Short-Term Rental Law Stumbles, But Survives Federal Court Challenge
September 16, 2019
Earlier this month, a challenge to the Town of Shelter Island (“Shelter Island”) short term rental law ordinance enacted in April 2017, amended May 2019 (“STRL”), came to an end – for now. Several years ago, the Shelter Island Town Board enacted its STRL to (i) impose licensing and advertising requirements for certain vacation rentals, (ii) prohibit certain vacation rentals from being rented more than once in any fourteen-day period, (iii) provide civil penalties for violations, and (iv) empower the Town Board to implement the law. Six plaintiffs in Weisenberg v. Town Bd. of Shelter Is., Docket No. 17-cv-04845 (EDNY 2017), commenced an action in federal court to annul the STRL.
The plaintiffs set forth a number of causes of action, including violations of the federal Fair Housing Act (“FHA”), N.Y. Town Law § 261, N.Y. Human Rights Law (“NYHRL”), the First, Fourth and Fourteenth Amendments to the U.S. Constitution, and Article I §§ 11 and 12 of the N.Y. Constitution. Shelter Island moved to dismiss all causes of action, except for several plaintiffs’ claims under the First Amendment. After addressing standing issues, the Court turned to the merits.
FHA Claims Dismissed
The Court dismissed the FHA claims. The FHA prohibits discrimination in renting a “dwelling” on the basis of familial status. While the statute defines “dwelling” as any building occupied as a “residence,” it does not define the latter term. The Court noted that other Circuits have utilized the plain meaning of “residence,” which encompasses a sense of home – as opposed to a temporary destination. District Courts within the Second Circuit have construed “residence” to mean a place intended for living, rather than visiting.
The Court in Weisenberg agreed with this interpretation and held that the FHA offered plaintiffs no protection. The STRL regulates vacation-rental properties, which excludes by definition properties rented for more than two weeks at a time. The Court also noted that plaintiffs did not allege their rentals were intended for use as residences by renters. Thus, their properties are not dwellings subject to the FHA.
N.Y. Town Law § 261 Claims Dismissed
The Court dismissed plaintiffs’ claims that the STRL violates N.Y. Town Law § 261. Section 261 provides towns with the power to enact and enforce zoning regulations; it is a power to regulate the use of land and cannot be aimed at the user of land. Here, the Court found the STRL’s fourteen-day minimum rental requirement expressly regulates the use of the land; whether it drew the line at fourteen days, thirty days or 180 days, it regulated rentals based upon duration – not the identity of owners or renters. The Court also noted that the STRL’s distinction between owner-occupied and non-owner-occupied properties was similar to other restrictions on rental permits for non-resident homeowners, which New York Courts routinely uphold.
NYHRL Claims Dismissed
The Court dismissed the plaintiffs’ NYHRL claims. The NYHRL is codified within N.Y. Executive Law Section 296, which prohibits discrimination. Subsection 2-a protects publicly-assisted housing accommodations and subsection 5(a) prohibits discrimination on the basis of familial status. With respect to subsection 2-a, the plaintiffs conceded they could not prevail, and effectively sought permission to amend and replead their claim under subsection 5(a). Permission to amend a complaint, however, will be denied if the new claim is futile.
With respect to subsection 5(a), the plaintiffs argued that Shelter Island’s STRL had a disparate impact on families with children and women who comprise a class of prospective renters. However, the Court held the plaintiffs’ allegations were insufficient to state a claim. They alleged that short term renters are typically families with working parents whose jobs do not offer vacation time or enough income to take vacations of two weeks or more. While this might raise an inference of disparate impact, it does not allege that the STRL affects renters differently based on whether they have children.
Equal Protection Claims Dismissed
The Court dismissed the plaintiffs’ equal protection claim. The plaintiffs did not argue they belonged to a protected class, but instead claimed they comprised a class of one. Class-of-one claims require (i) a showing of an extremely high degree of similarity between two groups, (ii) that no rational person could regard the respective groups’ circumstances different enough to justify differential treatment on the basis of a legitimate government policy, and (iii) the similarity and differential treatment sufficiently shows the defendants did not act by mistake. Here, the plaintiffs failed to identify extremely similar persons for comparison.
Substantive Due Process Claims Dismissed
The Court dismissed the plaintiffs’ substantive due process claims. The substantive component of the Fourteenth Amendment protects against certain government actions regardless of procedural fairness. To assert such a claim in this context, a party must first establish a valid property interest within the Fourteenth Amendment’s purview. The plaintiffs argued that the STRL deprived them of their fundamental property right to rent their homes, which formed part of the “bundle of rights” of land ownership. New York zoning law, however, accounts for the concept that property owners necessarily expect their property use to be restricted from time-to-time by various measures enacted in the legitimate exercise of police powers.
The Court noted that New York landowners do not possess vested rights in zoning classifications, absent substantial expenditures in reliance upon zoning status or municipal approvals. This principle applies equally to broad-based zoning restrictions on temporary rentals. The plaintiffs failed to adequately show they possessed vested rights in the unlicensed renting of their homes for periods of less than fourteen days.
Fourth Amendment Claim Survived
The Court addressed the plaintiffs’ privacy claims brought under the Fourth Amendment and Article I § 12 of the N.Y. Constitution. The Fourth Amendment protects persons from unreasonable searches and seizures, and states that no warrant shall issue without probable cause. Their claims specifically challenged the record-keeping, search and penalty provisions of the STRL, which: (i) require the owner to maintain copies rental agreements and the rental registry on premises for Shelter Island’s examination, upon request, and preserve them for three years; and (ii) authorize Shelter Island to impose fines and suspend/revoke rental permits for failure to maintain the same. Notably, the STRL provided for a hearing prior to suspension or revocation, but it authorized the fines without a hearing or any process.
The Court noted that, while small civil fines do not rise to the severity of criminal penalties for non-compliance, the STRL raised constitutional concerns. District Courts in other Circuits have held that the automatic imposition of fines for non-compliance (without a hearing) may render a regulatory regime unconstitutional. One such Court held this type of process places the individual in the unacceptable position of having to either (i) submit to inspection or (ii) refuse inspection and hope to successfully defend the scope of inspection afterwards. Here, the Court held:
“[T]he [STRL’s] automatic fines, though certainly not as severe as the threat of arrest and criminal prosecution, could be used as a pretext for harassment. By failing to provide an opportunity for pre-compliance review before the imposition of fines, the [STRL] may violate the Fourth Amendment. But that is not to say that pre-compliance review alone would make the [STRL] constitutional.”
The Court further noted that administrative-search regimes without pre-compliance review may satisfy the Fourth Amendment where the government shows special needs that make the warrant and probable cause requirements impractical, and that the primary purpose is distinguishable from the general interest in controlling crime.
Amendments to STRL
Although the Court dismissed almost all of the plaintiffs’ claims, the survival of the Fourth Amendment claim resulted in Shelter Island amending its STRL in May 2019. In early September 2019, several months after the Court’s decision in Weisenberg, and after amendments to the STRL, the parties stipulated to discontinue the action.
As municipalities seek to regulate, license and monitor short term rentals, particularly given today’s sharing-economy and the explosion of online listing services, Weisenberg provides further insight into how challenges to these laws may fare.