Considering regulation of short-term rentals in light of the sharing economy: Part 2

Short-term rentals are sometimes perceived as nuisances in neighborhoods, but the emergence of the sharing economy suggests communities may want to offer something for everyone in terms of lodging experiences for visitors of all kinds.

Part one of this article introduced the idea of offering something for everyone when regulating short-term rentals in light of the sharing economy. This article highlights regulatory options for communities and offers some considerations related to definitions, process of approval, and review standards for short-term rentals.

In Michigan, cities, villages, and townships have the authority to adopt regulations related to rentals either through the zoning ordinance or a separate police power ordinance. Counties with zoning have the ability to include such regulations in their zoning ordinance. Under a zoning ordinance however, property owners who had legally rented their homes prior to a zoning amendment would be grandfathered and would be allowed to continue their rentals as they did before the ordinance amendment (see Understanding nonconformity: Are you ‘grandfathered’ in?). Instead, rental regulations as a general police power ordinance are not required to allow the continuation of legal non-conforming uses. It is important to keep in mind that Michigan counties do not have police power authority and cannot adopt stand-alone ordinances on topics like short-term.

One of the tricks to regulating short-term rentals is to define them as a commercial use, so that they are treated similar to other lodging enterprises and different from residential uses. This approach reflects the Constitutional protection of equal treatment in which similarly situated individuals must be treated similarly. (The distinction of short-term rental being commercial is reinforced by court rulings on the issue, and communities which have not carefully made that distinction have not fared as well in courts.) Then, a community would list short-term rentals as a special land use in the appropriate zoning districts based on public engagement on the topic as to where the special use is generally acceptable. The community would then hear individual requests for a special land use permit for a particular property in those zoning districts where it is listed as a special land use.

Another step for a community is to identify the standards that will apply when reviewing applications from property owners for the short-term rental of their property. Such standards should include discretionary and non-discretionary standards. A discretionary standard is something like “The use will be harmonious with the surrounding neighborhood.” This is a type of standard that a planning commission would need to discuss in an open meeting with opportunity for public comment. A non-discretionary standard on the other hand is something that is more black or white, for instance, “two off-street parking spaces shall be provided on site for each short-term rental unit.” This standard is either met in the pending application or it is not.

Considering the sharing economy, communities may find it beneficial to consider all types of short-term rentals, beyond just the conventional ‘vacation rental’ home and develop a single set of standards that apply to all of them. Such a set of standards could possibly include licensing, allowable length of stay, number of rooms that can be rented, separation requirements for same rental types, parking, guest register, display of fire escape routes and owner contact information, and so on.

Communities should keep in mind that a zoning ordinance that completely excludes an otherwise legal or legitimate land use is suspect. If a municipality’s ordinance is silent on the issue of short-term rentals, it typically means short-term rentals are not permitted anywhere. Zoning ordinances that are written in a permissive format state the permitted use within the district and necessarily imply the exclusion of any other use not listed. Communities that do not allow short-term rentals or do not address the topic should ask ‘what’s the legitimate government purpose of prohibiting short-term rentals?’ Prohibiting short-term rentals may be a legally risky approach, even if motivations for doing so are thoroughly documented in the ordinance and master plan. It is important to note that any amendment to a community’s zoning ordinance should be reviewed before adoption by the community’s corporate attorney who is experienced in municipal and land use law.

Michigan State University Extension helps communities learn how to improve their social and economic appeal to create and retain jobs. Community leaders are given the tools they need to have a positive effect on their cities, villages, townships, counties and the whole state.

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