Hendersonville Short Term Rental Regulations

 Last week, Judge Robert E. Lee Davies, appointed as a Special Judge, ruled that the short-term rental regulations in the city of Hendersonville were unconstitutional. The regulations are a little unusual in that they entirely preclude the use of short-term rentals in residential zoning districts.  There have not been too many cases here in Middle Tennessee dealing with these short-term rental issues (other than in municipal courts). This may be a significant case as it heads up to the Tennessee Court of Appeals.

The other interesting aspect of the case is that while the court found that the short-term rental zoning regulations met the rational basis test, it concluded that the ability to lease, or short-term basis, property to others was a fundamental constitutional right, and applied the compelling governmental interest test  concluding that the city did not demonstrate compliance with that heightened standard. I don't know of any other cases which have concluded that the right to lease property in this manner would be a fundamental constitutional right. I think it is unlikely on appeal that the Court of Appeals will agree with that proposition. In fact, since zoning laws so often impact property rights, concluding that some or all of zoning regulations have to comply with the strict scrutiny standard would lead to the invalidation of many zoning regulations across not only Tennessee but in any jurisdiction which reach that result. Just for an example, the subject property in this case is zoned residentially. That means that you can't lease it to a commercial or industrial use either. That means that the owner of the property can't use it for a commercial or industrial use. Is that a violation of any fundamental constitutional right? Both the US Supreme Court and the Tennessee Supreme Court have concluded that such regulations are entirely appropriate and meet the rational basis test.

In fact, in the leading federal case, Euclid v Ambler Realty, the US Supreme Court spent several paragraphs detailing the harmful impacts of apartments on surrounding residential properties. While the court's view in that case is certainly antiquated by modern standards, some of the concerns articulated concerning long-term rentals are certainly now reflected in the concerns regarding short-term rentals.

It seems likely that the Tennessee Court of Appeals would conclude that the rational basis test applies. For example, in Anderson v Metro Nashville, 2018 WL 527104 (Tenn. App. 2018), the court  concluded that a 3% cap on non-owner occupied short-term rentals was a monopoly but one which was justified because it "clearly b[ore] a legitimate relation to a valid end," basically the same test as the rational basis test. This does not necessarily mean that the Hendersonville short-term rental regulations would be upheld; while it is certainly unusual for a governmental regulation to be invalidated based on the rational basis test, the Court of Appeals could certainly so conclude. Having said that however, it would seem unlikely. 

Short Term Rentals: Amendment 2 to Senate Bill

Last week I mentioned that the Senate here in Tennessee had considered an amendment to the short terminal bill but at the time I did not have access to the amendment because it had not yet been posted online. The amendment is now posted and is worth a look. It is less broad than the original legislation.  Take a look at it here.

In general, the amendment looks to keep existing short-term rental properties but allow local governments to control and regulate short-term rentals in the future. Originally, the legislation appeared to take virtually all control of short-term rentals from local governments, but it would appear, given the language of the second amendment to the bill, that there weren't enough votes for that broad-based regulation, and so instead, the bill is amended simply protects existing short-term rental properties.

If you work in this area, it's certainly worth a look.

Short Term Rental Properties – AG's Opinion

Back on February 20, we discussed briefly a bill pending before the Tennessee General Assembly which would limit the regulatory power of local governments in dealing with short-term rental properties. Senate Bill 1086 is still pending before the Tennessee General Assembly, but recently, the Tennessee Attorney General has weighed in on the legislation confirming that for the most part the proposed legislation is constitutional. A copy of the opinion can be found here.

The first question had to do with exempting local governments with legislation regarding STRPs before January 1, 2014. The question was whether or not distinguishing between local governments which had legislation before that date vs. those which did not pass legislation until after that date was impermissible constitutionally. The AG's opinion is that it would not render the proposal impermissible.

The second question was whether or not the fact that the proposed legislation would allow local governments which prohibited STRPs on or before August 1 of 2017 to continue the prohibition, while it would not permit other local governments which did not enact legislation prior to that date to so prohibit STRPs. This time, the AG felt that there is no rational relationship between the date and distinction between those two classes of regulations. The opinion states:

Proposed $ 13-7-603(b) states that its purpose is "to prevent recent and future
overregulation of short-term rental units by a local governing body." On its face, this purpose appears legitimate. If the General Assembly determines that a prohibition or effective prohibition on short-term rental units is "overregulation," it can act to address that problem. But if a prohibition or effective prohibition enacted on August 2,2017, is an "overregulation" that warrants legislative action, then it is unclear why the same prohibition or effective prohibition passed on July 3 7,2017 , would not warrant the same action. 

As a practical matter, the date appears to have been chosen to nullify the Metropolitan
Government of Nashville and Davidson County's act in November 2017 to ban short-term rentals. The proposed legislation would apply more broadly, of course, to prevent any local government from taking similar action in the future. The prohibition does not, however, distinguish among local jurisdictions based on facts that are conceivably relevant to the regulation of short-term rental units, such as population size, tourism, or urban density.  

The proposed legislation instead distinguishes among local jurisdiction based solely on the date on which the jurisdiction enacted a prohibition on short-term rental units. Because that date does not appear to be reasonably related to any conceivable state interest in the regulation of shortterm rentals, this provision would likely violate the Tennessee Constitution. In contrast to the date in the continued-use provision-which corresponds roughly to the point at which the use of residential property for short-term rentals became widespread and relates to the legislature's concern about preserving property owners' reasonable expectations for the use of their property the date chosen after which no local government may prohibit short-term rental units is arbitrary
and unrelated to the interests underlying the legislation.

The third question involve the extent to which the proposed legislation might have an impact on taxation and run afoul of the Tennessee Constitution on that issue. The AG distinguished between the use of property for tax purposes and the use of property for zoning and land use purposes; just because the property is classified as commercial for one use, is not require that it is considered as commercial for another.

Finally, the fourth question had to do with whether or not the proposed legislation would be unconstitutional given that it effectively only applies to Davidson County (at the present time) and, whether or not the use of terms such as reasonable compliance and effectively prohibit were too vague to survive constitutional scrutiny. In both instances the AG responded in the negative. With regard to the first question, since other jurisdictions could theoretically be subject to the law in the future, it was not class based legislation prohibited by the Tennessee Constitution. Furthermore, the terminology of the proposed legislation is capable of reasonable understanding by ordinary citizens. In addition, since the legislation as proposed would limit the powers of local governments, and because local governments have no due process protections against the legislation, there likely would not be any due process violation either.

Of course, it is useful to bear in mind that the AG only offers an opinion, and while those opinions are certainly useful and offer guidance, they do not have the force or effect of law. Only a judicial decision would carry that weight. It will be interesting to see what the General Assembly does with the legislation. Furthermore, there may be litigation arising out of the legislation if it passes.

Short Term Rentals: Senate Bill 1086 Moves thru Committee

The Short Term Rental Properties Bill, Senate Bill 1086, was recommended for passage yesterday by the Senate Commerce and Labor Committee, 8 to 1. There is an interesting video of the sponsor of the bill here. As you might suspect, the emphasis is on the property rights of the unit owners during the sponsor's presentation. Interestingly, Sen. Stevens discusses the bill in terms of grandfathered uses. The bill actually looks more like a regulatory scheme rather than a non-conforming use bill. Further, with regard to non-conforming uses, it would probably be better to link it to the Tennessee Non-Conforming Property Act,Tenn. Code Ann. §13-7-208, if that's the intent. I looked back quickly through the bill and didn't see any reference to the TNCPA.

In addition, the bill which is on the website does not appear to be the latest version, at least not the latest one that I’ve seen.

It is also worth noting that there is a provision in the bill for judicial remedies which allows the unit owner to appeal to the board of zoning appeals if the permit is revoked or if there is a refusal by the local government to issue or renew a permit. The interesting part is that an appeal from the board of zoning appeals to Circuit Court or Chancery Court is de novo instead of on the record from the board of zoning appeals. There is certainly a constitutional issue there. Generally speaking, courts of law may not review administrative decisions as though the court was making a decision in the first instance, because it’s a violation of the separation of powers doctrine. The Tennessee courts have long recognized that distinction and therefore whether judicial review pursuant to this statutory provision is constitutionally permissible is certainly open to question.

In any event, it will be interesting moving forward to see how the bill progresses.

Short Term Rental Properties: Proposed Statutory Protection

A Senate bill pending before the Tennessee General Assembly has recently been amended to specifically prevent a local governing body from prohibiting or limiting the use of property as a short-term rental. The amendment "supersedes any ordinance, resolution, regulation, rule, or other requirement of any type enacted, maintained, or enforced by a local governing body that is not expressly authorized by this chapter." This will have the effect of rendering any local ordinance or resolution which does not comply with the state act (assuming it is passed) ineffective. Following on the heels of the controversy surrounding the adoption of the new Metro ordinance relating to short-term rental properties, this would seem to be directed precisely at that new legislation.

The proposed amendment places limits on the regulatory authority of local governments, such as for example, allowing a maximum number of bedrooms so long as that number is equal to four or greater, and the number of persons may be restricted so long as that number is not less than two persons times the number of bedrooms plus for additional people.

There has been a good deal of speculation about a state statute either preempting this area of local zoning regulation, or restricting the manner in which such regulations could be adopted and enforced. This amendment as proposed certainly presents the other side of the issue – and it is the very difficulty which many members of the Metro Council worried about when considering the recently adopted bill here in Metro Nashville. Below is a link to the proposed amendment:

http://www.capitol.tn.gov/Bills/110/Bill/SB1086.pdf

Short-term rentals: Anderson v Metro Nashville

The Tennessee Court of Appeals recently decided the short-term rental property case involving challenges to the definitions of the ordinance, the 3%, and attorneys fees. As you may recall, the trial court had found the definitions void because of vagueness, concluded that there was no monopoly in the use of a 3% cap, and awarded attorneys fees.

The Court of Appeals concluded that the constitutional vagueness issues had been mooted by the adoption by Metro Nashville of a new ordinance with updated definitions, that while the 3% might be characterized as a monopoly, it was nevertheless serving a public purpose by balancing the concerns of neighborhood residential uses against an influx of short-term rental properties. Finally, since in view of the court’s rulings the plaintiffs have not prevailed, the court reversed the award of attorney’s fees.

Perhaps the most interesting part of the decision is the discussion concerning the 3% cap. The court’s conclusion that even though it may be somewhat monopolistic, to the extent that it is offset by a concern of the legislative body for the well-being of the residential neighborhoods, It survives scrutiny.

Short-term rentals in Metro Nashville

As you are likely aware, Metro Council finally passed the amendments to its Short Term Rental Properties provisions, by way of Ordinance 2017-608. It’s a complicated bill, and I won’t try to cover all the ins and outs, but the most important change is that short-term rental properties which are not owner-occupied are not permitted in most residential areas. Compare §3 with §4 of the ordinance.

This may generate some questions about the potential non-conforming use of some of the existing non-owner occupied short-term rental properties. There are a number of issues involved in answering those questions, including whether the amendatory ordinance is a zoning ordinance subject to the Tennessee Non-Conforming Property Act ( Tenn. Code Ann. §13-7-208), whether the short-term rental properties would be classified as residential or business use for purposes of the act (if the use of the land is deemed residential, then the act does not apply), and whether the fact that the licenses were issued for only one year at a time would preclude any kind of non-conforming rights.

I’m sure that the will be some litigation about this over the next several years. It may take a while since the act expressly allows for the renewal of permits properly issued and maintained until June 28, 2020. I might add that usually those kinds of amortization provisions within zoning regulations are invalid to the extent that the Tennessee Non-Conforming Property Act is applicable, but in view of the questions about its applicability to these types of uses, that’s another question the court would have to decide.

Metro Short Term Rental Property Ordinance Unconstitutional

Earlier today, Judge Kevin Jones of the Davidson County Circuit Court ruled in favor of the plaintiffs in a challenge to Metro's Short Term Rental Property Ordinance, finding it unconstitutionally vague. The court ruled on a Motion for Summary Judgment, my guess is orally from the bench, and so an order will be entered sometime in the next week or two. At this present time, I am assuming that no written version of the court's ruling is available. I did check with the Davidson County Circuit Court Clerk's office, and there is no order as of yet (which would be expected if the ruling was from the bench on the motion).

In essence, the plaintiffs argued that the definition of short-term rental properties was unconstitutionally vague and overlapped with a number of other land-use definitions contained in the Metro Zoning Ordinance, including hotels, boardinghouse, and bed-and-breakfasts. From some of the published reports, it appears that the court did not hold the 3% rule unconstitutional, but since the definitions are unconstitutionally vague, the 3% cap was invalidated as well.

It is certainly an interesting decision, and it will be more interesting to read the order. Finally, whether Metro will appeal is another interesting question. It may be simpler to simply pass another ordinance. The difficulty from the standpoint of property owners is that with the increased concern which is developed over the last few years since the adoption of the ordinance, there may be rather draconian solutions, including simply restricting short-term rentals to commercial areas of the city.

Short-term rentals upheld in Pennsylvania

In another interesting short-term rental case, the Pennsylvania Commonwealth Court [a kind of land-use Court of Appeals], concluded that a short term rental was consistent with residential single-family zoning. Marchenko v Zoning Board of Pocono Township, 2016 WL 4978459 (Pa. Commw. September 19, 2016). The local zoning official issued a notice of violation which was appealed to the zoning board. The property owner used the property as a primary residence for her purposes, and resided there the majority of the time, but leased out the property on a short-term basis to others. The zoning board ruled against the property owner but on appeal, the Pennsylvania court concluded that since the definition of single-family did not prohibit rental activity, that the accessory rental use was permitted.

Cases like this are appearing across the country, some permitting the short-term rental use, and some finding it inappropriate. Given the controversy here in middle Tennessee over the last year or two concerning short-term rentals, I’m sure we will see some more cases from the Tennessee appellate courts in the not-too-distant future.

Short Term Residential Rentals

One of the things that is sometimes forgotten about short-term residential rentals is that not only must you comply with the local zoning provisions, but you must also be sure to comply with the applicable building code regulations. Most people fail to distinguish between building regulations and zoning regulations, but they are distinctly different. One shorthand way of looking at it is that zoning regulations are designed to minimize the adverse impacts on surrounding properties, whereas the building code is designed to protect people who occupied the structure.

In zoning terms, short-term residential rentals may run afoul of a local zoning requirement which may define permanent residential use as being greater then some arbitrary time. Such as more than 30 days, more than six months, or more than a year. If the use of the property does not comply with the local zoning regulations, then the use may be enjoined, that is, prohibited altogether.

In the case of the building code, short-term residential rentals may increase the types of safety precautions which are necessary. Here in Tennessee, single-family residential occupancy does not typically require automatic fire sprinklers. Tenn. Code Ann. § 68-120-101(a)(8)(A).

The question here is whether such short term residential rentals, let’s say, less than 30 days in duration, require automatic fire sprinklers despite the limits imposed by the statute referenced above. As it turns out, the State Fire Marshal’s Office has provided some answers to these questions.

First, SFMO defines what I have called short-term residential rentals as follows:

A transient rental home (“TRH”) is a building that is a single dwelling unit providing complete independent living facilities including, but not limited to, permanent provisions for living, sleeping, eating, cooking and sanitation occupied for thirty (30) days or less. These include rental cabins, buildings offered for rent on Airbnb and similar services, yurts and similar structures.

If the TRH is three stories or less in height, 5000 or fewer square feet in size, with 12 or less occupants, automatic fire sprinklers are not required. If these requirements are not met, the transient rental home must be sprinklered.

TRHs with three (3) or less stories, less than five-thousand (5,000) gross square feet, and twelve (12) or fewer occupants shall be classified as one- and two- family dwellings subject to Tenn. Comp. R. & Regs. 0780-02-23 (One and Two Family Dwellings and Townhouses). These buildings may be regulated by cities and counties that have received an exemption to enforce codes for one- and two-family dwellings and townhouses from the SFMO. These buildings are subject to the fire sprinkler exemptions of Tenn. Code Ann § 68-120-101(a)(8)(A).

Otherwise:

TRHs with thirteen (13) or more occupants, four (4) or more stories, or five thousand (5,000) gross square feet or more are to be classified as R-3 and subject  to the IBC and Tenn. Comp. R. & Regs. 0780-02-03 (Review of Construction Plans and Specifications). These buildings may be regulated by cities and counties that have received an exemption to enforce codes for commercial buildings from the SFMO. These buildings are not subject to the fire sprinkler regulations of Tenn. Code Ann § 68-120-101(a)(8)(A).

These new regulations took effect on February 1, 2016.

Essentially, if you are hosting short-term rental activities, you should check to see that you comply not only with the local zoning regulations, but also with the local and state building codes. If your building is more than three stories in height, greater than 5000 square feet in size, or houses more than 13 occupants at a time, the building code regulations here in Tennessee fall under the more strictly scrutinized R-3 residential occupancy of the International Building Code, rather than the less strict International Residential Code.

Source: Memo from SFM0 dated January 29, 2016 re: Transient Rental Homes

Another decision regarding Short Term Rentals

Short-term rental occupancies is quite a hot topic these days. In a recent decision by the Wisconsin Court of Appeals, Heef Realty and Investments v City of Cedarburg Board of Appeals, 2015 WL 442445, the Wisconsin court decided in favor of the property owner, much in the same way as the Tennessee Court of Appeals did in a similar case from Hamilton County in 2009. See Wade v Patterson, 2009 WL 211878. In the Wisconsin case, to property owners appealed from a decision of the zoning board that the zoning regulations did not permit short-term rental occupancies. Much as in the Tennessee case, the property owners pointed out that the city did allow long-term rental occupancy and there is no definition of the minimum time permitted. Furthermore, both in Wisconsin and Tennessee, and many other states, where there is any ambiguity in the regulations, that ambiguity is usually resolved in favor of the property owners. Because there was nothing in the ordinance which established that a single-family residential use had to be for more than, let’s say for purpose of example, 30 days, the zoning board’s interpretation of the code was struck down by the court.

Similarly, the Tennessee Court of Appeals used essentially the same analysis and reach the same result in Wade v Patterson. The real lesson of these cases is that if you are drafting local zoning regulations, some care must be taken to define single-family residential use if the intent is to preclude short-term rental occupancies. It is certainly unclear that short-term rental occupancies are necessarily bad; many cities are moving in the direction of allowing such occupancies expressly by amendments to their zoning regulations. It may be, as time goes along, that more cities adopt that more progressive attitude.