This article originally appeared in the California Lawyers Association’s “Real Property Law Journal.”
Like many other sectors in the “sharing economy,”[i] short-term rentals of residential property[ii] (“STRs”) have become a ubiquitous part of the national economy. Often labeled as one of the biggest disrupters in the travel industry, STRs are particularly impactful on the United States tourist sector, with one estimate putting the size of the domestic vacation rental market at $100 billion.[iii] The STR industry is young and, while not yet fully crystallized, flush with growing demand.[iv] The number of consumers utilizing STR options has burgeoned exponentially since 2011,[v] with a reported seven in ten millennial business travelers preferring to stay in local host rentals over more traditional lodging options.[vi]
The rapid evolution of the STR market, once a cottage industry, can be attributed in large part to new technology which is changing the industry and providing new and efficient means for consumers to access alternative accommodations. Online rental platforms such as Airbnb, Vacation Rentals by Owner (“VRBO”), [vii] FlipKey, and hundreds of other rental websites significantly decrease the time it takes to find lodging and facilitate connections between hosts and travelers. They also enable both parties to leverage the power of peer-to-peer reviews.[viii] These platforms allow consumers can find accommodations specific to their needs, and hosts to obtain assurances about the people requesting accommodation in their properties. Consequently, this new niche market has unwittingly ushered a tremendous number of new hosts and consumers into the hospitality industry.
The emergence of such online marketplaces has created a global boom in the STRs of personal residences. In the U.S., this phenomenon has spread from coast-to-coast.[ix] Indeed, the number of available STR units has grown at a forty-five percent annual rate over the past five years, and there is no reason to believe that this growth will slow down in the foreseeable future.[x] As a result of the market’s momentous popularity, consumers are flocking into previously undisturbed (and perhaps, undesirable from a traveler’s perspective) residential neighborhoods for home-based, transient lodgings.[xi]
While the staggering popularity of STRs may appear to be a clear path forward for vacation rentals, the future of STRs in California is far from certain. STRs are central to vigorous debates at local and state levels. STRs pose major issues for local governments and homeowners associations (“HOAs”) because a greater influx of transient residents into traditionally residential areas has resulted in increased municipal and homeowner demand for regulations and enforcement efforts.[xii] Local governments may feel that they are losing their share of tax dollars by failing to effectively regulate this new industry.[xiii] HOAs are increasingly asked to respond to nuisance complaints and to request government enforcement of rental restrictions such as those found in a development’s covenants, conditions, and restrictions (“CC&Rs”).[xiv] Due to the headaches over these and other issues, homeowners, local governments, community groups, and certain state policymakers are waging wide-ranging and comprehensive campaigns with the goal of severely restricting STRs. Nonetheless, the market share of STRs in the travel sector continues to grow.[xv] With the backing of local entrepreneurs, businesses, and online platforms like Airbnb and VRBO, it is unlikely that STRs will go down without a fight.
STR regulations are complex and constantly evolving. This article provides a broad overview of the considerations a real property owner may encounter when contemplating whether to establish an STR. The first section addresses the advantages and disadvantages of STRs for the local community. The second section examines limited state STR-related regulations, various local land use approaches, the legality of previously enacted STR-related land use controls, and other governmental agency responses. The third and last sectiondiscusses the ability to further regulate STRs in common interest developments (“CIDs”) via CC&Rs and HOA enforcement actions. This article does not address every nuance associated with land use controls, regulations, and/or negotiating a lease with a third party for either long- or short-term rentals.
Click for the full article: Is the Popularity of Short-Term Rentals Sustainable, or Will Regulations Weaken Their Current Stronghold
[i] The sharing economy is an economic model defined as a peer-to-peer based activity of acquiring, providing, or sharing access to goods and services that is often facilitated by a community-based on-line platform. (Derek Miller, “The Sharing Economy and How it is Changing Industries,” June 25, 2019, https://www.thebalancesmb.com/the-sharing-economy-and-how-it-changes-industries-4172234.) Aside from short-term vacation rentals, examples of the sharing economy include crowdfunding (Kickstarter), ridesharing (Uber, Lyft), shared working spaces (WeWork), and online reselling/trading (eBay, Craigslist).
[ii] A “short-term rental” most commonly refers to a furnished rental property rented for fewer than 30 consecutive days. (E.g., Carlsbad Municipal Code § 5.60.020; Santa Monica Municipal Code § 6.20.010(f).) Unlike a lease, which is a sort of “long-term rental,” an STR does not involve the grant of an estate in the land being rented. (Cai Roman, Making a Business of “Residential Use”: The Short-Term-Rental Dilemma in Common Interest Communities, 68 Emory L.J. 801, 806 (2019).) Rather, an STR is a license, which is “an agreement which merely entitles a party to use the land of another for a specific purpose, subject to the management and control retained by the owner.” (49 Am. Jur. 2d Landlord & Tenant § 20; Rachael Ann Neal Harrington, Vacation Rentals: Commercial Activity Butting Heads with CC&Rs, 51 Cal. W.L. Rev. 187, 193–97 (2015).) An STR can provide lodging for entire families while providing hotel amenities, including complimentary Wi-Fi, toiletries, bedding, towels, and the added benefits of a fully equipped kitchen, private dinning space and, sometimes, a private pool. (Lori Weisberg, “Airbnb Spawns Vacation Rental Confusion,” The San Diego Union-Tribune, March 8, 2015, http://www.utsandiego.com/news/2015/mar/08/airbnb-vacation-rental-growth-causing-confusion/.) An STR is often used as an alternative to hotels, motels, and the like.
[iii] National University System Institute of Policy Research, Short-Term Rentals In the City of San Diego: An Economic Impact Analysis, October 2015,
http://www.nusinstitute.org/assets/resources/pageResources/NUSIPR_Short_Term_Rentals.pdf; Dennis Schaal, “How the Vacation Rental Land Grab Stacks Up: HomeAway vs. Priceline vs. Airbnb,” Skift, April 4, 2015, http://skift.com/2015/04/07/how-the-vacation-rental-land-grab-stacks-up-homeaway-vs-priceline-vs-airbnb/.
[iv] Jeremiah Jensen, “In the Pipeline: Short Term Rentals are the Future of Commercial Real Estate,” Housing Wire, August 8, 2018, https://www.housingwire.com/articles/46393-in-the-pipeline-short-term-rentals-are-the-future-of-commercial-real-estate; Carolyn Said, “After Tangle with City, HomeAway CEO Talks Vacation-Rental Growth,” SFGate, February 20, 2015, http:// www.sfgate.com/business/article/After-tangle-with-city-HomeAway-CEO-talks-6092937.php.
[v] Johanna Jainchill, “Big Growth Expected in Vacation Rental Market,” Travel Weekly, June 5, 2011, http://www.travelweekly.com/travel-news/hotel-news/big-growth-expected-in-vacation-rental-market.
[vi] Peter L. Allen, “How the Sharing Economy is Transforming the Short-Term Rental Industry,” Knowledge @ Wharton, February 14, 2019, https://knowledge.wharton.upenn.edu/article/short-term-rentals-the-transformation-in-real-estate-and-travel-set-to-check-in/.
[vii] VRBO was acquired by HomeAway, another vacation rental platform, in 2006.
[viii] Short-Term Rentals In the City of San Diego: An Economic Impact Analysis, supra, pg. 2.
[ix] Host Compliance, LLC, “Home-Sharing and Short-Term Rentals Regulations FAQ,” https://hostcompliance.com/short-term-vacation-rental-faqs. Host Compliance, LLC is a San Francisco-based company that helps cities and counties enforce STR laws. The company has worked with about 15 cities, including Vancouver, Pasadena, Los Angeles, and Truckee (a resort town near Lake Tahoe, California). The company compiles local STR listings and sends notices to hosts on behalf of the municipalities. It might tell the operator to register or pay taxes, or inform them of other applicable local rules. It has a hotline for neighbors to report issues, such as noise or parking, and then it gathers evidence to back up the claim for local governments to take action.
[xi] Nathan P. Bettenhausen, Esq., There Goes the Neighborhood: Regulating the Growing Short Term Rental Industry, Orange County Lawyer, Volume 57, pg. 16, July 2015, http://www.fiorelaw.com/regulating-the-growing-short-term-rental-industry/.
[xii] There Goes the Neighborhood: Regulating the Growing Short Term Rental Industry, supra.
[xiv] Making a Business of “Residential Uses:” The Short-Term-Rental Dilemma in Common Interest Developments, supra, pg. 816.
[xv] “Home-Sharing and Short-Term Rentals Regulations FAQ,” supra.