Marking the latest battle in a years-long war between Honolulu officials and owners of short-term vacation rentals on Oahu, an association of property owners has asked a federal court to block enforcement of a new ordinance designed to rein in illegal rentals.

In a 33-page complaint filed Monday in U.S. District Court in Honolulu, the Hawaii Legal Short-term Rental Alliance asserts the City and County of Honolulu has violated the rights of its members – who rented out their properties legally — under various laws, including the Hawaii and U.S. constitutions.

Demonstrators in opposition to Bill 41 hold signs on King Street near Honolulu Hale.
Protesters demonstrated against a Honolulu bill to restrict short-term vacation rentals in April. Now, opponents have sued the city. Cory Lum/Civil Beat/2022

The complaint asserts the alliance’s members have been renting out properties as legal short-term rentals “for years, and in some cases, decades.”

It asks the court to block the city from taking enforcement actions against its members and others who were renting short-term rentals legally before the Honolulu City Council passed an ordinance tightening restrictions in April. In essence, the suit says anyone who was renting legally before April should be grandfathered in and allowed to continue doing what they were doing.

“The right to own and rent property is a fundamental right under the United States and Hawaii Constitutions,” the complaint says, “and Plaintiff’s members and others similarly situated have property interests in the ownership and use of their properties, for purposes of vested rights, takings and due process.”

At the center of the dispute is a provision of the land-use ordinance that defines what constitutes a legal short-term rental. In 1986, facing a backlash against B&Bs and short-term rentals popping up in residential areas, the Honolulu City Council essentially banned such rentals on most parts of Oahu. The ban defined a short-term rental as anything less than 30 days.

The law effectively meant any property owner could rent a property in 30-day increments 12 times a year. But with thousands of short-term units on Oahu, that set-up proved nearly impossible for the city to police. As a result, the City Council passed a new ordinance, in April: any rental less than 90 days would be illegal under the new law, which takes effect in October.

The complaint seeks to protect property owners who rented units out for more than 30 days but less than 90. Those should be grandfathered in and allowed to continue operating as they have been, said the association’s attorney, Greg Kugle. The complaint asks the court to require the city to set up a process to determine which property owners should be grandfathered in.

“I would imagine that the city would require some sort of evidence,” Kugle said.

Who would qualify for the grandfathered permission would depend on the process the city sets up, Kugle said. For example, it’s possible that the permission could apply to anyone who happened to rent out their short-term unit for even just one interval of at least 30 days recently, even if the property owner had on other occasions rented to visitors for less than 30 days and thus illegally, Kugle said.

“It depends ultimately on what the city accepts,” he said.

Regardless, Kugle said, the plaintiffs have a vested property right the city would be taking away if the law goes into effect. Such takings require the government to compensate property owners, even if the property isn’t taken away completely. In this case, the lawsuit says, the partial taking – of the right to rent property between 30 and 89 days — could total tens or hundreds of millions of dollars.

Ian Scheuring, a spokesman for Mayor Rick Blangiardi, said the administration was not aware of the suit and thus declined to comment.

Despite Honolulu’s 1985 ordinance generally banning short-term vacation rentals, the advent of online booking tools like Airbnb led to a proliferation of such rentals in recent years. Fueled by the new technology, an estimated 9,000-10,000 such units sprouted up on Oahu, most openly flouting the law.

Oahu vacation rentals
A map published in 2019 by the University of Hawaii Economic Research Organization showed the location of short-term vacation rentals in East Oahu at the time. The blue dots show rentals in resort zones. The red dots show units outside of resort zone, which were generally illegal if rented for less than 30 days, including large concentrations in Kailua and Lanikai. UHERO, HTA, Transparent

The endeavor proved polarizing.

On one side, tourists flocked to vacation rentals in residential areas like Kailua and the North Shore as an alternative to hotels and resorts. And, at a time when few new hotels were built, the alternative vacation properties allowed the number of tourists visiting Hawaii to boom, exceeding 10 million in 2019. Investors and homeowners made money. And a cottage industry of room cleaners and landscapers grew up around the businesses.

On the other side, opponents blamed the rental operators for turning residential neighborhoods into resort areas, stealing jobs from union hotel workers and taking away housing from renters at a time when Oahu faced a shortage of homes. A 2017 study by the Hawaii Tourism Authority found more than one of every four homes on the North Shore and 5% to 15% in Kailua and Lanikai had been converted into vacation rentals. Oahu’s powerful hotel industry also cried foul, calling on city officials to enforce an ordinance that proved nearly impossible to enforce.

Kugle could not say how many short-term rental owners would benefit from the legal challenge. He said the association represents about 1,000 units but that the lawsuit is meant to benefit anyone who has rented out a unit for at least 30 days.

“It only protects those people who were using their properties this way,” he said.

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