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HomeMy WebLinkAboutCOM 0675.525 2022-20242013522 Bert T. Kobayashi, Jr.* Kenneth M. Nakasone* Of Counsel: Alan M. Goda* Harry Y. Oda Kenneth Y. Sugita* Gregory M. Sato" Wendell H. Fuji" John R. Aube" Jesse W. Schiel" Clifford K. Higa" Charles W. Gall" im Craig K. Shikuma'' Burt T. Lau` Neal T. Gota Lex R. Smith" Larry L. Myers" Charles D. Hunter Joseph A. Stewart* David Y. Suzuki* Robert K. Ichikawa* Brian D. Tongg Christopher T. Kobayashi* David B. Tongg" Andrew M. Carmody Jan M. L. Y. Kutsunai* Caycie K. G. Wong Max A. Ching KOBAYf ` HI ':'AJGITA fS, CaOC,k LI_.0 David M. Louie* Ying Gu Nicholas R. Monlux °"A Law Corporation Daniel K. Jacob Jonathan S. Moore Austin H. Jim On Aaron R. Mun Stephen G. K. Kaneshiro Bruce A. Nakamura* Travis Y. Kuwahara Ryan D. Louie Zachary K. Shikada Timothy T. Silvester Reece Y. Tanaka September 30, 2024 COUNCIL OF THE COUNTY OF HAWAII Heather Kimball, Chair and Presiding Officer Dr. Holeka Goro Inaba, Vice Chair counciltestimony�a)hawaiicounty.gov HEARING DATE: October 2, 2024 TIME: 9:00 a.m. Re: TESTIMONY ON BEHALF OF AIRBNB OPPOSING THE PROPOSED BILL No. 121 FOR AN ORDINANCE AMENDING CHAPTER 25, ARTICLES 1, 4 AND 5, OF THE HAWAII COUNTY CODE 1983 (2016 EDITION, AS AMENDED), RELATING TO TRANSIENT ACCOMMODATION RENTALS AND HOSTING PLATFORMS Dear Chair Kimball, Vice Chair Inaba, and Council Members: We write on behalf of our client, Airbnb, in opposition to the proposed BILL No. 121 FOR AN ORDINANCE AMENDING CHAPTER 25, ARTICLES 1, 4 AND 5, OF THE HAWAII COUNTY CODE 1983 (2016 EDITION, AS AMENDED), RELATING TO TRANSIENT ACCOMMODATION RENTALS AND HOSTING PLATFORMS ("TAR Bill"). The TAR Bill seeks to eliminate new "operator -hosted" and "un-hosted" short-term rentals in all zones other than resort and commercial zones in Hawaii. The TAR bill further requires all short-term rentals to undergo a burdensome registration process and pay both registration and annual renewal fees, with additional processes and fees required for newly nonconforming rentals. Strict new requirements are also implemented, with substantial fines imposed for noncompliance. This is despite the fact that short-term rentals have been lawful, residential uses for decades. It also fails to provide a process for certain existing hosts to obtain nonconforming use certificates for their existing lawful offering of rentals that the TAR Bill recategorizes as "transient accommodations." Comm. No, es. SIS 999 Bishop Street, Suite 2600, Honolulu, HI 96813 ( Tel: 808-535-5700 ( Fax: 808-535-5799 1 www.ksglaw.com� f" 7 " Ref. Date ' COUNCIL OF THE COUNTY OF HAWAI`I September 30, 2024 Page 2 The proposed TAR Bill would impact residential owners who use short-term rentals to supplement their incomes, including those who need such supplemental income to allow them to afford to continue to live in Hawaii. Further, there would likely be additional impacts to the broader Hawaii economy to those who rely on providing services to short-term rentals, such as cleaning and maintenance staff, as well as businesses such as restaurants and retail shops that depend on out-of-state visitors. The proposed TAR Bill is likely unlawful, violating well -established rights under the United States and State of Hawai` i Constitutions, and would invite years of lawsuits. As discussed more fully below, both the State of Hawaii and federal courts of Hawaii have explicitly recognized the vested rights of residential owners to use their homes for short-term rentals. As such, there is a likelihood that the TAR Bill is ultimately deemed unconstitutional. For these reasons, we strongly urge that the Council not approve the TAR Bill. A. The Proposed TAR Bill Violates the Vested Rights of Hawaii Property Owners. Currently the Hawaii County Code ("Code") regulates "short-term vacation rentals" ("STVRs"), which are defined as a dwelling unit in which "the owner or operator does not reside on the building site, that has no more than 5 bedrooms for rent on the building site, and is rented for a period of thirty consecutive days or less."' One of the TAR Bill's major changes to the current regime is the shift from STVRs to "transient accommodation rentals" ("TARs"). Currently, rentals longer than 30 days are not an STVR, and therefore not subject to the regulations applicable to STVRs, whereas rentals between 30-179 days qualify as a TAR, and would be regulated by the TAR Bill. The TAR Bill expressly prohibits any additional nonconforming use certificates for un- hosted TARs.2 Accordingly, hosts currently legally offering "un-hosted" rentals between 30-179 days will be face immediate termination of their legal residential use. The TAR Bill's infringement on property owners' rights to maintain these rentals plainly violates Hawaii law. Hawaii law is clear: "preexisting lawful uses of property are generally considered to be vested rights that zoning ordinances may not abrogate."3 This rule is deeply rooted in Hawaii ' H.C.C. § 25-1-5 (emphases added). Z§5. 3 Robert D. Ferris Trust v. Planning Cotn'n of Cnty. of Kauai, 138 Haw. 307, 312 (Haw. Ct. App. 2016); Waikiki Marketplace Inv. Co. v. Chair of Zoning 3d. of Appeals of City & Cnty. of Honolulu, 86 Haw. 183, 193-94 (Haw. Ct. App. 1997). COUNCIL OF THE COUNTY OF HAWAVI September 30, 2024 Page 3 law, is constitutional in nature,4 and does not depend on the text of Hawai`i's Zoning Enabling Act, Section 46-4(a). In 1997, the Hawaii Intermediate Court of Appeals concluded that Honolulu could not fine a property owner for maintaining a nonconforming addition that had been lawful at the time the addition was constructed.s The appellate court explained that "the right of a property owner to the continued existence of uses and structures which lawfully existed prior to the effective date of a zoning restriction is grounded in constitutional law."6 Requiring the owner "to remove the addition and pay daily fines," the court reasoned, "would constitute an interference with [the owner's] vested property rights, in violation of the due process clauses of the federal and state constitutions." 7 In 2016, the Hawaii Intermediate Court of Appeals affirmed these principles, this time in the context of short-term rentals. The appellate court rejected Kaua`i's interpretation of an ordinance that permitted only individuals who owned a seventy -five -percent -or -greater interest in their property to apply for short-term rental nonconforming use certificates.' The court reasoned that such an interpretation would raise "serious constitutional questions" because "persons with less than a seventy-five percent ownership interest [in their property] may have vested rights to pre-existing lawful uses." 9 Those vested rights, in turn, the court explained, cannot be abrogated by zoning law.10 Most recently, in 2022, the United States District Court for the District of Hawaii considered the constitutionality of a Honolulu ordinance that banned short-term rentals of less than 90 days. The federal court reasoned that homeowners in Honolulu had "a vested property right" in using their homes for short-term rental, because the homeowners had been doing so for years in reliance on existing law.I ] Property owners in Hawaii who lawfully use their residences for short-term rentals have a vested right in that preexisting lawful use. Many have invested significant sums in preparing their homes to be used as short-term rentals. Under state and federal law, Hawaii may not abrogate the rights that have vested in that preexisting use. The TAR Bill would infringe on 4 Id. s Waikiki Marketplace, 86 Haw. at 193. 6Id. (emphasis added). Id. at 194. s Ferris Trust, 138 Haw. at 313. . 9 Id ' ° ld. at 312. " Hawaii Legal Short -Term Rental Alliance v. City and Cnty. of Honolulu, 2022 WL 7471692, at * 10 (D. Haw. Oct. 13, 2022). COUNCIL OF THE COUNTY OF HAWAI`I September 30, 2024 Page 4 preexisting lawful uses and undo decades of reliance interests by improperly limiting the rights of residential owners to use their property for short-term rentals. The recent changes to the Hawai`i's Zoning Enabling Act, H.R.S. Section 46-4(a), purporting to permit jurisdictions to phase out or amortize transient accommodations, do not change the analysis. As the courts have found, the statutory protections of Section 46-4 derive from constitutional law.12 Even if the statutory protections are removed, the constitutional foundation remains. 13 The proposed TAR Bill likely violates such constitutional protections. B. The Proposed TAR Bill Likely Causes an Unconstitutional Taking of Property Under the United States and Hawaii Constitutions. The Fifth Amendment to the United States Constitution prohibits "private property [from] being] taken for public use, without just compensation." U.S. Const. amend. V. The Hawaii Constitution too states that "[p]rivate property shall not be taken or damaged for public use without just compensation." Haw. Const. art. I, § 20. Because the Hawaii Constitution prohibits not just takings, but also mere "damage" to property interests, it provides even broader protection than its federal counterpart. By greatly limiting the rights of residential owners to use their property for un-hosted short- term rentals, the proposed TAR Bill effects an unconstitutional taking of private property under federal and state law. In 2022, the United States District Court for the District of Hawaii entered. a preliminary injunction, preventing Honolulu from enforcing similar legislation, for this exact reason.14 The Hawaii Federal District Court explained that property owners have a vested property right, for purposes of the federal Takings Clause, in using their homes for short-term rentals.15 In finding this right, the court pointed to, among other things, the fact that property owners had relied on Honolulu regulations, decisions, and agreements that had long permitted such use.16 The court then explained that "there is no question" that the attempted ban constitutes a taking because it 12 Campos v. Planning Comm'n, 153 Haw. 386, 393 (Haw. App. Ct. 2023); Ferris Trust, 138 Haw. at 312; Waikiki Marketplace, 86 Haw. at 353. 13 We note that the TAR Bill also violates Section 46-4 on its face because it does not provide for the phasing out or amortization of certain existing lawful offerings of transient accommodations. Ibid. Regardless, if a property owner was lawfully using their property before any ordinance banning them, then the locality is required to provide pennanent grandfathering protection for the nonconforming uses moving forward. Waikiki Marketplace, 86 Haw. at 193. "Hawaii Legal Short -Term Rental Alliance, 2022 WL 7471692, at *9-11. 15Id. at 10. " Id. at 10 n. 23. COUNCIL OF THE COUNTY OF HAWAI`I September 30, 2024 Page 5 outlaws existing short-term rentals "without providing any process to compensate or accommodate nonconforming uses."17 In entering a preliminary injunction, the court blocked Honolulu from enforcing the ordinance. The same is true here, and the same result will likely follow. Hawai`i's proposed TAR Bill threatens to damage the property interests of Hawai`i's residential owners without providing any compensation to the people it impacts. These property owners have been permitted to use their homes for 31-179 day rentals for decades. The taking of these owners' property without just compensation violates the U.S. and Hawaii constitutions. C. The Proposed TAR Bill Potentially Implicates the Equal Protection Clauses of the Hawaii and United States Constitutions and the Commerce Clause of the United States Constitution. Several of the provisions of the TAR Bill create distinctions between different residential owners that do not appear to be based on any rational basis, including: (1) imposing different requirements and fees for "owner -hosted", "operator -hosted", and "un-hosted" short-term rentals 18; and (2) requiring hosts or owners to be "reachable" at all times.19 In order for a law such as the TAR Bill to create distinctions between individuals, the legislature must have, at minimum, a rational basis for such disparate treatment.20 To the extent that the TAR Bill creates the distinctions identified herein, it has not provided any valid justification for such disparate treatment. Additionally, the TAR Bill differentiates between "owner -hosted," "operator -hosted," and "un-hosted" short term rentals, providing for more permissive treatment for the latter two categories, where the owner or operator resides on the property. This regime improperly discriminates between in -state and out-of-state property owners, violating the dormant Commerce Clause of the U.S. constitution. The courts have struck down short-term rental regulations that discriminate in this fashion. " Id. at 10. 18§5. 19§3;§5. zo See Willowbrook v. Olech, 528 U.S. 562, 564, 120 S.Ct. 1073, 145 L.Ed.2d 1060 (2000); Armendariz v. Penman, 75 F.3d 131.1 at 1.327, (9th Cir., 1996); DW Aina Lea Development, LLC v. Bridge Aina Lea, LLC., 134 Hawai `i 187, 218, 339 P.3d 685, 716 (2014) ("[T]he equal protection clauses of'the United States and Hawaii Constitutions mandate that all persons similarly situated shall be treated alike[.]"). COUNCIL OF THE COUNTY OF HAWAPI September 30, 2024 Page 6 D. The Proposed TAR Bill Likely Violates the Law in Other Ways. The proposed TAR Bill is likely unlawful for other reasons too. As one additional example, the proposed TAR Bill violates principles of zoning estoppel, which prevents municipalities from repudiating prior zoning decisions on which property owners have relied. As the Hawaii Supreme Court has explained: [T]he doctrine of zoning estoppel is based on a change of position on the part of a [property owner] by substantial expenditure of money in connection with his project in reliance, not solely on existing zoning laws or on good faith expectancy that his development will be permitted, but on official assurance on which he has a right to rely that his project has met zoning requirements, that necessary approvals will be forthcoming in due course, and he may safely proceed with the project." Property owners in Hawaii for years have relied on the official assurances from their government that their preexisting lawful uses are protected. If enacted, and when challenged in court, Hawaii will be estopped from repudiating these assurances. The fines proposed by the TAR Bill are so excessive they raise Eighth Amendment concerns. The United States Supreme Court has held that "[t]he touchstone of the constitutional inquiry under the Excessive Fines Clause is the principle of proportionality: The amount of the forfeiture must bear some relationship to the gravity of the offense that it is designed to punish."22 Here the TAR Bill's proposed $2,500 for a first offense, $5,000 for a second offense, and $10,000 for a third offense fails to meet the principle of proportionality. E. Other Requested Amendments As summarized above, fundamental changes to the TAR Bill addressing the points raised above are necessary in order to ensure it will not violate the Hawaii and Federal Constitutions. In addition to these fundamental changes, we recommend certain additional changes to avoid unintended consequences and facilitate access. Specifically: The TAR Bill appropriately recognizes the need to ensure residents who need short-term and intermediate -term housing will not face the risk of untenable price spikes through its definition of "transient." However, we believe the definition of "transient" should be clarified to exclude all students, families of clients in health care facilities, families of military personnel, and families of health care workers temporarily employed at a medical facility. " Life of the Land, Inc. v. City Council of City & Cnty. of Honolulu, 606 P.2d 866, 902 (Haw. 1980); see also Pacific Standard, 653 P.2d at 744 (quoting same). " United States v. Bajakajian, 524 U.S. 321, 334 (1998) COUNCIL OF THE COUNTY OF HAWAPI September 30, 2024 Page 7 The TAR Bill should also permit new TARs in the RCX (residential -commercial mixed use) district. Allowing new TARs in this district will give visitors the opportunity to obtain a genuine Island experience outside of traditional "tourist" zones and in areas that support mixed uses. F. Conclusion It is incontrovertible that government agencies, including this Council, have a duty to pass laws that are consistent with and effectuate the protections of the Hawaii and Federal Constitutions. Passage of this TAR Bill would conflict with constitutional protections of existing land uses. Such a change will result in substantial litigation that would ultimately undo the TAR Bill. While housing availability and affordability are important objectives, an unlawful and ineffective restriction on short-term rentals is not the way to achieve them. For the reasons set forth herein, we have significant concerns about the proposed TAR Bill and urge the Council not to pass it. Very truly yours, DAVID M. LOUIE JOSEPH A. STEWART for KOBAYASHI SUGITA & GODA, LLP