In the Zone: Seventh Circuit Dismisses Takings Challenge to City’s Short-Term Rental Regulations
The Seventh Circuit Court of Appeals dismissed a lawsuit against a city that argued that the city’s shared housing ordinance constituted an unconstitutional "takings" because it prevented a condo owner from renting his property on Airbnb and other homesharing platforms. Mogan v. City of Chicago
The city’s ordinance for shared housing units allowed condominium homeowners’ associations (HOAs) to determine whether short-term rentals would be allowed in their respective buildings. When an HOA prohibited rentals, they would contact the city to have that building added to a list of prohibited buildings for short-term rentals. Renting or listing a short-term rental in a prohibited building would subject the unit owner to a $5,000 fine each day the violation continued.
A condo unit owner in a building that had been placed on the city's prohibited building list by the HOA and property management company sued, arguing that the city’s ordinance was an unconstitutional taking under the Fifth Amendment and an inverse condemnation under the Illinois Constitution. The condo unit owner claimed he suffered financial losses because he had invested thousands of dollars to refurbish the apartment with the intent of using it as a short-term rental. The district court dismissed both claims, and the unit owner appealed.
On appeal, the Seventh Circuit focused on language in the HOA covenants that governed the use of all units
within the condo building. The
covenants stated that no unit within the condominium could be leased for less
than 30 days or greater than 30 days where hotel services were provided. Based
on the language in the covenants that were in place at the time the owner purchases his condo unit, the court found that the owner was on notice
he could not lease his unit for less than 30 days. As a result, the
court reasoned that the owner could not prove the city’s ordinance had any
economic impact on his unit or that the ordinance interfered with a
reasonable investment-backed expectation (necessary elements to prove both the
takings and inverse condemnation claims) because the unit owner never had a
property right to lease his unit on a short-term basis.
Post Authored by Dan Lev & Julie Tappendorf, Ancel Glink
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