The advent of the shared economy in the real estate context has provided homeowners and investors alike with expanded opportunities to generate revenue from the use of their real estate. Airbnb and VRBO are two of the most popular companies facilitating short-term rental availability. The rapid growth in this shared real estate economy has served as a disruptor of sorts to the traditional hotel and hospitality industry, causing that industry to revisit its own models in order to better compete.
The popularity of short-term rental use, however, has created a whole new set of problems about which property owners, state and local governments, renters, and those impacted by the explosion of short-term rentals should be aware. Among other things, without more, most traditional homeowners’ policies will not cover the insured property’s use for commercial purposes – a problem similar to the early rideshare providers.
Full and part-time resident owners who previously enjoyed a greater certainty with respect to their neighbors are today frustrated by the revolving door of vacationers, revelers, wedding attendees and similar nontraditional uses of neighborhood residential property.
In response, state and local governments including Arizona and a number of its municipalities have instituted legislative measures to address concerns over short-term rentals and party houses – – those leased solely for the purpose of hosting parties, often with paid admission required. In 2016, the Arizona legislature passed a bill effectively barring local governments from prohibiting short-term vacation rentals. That legislative view is beginning to change perhaps given the outrage expressed by many over the disruption to their neighborhood and quality of life. This past session, the legislature passed House Bill 2672 which took effect on August 27 and specifically allows municipalities to place regulations on the use of short-term rentals for special events like parties and weddings.
On September 24, the Scottsdale City Council will consider a proposed ordinance creating an enforcement and penalty structure for nuisance parties and unlawful gatherings. Scottsdale in particular has been hit hard by often absentee investor-owners advertising their large homes for use as “mansion parties.”
With the likely passage of these and other similar ordinances it is also possible that their enforceability may be challenged by property owners. In the interim, residents and neighbors adversely impacted by the continuity of commercial use of residential properties can help the local enforcement authorities by providing photographic, recorded, and video evidence of clear violations of state and local laws.