Fines for illegal vacation rentals could begin in August

Advertising of an illegal vacation rental on Oahu would become unlawful starting Aug. 1 under a bill that Honolulu Mayor Kirk Caldwell is expected to sign into law Tuesday.

That could expose thousands of operators of both whole-home transient vacation units (TVUs) and “hosted” bed-and-breakfast establishments (B&Bs) to potential fines of as much as $10,000 a day if they fail to include a valid permit number in their ads as specified in the bill. The exception would be for operators of vacation units in resort zones, where they are legal. Those operators would need to list the address of their unit to make clear it is in a resort zone.

The city Department of Planning and Permitting, in anticipation of Caldwell signing the bill, has already put up on its website a summary sheet, complete with frequently asked questions, at 808ne.ws/2X3ffP2.

Kathy Sokugawa, DPP acting director, has said repeatedly that the key to enforcement of illegal vacation rentals is to go after their ads. That’s because many operators rely heavily on Airbnb, VRBO and other vacation rental hosting platforms to bring in renters. Instead of sending inspectors to examine and then determine whether there is an illegal operation, the city now would be able to scan the hosting platform sites and verify their permit numbers or addresses.

“The existence of an advertisement will be prima facie evidence that a bed and breakfast home or a transient vacation unit is being operated at the listed address,” the bill states. “The burden of proof is on the owner of the subject real property to establish that the property is not being used as a bed and breakfast home or transient vacation unit, or that the advertisement was placed without the property owner’s knowledge or consent.”

Under the bill, owners of units found to be advertising illegally would be notified that they have seven days to remove the ad if it is a first offense. Any ads up after seven days would subject owners to fines of $1,000 to $10,000 a day until the advertisement is no longer on display.

Several people who testified on the bill before the City Council last week said the Aug. 1 enforcement date is too soon in a business where people often book reservations months in advance.

Among them was Jenny Brady, president of the Honolulu Board of Realtors. Although her organization supports the bill, “the B&B and TVU industries have operated for 30 years without strict enforcement,” Brady said in written testimony. “To expect property owners to become compliant by Aug. 1, 2019, is not only unreasonable, but unrealistic.”

Other parts of the bill aren’t scheduled to take effect until Oct. 1, 2020, Brady noted. Making that the effective date for all the bill’s provisions “will provide both owners and visitors to Hawaii adequate time to adjust to the new law as well as provide (DPP) enough time to anticipate enforcement,” she said.

Sokugawa said Thursday that DPP intends to “meet those deadlines — Aug. 1 of this year and Oct. 1 of next year.”

While vacation rental operators would be required to comply with the advertising requirements by Aug. 1, the hosting platforms themselves would have until October 2020.

At that time, hosting platforms would also be required to file monthly reports with DPP showing the names of those responsible for any listing on their sites, the addresses of the units, the lengths of stays, the prices paid for the stays and other information. The hosting platforms have raised objections about the reporting requirement and have challenged similar language in other cities.

Most of the other key provisions of Bill 89 also don’t kick in until October 2020, including when DPP begins permitting a limited number of B&Bs across the island but no whole-home TVUs. The 1,699 permits would represent the first vacation rental permits issued by the city in more than three decades.

Under the bill, 0.5% of the dwelling units in seven of the city’s eight district plans would be allowed to obtain B&B permits. No permits would be issued for the North Shore because the North Shore Sustainable Communities Plan does not allow for B&B permits, Sokugawa said.

The estimated 1,699 allowable units islandwide is fewer than the 1,715 that DPP projected previously. The previous estimate included 35 units on the North Shore. DPP did not explain the reason for the change in the other numbers.

The total does not include the 816 nonconforming use (NUC) permits issued prior to 1989 — they would be allowed under a “grandfather” clause.

The process for selecting who would be awarded a permit has yet to be decided, but a proposal would be subjected to the rule-making process, which would include opportunities for public input, Sokugawa said. Typically, that takes about a year — six months to come up with a draft plan and six months for vetting and tweaking. Time is also needed for the city to come up with software to manage enforcement and permitting.

Who gets the permits may be determined by lottery if there are more applicants than allowable permits in each of the seven areas.

The permitting may also be phased in with operators, for instance, in the Primary Urban Center getting their permits first before other districts. “I’m looking at different ways of phasing it,” Sokugawa said. “It’s clear we’re supposed to start (issuing permits) on Oct. 1, but that doesn’t mean everybody gets them by Oct. 2.”

Permitted vacation units would be allowed only to owner-occupants who have a home exemption, and the units could not be less than 1,000 feet from another. Those two requirements received staunch opposition from hosting platforms and operators who argued that those restrictions alone could kill off the vacation rental industry and send the visitor industry in general into a tailspin.

“TVUs will be almost completely eliminated,” said Scott Brazwell of the Oahu Alternative Lodging Association. “B&Bs will be heavily regulated and restricted.”

Permitted units would be allowed no more than two guest rooms and a maximum of four guests at one time. Operators would need to provide one parking for each guest room. They would need to observe “quiet hours” between 10 p.m. and 8 a.m. Neighbors within 250 feet must be provided with a 24-hour telephone number for complaints.

Registration would be for one year and cost $1,000. Renewals would cost $2,000 annually. Permits are not transferable.

BILL OUTLINE

Bill 89 (2018), expected to be signed Tuesday by Mayor Kirk Caldwell, would:

>> Allow the city to impose stiff fines on operators who advertise illegal vacation rentals units, starting Aug. 1.

>> Permit up to about 1,700 new “hosted” bed-and-breakfast operations islandwide starting Oct. 1, 2020.

>> Require Airbnb and other hosting platforms to file monthly reports with information on their operators.