Short-term vacation rental rift creates a house divided

A fierce battle is brewing at Waikiki Lanais, where the Association of Apartment Owners board just voted to add a hotel front desk to the property and spend at least $40,000 to hire an attorney to defend the right of some owners to continue renting their units short-term.

Ainslie Ports, who is on the AOAO Waikiki Lanais, said she and other like-minded board members see the move as part of their fiduciary duty to protect property values, which she said have begun to plummet since short-term rentals are no longer allowed in the building.

Ordinance 19-018, the former Bill 89 that became effective Aug. 1, bans advertising of unpermitted short-term rentals and enacts penalties that can result in fines of up to $10,000 for persistent violators. Its passage has been cause for celebration for supporters who were concerned that illegal short-term rentals were depleting affordable housing and changing the fabric of local communities.

But Ports said most of the Waikiki Lanais owners are Hawaii residents who are in danger of losing money that keeps them afloat. It’s her view that the new law favors the interests of corporations and unions over individual owners and ultimately could remove so many of Oahu’s short-term units that it hurts the tourist economy.

“Now because of this, and it’s not just us, a lot of buildings are in jeopardy. People aren’t going to be able to afford to pay maintenance fees and mortgages,” said Ports, who recently changed her investment unit in Waikiki Lanais from a short-term to long-term rental. “That’s just the tip of the iceberg. How many jobs have been lost? Also, people that had their vacations booked to Hawaii, they can’t afford a hotel. Now, they are canceling their flights and not coming.”

However, others, like former AOAO Waikiki Lanais board member Jayson Kalani Lum, argue that the current board should not have approved using association funds to defend an illegal practice and say that the money should have gone to upcoming expenses like required fire prevention updates. Lum said owner occupants in the building also have much to lose if the building is rezoned resort, a move that would raise property tax rates from residential to hotel use.

It also would require higher insurance premiums to cover the extra liability of short-term rentals and could result in higher maintenance fees to cover higher utility payments since the building’s units aren’t individually metered, he said.

“If the building is turned into a legal hotel, it would put residents out on the street,” Lum said.

The tumultuous nature of regulating short-term rentals in a period of major growth for online hosting platforms has led to a frenetic spread. It’s an issue that has pitted neighbor against neighbor, and perhaps there’s no better example than the Waikiki Lanais, where owners and the board have frequently vacillated.

Like the city’s stance, the Waikiki Lanais AOAO’s read has changed depending on the makeup of the decision makers, be they friend or foe. From the chaos, winners and losers have emerged — with both sides threatening legal action to defend their positions.

Ports said the new law already has led to two legal actions, with more expected, including one from the Waikiki Lanais.

There’s been push back from owners in resort districts like Waikiki who say they were blindsided when the city Department of Planning and Permitting ruled that properties mauka of Kuhio Avenue, which are in apartment and apartment precinct zones, including the Waikiki Lanais, must have nonconforming use certificates to operate legally. Even the Hawaii Lodging and Tourism Association, a staunch supporter of Bill 89, objected to the broad scope in areas like Waikiki and Turtle Bay, which many view as hotel-resort zones.

Kathy Sokugawa, acting director of the planning department, said Thursday that the department is “open to further discussion” on whether to allow short-term rentals in buildings in Waikiki that aren’t zoned for resort.

But with nothing yet resolved, Ports said the AOAO’s position is similar to that taken by the Waikiki Banyan, which has already filed suit, and other Waikiki apartments mauka of Kuhio Avenue that also are exploring legal action.

Kokua Coalition, also known as the Hawaii Vacation Rental Owners Association, had requested a temporary restraining order to stop the city from enforcing its new vacation rental ordinance. But U.S. District Judge Derrick Watson held off on making a decision after both sides agreed to meet.

The Association of Apartment Owners of Waikiki Banyan is seeking a permanent injunction preventing the city from imposing its new ordinance. The Waikiki Banyan’s lawsuit, filed in Hawaii Circuit Court, says the twin-tower, 876-unit Waikiki Banyan has been operating as a condominium hotel since it opened in 1979 and “has continually offered its guests the typical hotel/ resort experience with condominium style suites.”

But what makes Waikiki Lanais’ situation different is that the board’s stance on short-term rentals has flip-flopped in the course of a year.

Waikiki Lanais owners began battling last year after its AOAO issued a directive to prohibit short-term rentals, defined as less than 30 days. Soon after, the board posted signs reflecting the building’s short-term rental policy in the common areas and elevators, and has looked into other enforcement steps such as banning lock boxes, stricter control over fobs and requiring guest registrations.

The board’s decision at that time was in response to a Nov. 9, 2017, opinion from the planning department that short-term rentals were not allowed in the apartment precinct without an active nonconforming use certificate (NUC), and there are no active NUCs at Waikiki Lanais. Eventually, the city cited two owners for illegal short-term renting.

Ports, who was represented by Honolulu attorney Terry Revere, threa- tened a lawsuit against last year’s board, which in her view inappropriately sought the city’s opinion. Lum said last year’s board spent approximately $20,000 in legal fees on vacation rental issues, including an estimated $7,000 alone on the mediation with Ports, which was never resolved.

“Now, they’ve hired Ainslie’s past attorney to represent mostly the short-term rental board members. I view it as a massive conflict of interest,” Lum said. “I‘m hoping when other owners see the abuse of funds they will get involved.”

However, it’s unclear how the building’s short-term rental controversy will play out since the majority of the current Waikiki Lanais board has changed to favor short-term rental supporters.

Ports estimated at least 100 out of the 160 units in the building have been used for short-term rentals, some since the building opened decades ago, and its her belief that they should be allowed to continue.

“We have a front desk. We’ve been operating as a hotel for 40 years. Our governing documents always have clearly stated hotel use. But it doesn’t matter what we come up with, they won’t accept it,” Ports said.

Revere, who now represents the AOAO Waikiki Lanais, said the issue isn’t just isolated to Waikiki Lanais.

“I know other attorneys who have tried to go in and use fairness logic and reasoning and been rebuffed by the planning department. They know the current law is a turkey,” Revere said. “You are living in Waikiki. That’s in the middle of a city and a resort area. Give me a break. There’s already two or three other lawsuits from buildings in Waikiki that have done this for years. It was designed and planned and taxed as a hotel from day one.”

However, Sokugawa’s letter to the former Waikiki Lanais board indicated that while the building was once in what was called the “hotel and apartment district,” it had “historically been used as a multifamily dwelling” and “does not now and did not formerly meet the definition of a hotel.”

Given that, Waikiki Lanais resident John DeFreitas questions how the current board could be permitted to use maintenance fees to fight a city and county law when the building’s documents give only owners the right to “lawfully” operate their units as a hotel.

“How can a Board use everyone’s money for purposes that are against the law?” DeFreitas said.

Arpine Martirosian, who has been an owner-occupant of Waikiki Lanais for 16 years, said she too is against using maintenance fees to defend short-term rentals.

“It’s an old building. We have to take care of it and make sure its in good shape, not losing money on legal fees,’” Martirosian said. “I’m on a fixed income. I’m worried our costs will soar if we don’t have enough money in reserves.”

Maureen Nachtigall, who has been an owner-occupant in Waikiki Lanais for 30 years, said she doesn’t support using association funds to pay for the self-interest of a few owners, who she believes are running illegal businesses.

“Why should we pay for their businesses? I’m not in favor of short-term rentals. It’s added a lot of traffic to the building and strangers and a lot more noise. It effects the daily quality of your life,” she said.