Hawaii judge halts ban on short-term rentals

Airbnbs and similar rentals on Oahu can continue operations as usual for now, despite an ordinance that sought to prohibit them.

by Candace Cheung, Court House News, October 14, 2022

HONOLULU (CN) — With just 10 days to spare, U.S. District Court Judge Derrick Watson ruled Thursday in favor of short-term rental property owners, stopping the Oct. 23 enactment of an ordinance to shield Honolulu’s residents from the effect of short-term rentals on the state’s rising housing costs.

The injunction bars the City and County of Honolulu, as well as the Department of Planning and Permitting, from enforcing or implementing the ordinance’s prohibition of 30-to-89-day rentals until further notice.

“We are still reviewing the court’s decision that was issued this afternoon.  However, we are pleased that the court understood the important issues at stake in this case,” said Gregory Kugle, attorney for the plaintiff, the Hawaii Legal Short-Term Rental Alliance, in an email.

Ordinance 22-7, passed this April, redefined what ‘short-term’ meant for rentals in Honolulu. Since the establishment of the first rental restrictions in the 1980s, short-term rentals have been characterized by lease periods of at least 30 days. But the ordinance would increase that minimum rental period to 90 days for properties outside of resort zoning.

The rule was established on the basis that these rentals, popularized by sites like Airbnb, are disrupting local ways of life and driving prices up in neighborhoods that are unable to sustain the housing market’s instability associated with the influx of out-of-state residents and tourists to Hawaii.

Judge Watson, an Obama appointee, determined that the ordinance violated a provision in a prior statute regarding land use.

“The city may not phase out a nonconforming use in non-phase-out districts — e.g., residential or agricultural zoning districts. To the extent the Ordinance purports to eliminate or phase out existing 30–89 day rentals in residential, agricultural, and other non-phase-out districts, it is invalid,” he wrote.

Watson also pushed back against assertions by city attorney Brad Saito, who argued that short-terms rentals do not constitute ‘residential use’ as identified by the statute.

“Although the occupants of monthly rentals may shift more frequently than some neighbors and perhaps defendants would like, there is no doubt that these tenants are using the homes for residential purposes. Moreover, the use does not depend on why the property is owned. By defendants’ logic, any home rental of any length is a commercial use if the property is owned for ‘speculative’ financial or investment purposes,” Watson wrote in response.

Saito, who could not be reached immediately for comment, had also argued that damages to property owners were purely financial, but Watson determined that there are constitutional damages at play as well.

He wrote, “there is nothing ‘contingent,’ ‘uncertain,’ ‘speculative’ or ‘discretionary’ in the longstanding use of private property for the rental purposes identified, nor is there anything inequitable in honoring plaintiff’s ‘expectation in the property interest at issue,’ establishing that this property right has vested.”

The suing organization, the Hawaii Legal Short-Term Rental Alliance, is comprised of property owners and managers who have been operating these rentals lawfully for years. The alliance first contested the ordinance in a June complaint, saying that the ordinance will result in devastating financial losses for all involved in the rental industry and displace their renters that rely on short-term rentals, like traveling health care workers and military members.

The alteration would have meant that properties rented out on Oct. 22 for 30-89 days would have become illegal and subject to fines up to $10,000 per day, by the very next day. In the complaint, the alliance asks for protections on their lawful, preexisting rental properties, contending that their properties ought to be granted certificates establishing an exception for the continued, but no longer conforming use of these properties, much like the certificates given to properties after the initial 1986 establishment of similar rental restrictions.

The decision comes after a September hearing for the motion for a preliminary injunction before Judge Watson, who referred attorneys Kugle and Saito to confer with U.S. Magistrate Judge Rom Trader before deciding Thursday afternoon to issue the injunction.

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Big Q: Should the minimum period for Oahu vacation rentals be kept at 30 days, instead of increasing to 90 days?

CB: What Happens Now That A Judge Has Blocked Honolulu’s New Short-Term Rental Law?