upheld the city’s regulation. The Fifth Circuit disagreed, finding that the residency requirement discriminated against interstate commerce and that there were many reasonable, non-discriminatory alternatives to achieve the city’s policy goals. A regulation that treats in-state and out-of-state economic interests differently, benefitting those in-state and burdening out- of-state interests, discriminates against interstate commerce. In Hignell-Stark, the residency requirement discriminated against interstate commerce on its face by prohibiting out-of-state interests from participating in the short-term rental licensing scheme. A property owner could only own a short-term rental if they had a permit, and permits were only authorized for short- term rentals in residential neighborhoods where the property was located on the same lot of record as the owner’s primary residence and the owner had a homestead exemption for the property. Inasmuch as resident and non-resident property owners are substantially similar, in that both are not public entities and also seek to compete in the market for lodging for the city’s Regulating Short-Term Rentals in New York, 24 No. 4 New York Zoning Law and... © 2024 Thomson Reuters. No claim to original U.S. Government Works.7 residential neighborhoods, and with the only difference being that non-residents do not live in the city, the court found that the residency requirement discriminated against interstate commerce for purposes of the dormant Commerce Clause. The city argued that it was not protecting residents from out of state competition; instead, it was addressing nuisances created by short-term rentals by ensuring a responsible adult lived at the short-term rental full-time. The court did not find this persuasive, as the city’s legislation still discriminated against non-residents on its face. That is, even an assertion of the locality’s police power was not enough to overcome the burden of proving the legislation did not violate the dormant Commerce Clause. Additionally, the city argued that because non-residents were allowed to obtain short-term rental permits in non-residential districts and that the regulation therefore did not entirely prohibit interstate commerce. The court disagreed, finding that market in non-residential neighborhoods did not compare to the short-term rentals in residential districts. That is, local legislation that imposes residency restrictions on only certain districts will still likely violate the dormant Commerce Clause. Lastly, the city argued that its regulation discriminated against others in the state outside of the city’s jurisdiction, not just out-of-state residents. However, local ordinances that discriminate against interstate commerce are not valid because they also discriminate on commerce within the state.53 The court found that the residency requirement still discriminates on its face against interstate commerce. Local legislation that discriminates against interstate commerce will not be rendered valid because it also discriminates against residents in the state. Because the residency requirement was invalid on its face, it could only survive constitutional scrutiny if the city could demonstrate that it advanced a legitimate local purpose that could not be adequately served by a reasonable nondiscriminatory alternative.54 Here, the city asserted that the residency requirement prevented nuisances, promoted affordable housing and protected neighborhoods’ residential character. • Residency requirement prevents nuisances: The court indicated that other, less discriminatory options are available, including increasing enforcement efforts where owners would be responsible for disorderly guests and increasing penalties imposed for violations, as well as stripping repeat offenders of their short-term rental permit. In addition to enforcement, the city could provide short-term rental owners with the alternative to having an operator stay on the property during the night, thereby deterring nuisance behavior. • The court also indicated that the city could increase taxes on short-term rentals; this option is not available to most localities in New York, as this must be authorized at the state or county level. Takeaway for Localities in New York Rather than impose a residency requirement, localities can increase penalties in the local law for violations of any local nuisance legislation and include language in the local law that revokes the short-term rental permit upon repeat offenses. • Residency requirement promotes affordable housing: While the residency requirement might preserve affordable housing, the city could accomplish this goal by restricting the number of short-term rental licenses, increasing the cost of the license, and provide incentives for developers to construct more housing. Because there are other ways to promote affordable housing, this argument did not stand. Note that the cost of licenses in New York must be rational and relate to the actual costs associated with the regulatory scheme. • Residency requirement is necessary to protect the character of the neighborhood: The city asserted that the residency requirement ensures that residential neighborhoods are not converted into temporary rental units; however, other options were available—including limiting the number of permits issued—that rendered this argument invalid. In summary, local legislation that requires a license to operate a short-term rental does not violate the Takings Clause, as there is no inherent property right in a short-term rental license, especially given the enabling language of the local legislation. However, localities that impose a residency requirement on short-term rentals will violate the dormant Commerce Clause unless the locality can demonstrate that the legislation advances a legitimate local purpose that has no reasonable non-discriminatory alternatives. While this case came out of the Fifth Circuit and localities in New York fall under the jurisdiction of the Second Circuit, it still provides guidance that serves as a warning for all municipalities seeking to regulate short-term rentals, as the dormant Commerce Clause and prohibition on discriminating against interstate commerce applies to every locality in the country. This Regulating Short-Term Rentals in New York, 24 No. 4 New York Zoning Law and... © 2024 Thomson Reuters. No claim to original U.S. Government Works.8 is such even despite the fact that New York courts have upheld owner-occupancy requirements in short-term rentals, where the property owner asserted the requirement was a regulatory taking as opposed to a violation of the dormant Commerce Clause. Denial of Short-Term Rental Permit Does Not Rise to a Regulatory Taking In Matter of Wallace v. Town of Grand Island, a property owner purchased a single-family home with the sole purpose of operating it as a short-term rental.55 The town subsequently adopted a local law prohibiting short-term rentals in certain districts unless the short-term rentals were owner-occupied; that is, the town imposed a residency requirement on short-term rentals. The local law included an amortization period of one year, which could be extended three times upon application, wherein preexisting short-term rentals could cease operations. The property owner sought both an extension under the amortization and a use variance to continue operating the short-term rental, both of which were denied. He then filed suit, asserting that the residency requirement constituted an unconstitutional regulatory taking. In this case, the court found that to overcome a land regulation, the property owner has to demonstrate that “under no permissible use would the parcel as a whole be capable of producing a reasonable return or be adaptable to other suitable private use.”56 In order to meet this burden, the property owner has to provide “dollar and cents” evidence regarding the economic return that could be realized under each permitted use of the property.57 Here, the property owner failed to demonstrate that the subject property was incapable of producing a reasonable return on investment or not adaptable to other suitable private use simply because it could not be used as a short-term rental. The property owner only showed a “mere diminution” in the value of the property, which does not rise to the level of a regulatory taking.58 Indeed, the court found that one is not constitutionally entitled to the most beneficial use of their property. The property owner did not submit any “dollars and cents” evidence that any of the permissible uses available to the property (long-term rental, sale) would not produce a reasonable return on investment and, accordingly, the residency requirement did not constitute a regulatory taking. Takeaway for Localities in New York The property owner was unsuccessful in this case because he failed to demonstrate that the local law rose to the level of a regulatory taking. Given the Fifth Circuit decision in Hignell-Stark, had the property owner asserted that the residency requirement constituted a violation of the dormant Commerce Clause that discriminated against non-resident owners, this case likely could have had a different outcome. Durational Requirements Are a Valid Exercise of a Local Government’s Zoning Authority In Weisenberg v. Town Board of Shelter Island, the town of Shelter Island adopted a short-term rental local law that imposed licensing and advertising requirements on certain vacation rentals, prohibited short-term rentals from being rented more than once in a 14-day period, imposed civil penalties for violations and authorized the town board to act as the reviewing authority for any issues associated with the short-term rental local law.59 Any short-term rentals with contracts predating the law could apply for a waiver to authorize more than one stay in the 14-day timeframe through the end of year after the law was first adopted—after which no waivers were allowed. The law only applied to vacation rentals, which are explicitly distinguished from owner-occupied rental properties in the local law. In response to the law, various property owners filed suit, alleging, among other things, that the local law caused them to lose income due to reduced rentals, violated the Fair Housing Act, town law and the United States Constitution. Regarding reduced rentals, the court found that one of the property owners lacked standing, as their property was exempt from the short-term rental local law since it was owner-occupied and thus did not constitute a short-term rental. Additionally, the court found that the short-term rental law did not violate the Fair Housing Act, as the Fair Housing Act makes it unlawful to discriminate against any person in the sale or rental of a “dwelling,” and the short-term rental local law excludes properties that are rented for more than 14 days at a time. Therefore, a short-term rental as defined by the local law does not constitute a dwelling under the Fair Housing Act. Regulating Short-Term Rentals in New York, 24 No. 4 New York Zoning Law and... © 2024 Thomson Reuters. No claim to original U.S. Government Works.9 The property owners also alleged that the local law violated Town Law § 261, which, as previously discussed, authorizes towns to regulate and restrict “the density of population, and the location and use of buildings, structures and land for trade, industry, residence or other purposes.”60 The court explicitly noted that the authority granted by Town Law § 261 is not a general police power but instead a power to regulate land use and that the town must ensure to regulate the land use, rather than the individual that owns or occupies it. In this case, the short-term rental law addresses the use of the land; that is, the number of days the property is rented at a certain time. The town was regulating the duration of the use, as opposed to the identity of the owners or renters and, accordingly, was a valid exercise of its authority under Town Law § 261. Takeaway for Localities in New York: Regulating the length of stays in short-term rentals is a proper exercise of zoning authority pursuant to Town Law § 261, as durational requirements regulate the use of the land and not the owners or users. Accordingly, a locality can feel confident imposing durational restrictions in a short-term rental local law. As it relates to constitutional claims, the plaintiffs asserted that they were denied due process under the Fourteenth Amendment because they established a fundamental right to rent out their homes under New York law. The court found that under New York law, a property owner has no vested right to the existing zoning status of their property unless they made substantial expenditures in reliance on the zoning status. As the property owners could not demonstrate any substantial expenditures, their due process claim failed. Takeaway for Localities in New York: This case suggests that if a property owner can demonstrate that they made substantial expenditures on their property they may have a due process claim if a short-term rental local law changes the status of the property deprives them of the ability to use the property as they intended. This appears to be a tenuous link but should still be considered when drafting and implementing a short-term rental local law. Lastly, the property owners asserted that the record-keeping and search requirements in the local law violated their right to privacy under both the Fourth Amendment of the Constitution and Article I, § 12 of the NYS constitution. Specifically, the local law required short-term rental owners to maintain rental registries for the town to examine at any point, subject to automatic fines and license forfeiture for non-compliance. While the law allowed owners to demonstrate compliance before any license revocation, fines were automatically issued. The court allowed these claims to proceed forward and, as a result, the town amended its short-term rental local law to comply with the Fourth Amendment and both parties agreed to discontinue the action. Takeaway for Localities in New York: When drafting a local law, ensure that property owners are afforded the ability to comply with requests for records and respond before fines are issued. Any requests for records should be reasonable, and a monthly reporting requirement has been construed as excessive and an unlawful search and seizure violation of the Fourth Amendment.61 Creating a Carve-Out of Properties That Are Not Subject to Local Regulation Potentially Violates Equal Protection Principles by Treating Similarly Situated Property Owners Differently In Calvey v. Town Board of North Elba, a group of property owners filed suit challenging the town and village’s short-term rental local law which, in pertinent part, excluded certain properties from compliance with the local law.62 Specifically, the town and village boards adopted a local law that, among other things, required property owners to obtain revocable permits for short-term rentals, which included any dwelling rented for less than 30 consecutive nights, and prohibited any rental to exceed more than 90 total days rented in a calendar year.63 The local law excluded owner-occupied dwellings where the owner resided on the premises at least 184 days a year, condominiums and townhouses that had an active homeowner’s association, and short- term rentals on certain streets. In commencing the suit, the property owners asserted that they were denied equal protection since similarly situated property owners were treated differently via the carve outs in the local law. The court allowed this cause of action to proceed forward, asserting that the property owners had a plausible claim that the short-term rental local law created a distinction among similarly situated owners without a rational basis. Takeaway for Localities in New York: When drafting a short-term rental local law, do not distinguish among classes of permittees unless there is a solid rational basis for doing so. Even if there is a rational basis, localities should exercise extreme caution in creating classes of permittees, as so doing invites potential claims for equal protection violations. Regulating Short-Term Rentals in New York, 24 No. 4 New York Zoning Law and... © 2024 Thomson Reuters. No claim to original U.S. Government Works.10 Short-Term Rentals at the State Level: Pending Legislation As of August 2023, the authority to regulate short-term rental rests exclusively with local governments, and there is no framework at the state level that municipalities have to comply with. Past executive budgets have sought to impose a statewide taxation structure on marketplace providers and to require localities to allow accessory dwelling units on owner-occupied, single-family lots, but these proposals were ultimately stricken from the final budget.64 In 2023, legislation was introduced that creates a state-administered registry for short-term rentals and authorizes the collection of sales and occupancy taxes from such rentals to the state and local governments, as well as imposes a baseline of health and safety requirements while authorizing local governments with their own registries to implement their requirements as set forth by their local legislation.65 Proponents of this legislation appreciate that the registry will alert localities of the short-term rentals operating in their jurisdiction and provide a consistent taxation revenue stream, while those opposed assert that this regulatory authority should rest solely with local governments. At the 2023 end of state legislative session, the legislation had passed the Senate and was in the Assembly Housing Committee. Given the speed at which both short-term rentals are increasing in the state and at which this legislation moved, it is likely that there will be legislative action addressing short-term rentals in 2024, be it through this legislation or through the budget process. Conclusion The increasing popularity of short-term rentals in New York has brought the issues associated with these properties to the forefront of most local governments in the state. Municipalities have a number of legislative tools available to regulate short- term rentals in a way that allows these properties to exist while maintaining the character of each unique local government. As the legal and legislative landscape of short-term rentals will continue to evolve, it is prudent for local governments to allow their code to also evolve in a manner that both complies with the law and suits the needs of their community. Katie Hodgdon serves as counsel with the Association of Towns. She co-chairs the Local and State Government Law Section’s Taxation, Finance and Economic Development subcommittee and Code Drafting subcommittee and was just appointed to her second five-year term on the Third Judicial District’s Committee on Character and Fitness. This article first appeared in Municipal Lawyer, a publication of the Local and State Government Law Section of the New York State Bar Association. Copyright ©2023 New York State Bar Association. Reprinted with permission. NYSBA.ORG/LSGL. Westlaw. © 2024 Thomson Reuters. No Claim to Orig. U.S. Govt. Works. Footnotes 1 Airbnb, one of the top short-term rental marketplace providers, was established over 15 years ago in 2007 (Airbnb, https://news.airbnb.com/about-us/ [accessed July 25, 2023]). 2 Airbnb, https://news.airbnb.com/airbnb-q4-2022-and-full-year-financial-results/ (accessed July 25, 2023). 3 Tom Knipe, Understanding and Addressing the Growth of Short Term Rentals in Tompkins County, https://tompkinscountyny.gov/files2/tourism/Addressing%20the%20Growth%20of %20Short%20Term%20Rentals%20in%20Tompkins%20County_STPB_5_17_17.pdf (accessed July 25, 2023). 4 For purposes of brevity, only a select few cases have been included. Regulating Short-Term Rentals in New York, 24 No. 4 New York Zoning Law and... © 2024 Thomson Reuters. No claim to original U.S. Government Works.11 5 Town Law § 272-a, Village Law § 7-722, General City Law § 28-a. 6 SeeMatter of Skenesborough Stone Inc. v. Village of Whitehall, 254 A.D.2d 664, 679 N.Y.S.2d 727 (3d Dep’t 1998). 7 See Gernatt Asphalt Products, Inc. v. Town of Sardinia, 87 N.Y.2d 668, 642 N.Y.S.2d 164, 664 N.E.2d 1226 (1996). 8 Municipal Home Rule Law § 10. 9 See Town of Bedford v. Village of Mount Kisco, 33 N.Y.2d 178, 351 N.Y.S.2d 129, 306 N.E.2d 155 (1973). 10 See Ecogen, LLC v. Town of Italy, 438 F. Supp. 2d 149 (W.D. N.Y. 2006). 11 See Charles v. Diamond, 41 N.Y.2d 318, 392 N.Y.S.2d 594, 360 N.E.2d 1295, 7 Envtl. L. Rep. 20434 (1977). 12 See Noghrey v. Acampora, 152 A.D.2d 660, 543 N.Y.S.2d 530 (2d Dep’t 1989). 13 General Municipal Law § 239-m. 14 General Municipal Law § 239-m (5). 15 6 NYCRR 617.5 (33) (legislative decisions) (36) (moratoria). Note that this is couched in general terms and that under different facts, the proposed changes could constitute a SEQR Type I or Unlisted action. If so, the proper steps should be followed to ensure compliance. 16 6 NYCRR 617.4 (b)(1). 17 See Troy Sand & Gravel Co., Inc. v. Town of Nassau, 82 A.D.3d 1377, 918 N.Y.S.2d 667 (3d Dep’t 2011). 18 See General City Law § 20, Town Law §§ 261, 264, Village Law § 7-700. 19 See Weisenberg v. Town Board of Shelter Island, infra. 20 See Dexter v. Town Bd. of Town of Gates, 36 N.Y.2d 102, 365 N.Y.S.2d 506, 324 N.E.2d 870 (1975). 21 See Town of Clinton Code § 250-69.1 (LL 2, 2020). 22 See 201 C-Town LLC v. City of Ithaca, 206 A.D.3d 1398, 171 N.Y.S.3d 235 (3d Dep’t 2022); 1999 Ops St Comp No. 99-13. 23 See ATM One L.L.C. v. Incorporated Village of Freeport, 276 A.D.2d 573, 714 N.Y.S.2d 721 (2d Dep’t 2000). 24 See Cimato Bros., Inc. v. Town of Pendleton, 270 A.D.2d 879, 705 N.Y.S.2d 468 (4th Dep’t 2000). 25 See New York Telephone Co. v. City of Amsterdam, 200 A.D.2d 315, 613 N.Y.S.2d 993 (3d Dep’t 1994). 26 See General City Law § 27-b, Town Law § 274-b, Village Law § 7-725-b. 27 See Cove Pizza, Inc. v. Hirshon, 61 A.D.2d 210, 401 N.Y.S.2d 838 (2d Dep’t 1978). Regulating Short-Term Rentals in New York, 24 No. 4 New York Zoning Law and... © 2024 Thomson Reuters. No claim to original U.S. Government Works.12 28 See Matter of Marcus v. Planning Board of Village of Wesley Hills, 199 A.D.3d 1007, 154 N.Y.S.3d 822 (2d Dep’t 2021), leave to appeal denied, 39 N.Y.3d 908, 183 N.Y.S.3d 346, 203 N.E.3d 1202 (2023). 29 See Balodis v. Fallwood Park Homes, Inc., 54 Misc. 2d 936, 283 N.Y.S.2d 497 (Sup 1967). 30 See General City Law § 27-b, General Municipal Law § 239-m, Town Law § 274-b, Village Law § 7-725-b. 31 See General City Law § 27-b, Town Law § 274-b, Village Law § 7-725-b. 32 See Tandem Holding Corp. v. Board of Zoning Appeals of Town of Hempstead, 43 N.Y.2d 801, 402 N.Y.S.2d 388, 373 N.E.2d 282 (1977). 33 See Calvey v. Town Board of North Elba, 2021 WL 1146283 (N.D. N.Y. 2021). 34 U.S. Const. Amend. IV. 35 See Sokolov v. Village of Freeport, 52 N.Y.2d 341, 438 N.Y.S.2d 257, 420 N.E.2d 55 (1981). 36 See ATM One, LLC v. Incorporated Village of Hempstead, 91 A.D.3d 585, 936 N.Y.S.2d 263 (2d Dep’t 2012), as amended, (May 17, 2013). 37 See Weisenberg v. Town Board of Shelter Island, 404 F. Supp. 3d 720 (E.D. N.Y. 2019). 38 See Infinite Green, Inc. v. Town of Babylon, 2022 NY Slip Op 00407. 39 See Infinite Green, Inc. v. Town of Babylon, 2022 NY Slip Op 00407. 40 See People v. Bifulco, 195 Misc. 2d 483, 758 N.Y.S.2d 231 (Dist. Ct. 2003). 41 See People v. Bifulco, 195 Misc. 2d 483, 758 N.Y.S.2d 231 (Dist. Ct. 2003). 42 See Matter of Wallace v. Town of Grand Island, supra. 43 See Donovan v. Dewey, 452 U.S. 594, 101 S. Ct. 2534, 69 L. Ed. 2d 262, 1981 O.S.H. Dec. (CCH) P 25458 (1981). 44 See Donovan v. Dewey, 452 U.S. 594, 101 S. Ct. 2534, 69 L. Ed. 2d 262, 1981 O.S.H. Dec. (CCH) P 25458 (1981). 45 See Municipal Home Rule Law § 10. 46 See Lighthouse Shores, Inc. v. Town of Islip, 41 N.Y.2d 7, 390 N.Y.S.2d 827, 359 N.E.2d 337, 7 Envtl. L. Rep. 20290 (1976). 47 See Fruchter v. Zoning Bd. of Appeals of Town of Hurley, 133 A.D.3d 1174, 20 N.Y.S.3d 701 (3d Dep’t 2015). 48 See Fruchter v. Zoning Bd. of Appeals of Town of Hurley, 133 A.D.3d 1174, 20 N.Y.S.3d 701 (3d Dep’t 2015). 49 See Matter of Wallace v. Town of Grand Island, supra. 50 See Hignell-Stark v. City of New Orleans, 46 F.4th 317 (5th Cir. 2022). 51 See Hignell-Stark v. City of New Orleans, 46 F.4th 317 (5th Cir. 2022). Regulating Short-Term Rentals in New York, 24 No. 4 New York Zoning Law and... © 2024 Thomson Reuters. No claim to original U.S. Government Works.13 52 See U.S. Const., art. I, § 8, cl. 3; West Lynn Creamery, Inc. v. Healy, 512 U.S. 186, 114 S. Ct. 2205, 129 L. Ed. 2d 157, 73 A.F.T.R.2d 94-2263 (1994). 53 See C & A Carbone, Inc. v. Town of Clarkstown, N.Y., 511 U.S. 383, 114 S. Ct. 1677, 128 L. Ed. 2d 399, 38 Env’t. Rep. Cas. (BNA) 1529, 24 Envtl. L. Rep. 20815 (1994). 54 See Hignell-Stark et. al. v City of New Orleans, 46 F.4th at 325. 55 See Wallace v. Town of Grand Island, 184 A.D.3d 1088, 126 N.Y.S.3d 270 (4th Dep’t 2020). 56 See Matter of Wallace, 184 A.D.3d at 1090, citing Spears v. Berle, 48 N.Y.2d 254, 422 N.Y.S.2d 636, 397 N.E.2d 1304, 13 Env’t. Rep. Cas. (BNA) 2160, 9 Envtl. L. Rep. 20796 (1979). 57 See Matter of Wallace, 184 A.D.3d at 1090, citing Spears v. Berle, 48 N.Y.2d 254, 422 N.Y.S.2d 636, 397 N.E.2d 1304, 13 Env’t. Rep. Cas. (BNA) 2160, 9 Envtl. L. Rep. 20796 (1979). 58 See Matter of Wallace, 184 A.D.3d at 1091. 59 See Weisenberg v. Town Board of Shelter Island, 404 F. Supp. 3d 720 (E.D. N.Y. 2019). 60 See Weisenberg v. Town Board of Shelter Island, 404 F. Supp. 3d at 729. 61 See Airbnb, Inc. v. City of New York, 373 F. Supp. 3d 467 (S.D. N.Y. 2019). 62 See Calvey v. Town Board of North Elba, supra. In addition to Equal Protection claims, the plaintiffs alleged that the short-term rental local law violated the right to be free from an unreasonable search and seizure under the federal and New York Constitutions by allowing the enforcement officer to enter and search any short-term rental for inspection without a warrant, justification, or chance to protest (the court allowed this claim to proceed forward, indicating that requiring an inspection to obtain a permit deprives one of any economic benefit of their property. Given that one is not necessarily entitled to the most beneficial use of their property it is debatable whether this would be found in favor of the property owners); arbitrarily interceded with a property right, violating their right to substantive due process (court dismissed this claim as unripe); violated due process by preventing them from renting their homes for more than 90 days per year (court allowed this claim to proceed, indicating that the Second Circuit have not determined that the right to rental income is a protected property interest. Also note that the Weisenberg court found that durational time limits were a valid exercise of a town’s zoning authority and the Wallace court indicated that one does not have a constitutional right to use their property in a way that generates the most income); that due process was violated because the permitting process curtailed existing uses to which the properties were already devoted (court dismissed this claim as unripe and that the allegations were conclusory), that due process was violated because the property owners were required to provide a contact person for the property, thereby subjecting them to liability (court dismissed this claim); that due process was violated because the law was “sure to be arbitrary” (court dismissed this claim, finding that the plaintiffs did not allege that the ordinance could never be constitutional as written); that due process was violated because the enforcement officer could “unilaterally” impose conditions related to the permit (court dismissed this claim); that due process was violated by imposing strict liability and rendering the property owners responsible for violations by their designated contact person (court dismissed this claim, finding that even if vicarious liability were imposed, due process rights are not necessarily violated); that due process was violated because the law did not provide for due process protections (court dismissed this claim, finding that there were conditions under which the ordinance could be applied in a constitutional manner); that the 90-day cap on rentals constituted on unconstitutional taking (court allowed this claim to proceed, finding that discovery was necessary; again see Weisenberg and Wallace); that the law violates the contract clause of the N.Y. and U.S. Constitutions (court dismissed this claim, finding that the plaintiffs failed to meet the requirements for a contracts clause claim); that the property owner’s First Amendment rights were violated (court dismissed this claim, finding that the Regulating Short-Term Rentals in New York, 24 No. 4 New York Zoning Law and... © 2024 Thomson Reuters. No claim to original U.S. Government Works.14 plaintiffs failed to state a claim upon which relief could be granted); the court also granted the local governments’ motions to dismiss any municipal liability claims or state law claims against them. 63 See Calvey v. Town Board of North Elba. 64 See 2022-2023 Executive Budget Article VII Legislation, ELFA Part AA, Revenue Part V. 65 See S885-B (Hinchey)/A4130-A (Fahy). End of Document © 2024 Thomson Reuters. No claim to original U.S. Government Works.