Federal Court: Honolulu's 3-Month Minimum Rental Term Preempted By State Law (And Would Be A Taking Of Vested Rights)

by Robert Thomas, Inverse Condemnation, October 14, 2022

Many Honolulu residents don't like short-term (less than 30 day) rentals. Whether fueled by NIMBY-ism, a genuine belief that tourists should stay out of residents' neighborhoods and be limited to accommodations built for transients, or the belief that long-term rentals to locals somehow promote more affordable housing, the anti-transient renter vibe is most definitely there.

The no-less-than-thirty-days restriction wasn't enough, however, and recently the City and County of Honolulu made it illegal to rent for less than three months (90 days).

The ordinance stated the reasons:

Short-term rentals are disruptive to the character and fabric of our residential neighborhoods; they are inconsistent with the land uses that are intended for our residential zoned areas and increase the price of housing for O‘ahu’s resident population by removing housing stock from the for-sale and long-term rental markets. The City Council finds that any economic benefits of opening up our residential areas to The city's ordinance brought a challenge from property owners tourism are far outweighed by the negative impacts to our neighborhoods and local residents. . . .

The purpose of this ordinance is to better protect the City’s residential neighborhoods and housing stock from the negative impacts of short-term rentals by providing a more comprehensive approach to the regulation of transient accommodations within the City.  Hon., Haw., Rev. Ord. 22-7.

Violating the ordinance meant massive daily fines ($10k), plus disgorgement of the rent. Thus, not surprisingly, the ordinance drew a federal court challenge from property owners who assert a variety of claims:

Plaintiff asserts violations of HRS § 46-4(a) (Count 1), the state law doctrines of vested rights and/or zoning estoppel (Count 2), substantive due process principles under the U.S. and Hawai‘i Constitutions (Counts 3 and 4), the Takings Clauses of the U.S. and Hawai‘i Constitutions (Counts 5 and 6), the Contracts Clause of the U.S. Constitution (Count 7), and the Excessive Fines Clauses of the U.S. and Hawai‘i Constitutions (Count 8 and 9).

The plaintiffs sought a preliminary injunction, and in this Order, the U.S. District Court for the District of Hawaii granted it, enjoining the city from "enforcing or implementing" the ordinance "insofar as it prohibits 30–89-day home rentals, or the advertisement of such rentals" in any zoning district.

The court focused on the state-law zoning enabling act, the statute by which the state delegates limited zoning authority to Hawaii municipalities. The key provision is section § 46-4(a), which limits authority to prohibit "the lawful use of any building or premises for ... any purpose for which the building or premises is used at the time this section or the ordinance takes effect." In other words, a municipal zoning ordinance cannot outlaw existing uses. The ordinance also recognizes an exception, and permits municipalities to eliminate existing uses if they phase out the use over a reasonable amortization period. But this exception only applies in industrial, resort, and apartment zoned areas, not residential zones: "[i]n no event shall such amortization or phasing out of nonconforming uses apply to any existing building or premises used for residential (single-family or duplex) or agricultural uses."

That convinced the district court that Honolulu's ordinance was ultra vires, because "[]t is currently legal to rent O‘ahu homes to tenants for 30–89 day periods in any zoning district." Order at 13. With a "direct conflict" with state law, the city's ordinance is likely void. Like many similar statutes, the Hawaii zoning enabling act does not define "residential" use. So the court looked for the "common meaning" of the term, concluding that it means a use for "ordinary living activities and benefits--e.g., eating, washing, sleeping, storing their belongings and vehicles, and enjoying the surrounding scenery and community." Order at 17.

The court also concluded that "residential" does have a time component, but "the Court has not found any cases, nor have the Defendants cited any, holding that rentals of 30 days or longer were not residential." Id. The court rejected the city's argument that the frequent turnover of a residence is not traditionally associated with family living, and that rentals of less than 90 days are commercial uses, more akin to a resort or a hotel. The court noted that it is more important what is being done with the home rather than how long. People rent property for 30-89 days for all sorts of reasons:

(1) O‘ahu residents who have sold and bought [homes]; (2) off-island families traveling to O‘ahu for medical care; (3) traveling healthcare workers temporarily assigned to O‘ahu; (4) military families in transition; (5) employees performing work on O‘ahu; (6) temporarily displaced families; [and/]or (7) others who prefer to temporarily reside closer to work or schools than the resort districts.

Order at 19. The court noted the city can still regulate the duration of vacation rentals, but it must do it within the constraints of state law. Order at 20 ("The City may, and indeed must, execute its long-range planning goals, while respecting and accommodating prior lawful uses already in place, as HRS § 46-4(a) requires it to do.").

The court additionally concluded the ordinance likely works a taking. It first asked whether the owners have vested rights to rent their property for more than 30 days and less than 90. They do: "[i]n the present case, 30-89-day rentals in non-Resort districts are a vested property right protected by takings principles." Order at 23. Equitable reliance principles, backed by law (the above-noted zoning enabling act), means that there's "nothing 'contingent,' 'uncertain,' 'speculative,' or 'discretionary' in the long-standing use of private property for the rental purposes identified[.]" Id.

Having established the owners have a private property right, the court also concluded that the city's ordinance would take that right without compensation because it outlaws the use entirely, "without providing any process to compensate or accommodate nonconforming uses." Order at 24. 

We suggest you check out the entire order. Kudos to our former law partner and land use lawyer extraordinaire Greg Kugle for the compelling win.

PDF: Order Granting Pltf's Motion for Preliminary Injunction, Hawaii Legal Short-Term Rental Alliance v. City &...