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Tuesday, January 19, 2021

Federal Court Addresses Challenge to Short Term Rental Ordinance

A federal court recently denied vacation property owners’ due process and Fourth Amendment challenges to an ordinance regulating short-term rentals. Stone River Lodge, LLC v Village of North Utica

In 2004, Grand Bear Lodge, LLC purchased land near North Utica to develop a hotel. North Utica annexed the land. The annexation agreements between the village and hotel granted special use approvals for the development of a hotel and a number of buildings that each would include multiple vacation villas. The annexation agreements provided, among other things, that no owner would be prohibited from renting his or her unit and that this right would run with the land and would inure to subsequent owners. 

The villa owners alleged that they had, for years, been allowed to rent out their units without any regulation or mandates from the village. In February 2020, however, the village adopted an ordinance making it unlawful for anyone in the village to operate a “vacation rental unit” without a current, valid license from the village. As defined in the ordinance, a “vacation rental unit” is a dwelling unit or portion of that unit offered for rent for a period of less than 30 days, not including hotels, motels, lodging houses, boarding houses, or bed-and-breakfast establishments that are licensed under other provisions of the North Utica Village Code. The ordinance also established standards and procedures for application and issuance of licenses.

The villa owners filed suit in federal court, alleging due process, Fourth Amendment and equal protection claims. In the lawsuit, the villa owners claimed they had applied for licenses, but were denied by the village in a letter that informed the owners that only one hotel license is issued to the Grand Bear Lodge & Resort P.U.D., and that villa owners that wanted to rent out their property for overnight and short-term rental accommodations had to utilize the rental pool administered directly by the Grand Bear Lodge & Resort.

The villa owners also alleged that on two occasions, the village chief of police “approached an owner’s unit, rang the bell and stated, ‘I’m curious if you’re renting this for the weekend.’” The villa owners were subsequently issued citations seeking $750 fines. 

The court found no violation of the villa owners’ due process rights because the annexation agreements specifically provided that the village retained the right to enact zoning changes. The court noted that the ordinance qualified as a zoning change within the meaning of the annexation agreement. The court also found that the ordinance was a valid exercise of the village’s police powers to address legitimate life-safety, tax revenue, security, quality of life, and fire-safety concerns. 

In rejecting the villa owners’ argument that the police chief’s actions violated the Fourth Amendment, the court reasoned that a police officer may approach a home and knock to make a preliminary inquiry— just as any private citizen may do. Because the police chief merely knocked on the owners’ doors and did not stay for an unreasonable amount of time or enter the property, the court dismissed the villa owners’ Fourth Amendment claim.

However, the court did allow the villa owners’ equal protection claim to move forward against the village. The court noted that the villa owners may have been treated differently than other short-term rental owners because the villa owners were precluded from renting their properties unless they joined a “rental pool” agreement with the Grand Bear Lodge. At this early stage of the lawsuit, the court found that it could not make a determination that this differential treatment did not violate the Equal Protection Clause. As a result, the court allowed the villa owners’ equal protection claim to move forward.

Post authored by Rain Montero & Julie Tappendorf, Ancel Glink


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