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July 16 2019

New Developments for Short-Term Rentals

By: Bradley A. Fowler

Summer in Michigan is finally heating up, and so are clashes between local governments and property owners over short-term rentals.

As local units have crafted ordinances that best suit the needs and desires of their residents, both the rental and real estate industries have pushed for legislation to preempt local regulations and enshrine short-term rentals as a residential use permitted by right in all residential zoning districts. In recent weeks, there have been two noteworthy legal developments in this area, both of which are encouraging signs that judges and policy makers recognize the importance of empowering local units to respond to their community’s needs by regulating short-term rentals, at least to some degree.

New Proposed Legislation

First, a new package of bills was introduced in the Legislature in May to address zoning authority of short-term rentals. Under House Bill 4554, titled the “Michigan Short-Term Rental Promotion Act,” local units would not be allowed to have any zoning ordinance that effectively prohibits all short-term rentals, however, the bill would permit limited local zoning. Additionally, the bill provides that owners who offer short-term rentals of 30 days or less would be required to register their property with the State, and would be required to carry $1 Million in liability insurance, either on their own or through their hosting platform, such as Airbnb or VRBO. The bill would also require property owners of short-term rentals to pay all taxes and assessments required by law and subject the owners to a fine of as much as $15,000 for violating these requirements. Finally, the bill would create a workgroup made up of members from local units, the tourism industry, and real estate professionals, tasked with assisting the Department of Licensing and Regulatory Affairs with developing best practices and model short-term rental zoning regulations.

The other bills in the package would amend various statutes to reflect the changes in HB 4554. This includes House Bill 4563, which would amend the Michigan Zoning Enabling Act to clarify that residential property that is rented out for no more than 14 days in a calendar year is a residential use and permitted in all residential zones. In other words, renting out a property for 14 days or less in a year would not constitute a short-term rental subject to the regulatory framework or local zoning.

This package of bills offers an alternative approach to House Bill 4046 (introduced last year) which would effectively strip local units of all of their authority to regulate the location (zoning) of vacation and short-term rentals of 28 days or less. The new bills have been supported by the MTA and are currently being debated in committee.

Published Opinion by the Court of Appeals

Another notable legal development in the area of short-term rental regulation came in late May, when the Michigan Court of Appeals issued a published opinion reaffirming that short-term rental occupation is a commercial use of property that does not fall within the definition for residential single family use.

Reaume v Township of Spring Lake involved a property owner who began seasonally renting out her home in the “R-1 Low Density Residential” zoning district in 2015. In 2016, Spring Lake Township adopted an ordinance expressly prohibiting short-term rentals in the R-1 zone. After neighbors objected to the plaintiff’s use of the property for short-term rentals, she applied for a short-term rental license, which the Township denied. She eventually appealed to the Michigan Court of Appeals and argued, among other things, that her short-term rental activity pre-dated the 2016 ordinance so it should be grandfathered in as a lawful non-conforming use. The case focused on the language of the ordinance prior to the 2016 amendment.

The Court analyzed the definition of “Dwelling, Single Family,” which was a permitted use in the R-1 district to determine if the plaintiff’s short-term rental activity fell under that definition. The court noted that the definition of single-family dwelling in the Spring Lake ordinance emphasizes one family only and expressly excludes “transitory or seasonal” or otherwise temporary relationships. Based on this analysis, the Court concluded that the definition of single-family dwelling in the Spring Lake Ordinance “unambiguously excludes transient or temporary rental occupation,” and that the plaintiff’s use of the property for short-term rentals was never permitted under the Township’s R-1 zoning so it was not a lawful non-conforming use. In addition, the Court noted that the Ordinance defined “motels” in a way that closely described the typical short-term rental arrangement, and made specific provisions for motels.

This decision follows closely the reasoning of an unreported Court of Appeals’ decision issued last December, concerning Property Owners of Garfield Township v Charter Township of Garfield. The importance of the Reaume decision being published is that it is binding precedent. The decision is also important because the Court based its decision on language in Spring Lake’s ordinance which is similar to many other ordinances.

In the absence of enacted legislation or a Supreme Court Opinion overruling it, the Reaume decision is controlling law in the State of Michigan and supports the proposition that short-term rentals are not residential single-family uses. More broadly, the case also impacts local units’ enforcement efforts on non-conforming uses in general. The Court expressly stated that “failure to enforce a zoning ordinance does not constitute approval of an otherwise illegal use.” Therefore, residents will not be able to argue that a municipality’s failure to initiate an enforcement action equated to approval of the otherwise unlawful use of their property.

We will continue to monitor the pending legislation and developing caselaw with respect to short-term rentals and provide updates of any changes. In the meantime, if you have any questions relating to short-term rental regulation in your community, please contact a Mika Meyers’ municipal attorney for guidance through this evolving legal landscape.