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HB 824: Materials from City Council Special Meeting 1/26/18

At City Council's Special Meeting on Friday, January 26, 2018, additional materials were handed out regarding a discussion on House Bill 824. The referenced material is below: 


City responses to President J. Mitchell of Virginia REALTORS:

 

Bullet #1

Section 15.2-983 defines short-term rental as "less than 30 days", whereas the Lexington Ordinanceregulatesshort-termrentalsof45nights orless".  The legislationdirectstheCityto conform its ordinance to state law.

The City Attorney prepared a memo on this issue.  Our office stands completely by the analysis of that Memo (attached).  In the enactment of §15.2-983, the problem that the legislature created is that it did not fundamentally look into the issue of transient occupancy and create a comprehensive and consistent framework for regulation, which they could have done if there was consistent agreement on the issue.  Until the state acts definitively on the issue and defines what duration of occupancy qualifies as “transient” and what duration is “residential”, the kinds of inconsistencies within the state code itself will remain confusing and unclear.  Historically, and currently within the code, the definition is inconsistent.  Localities that adopted practices under one definition have often been allowed to continue with such practices even if the definition is changed within the code.  This has led to a variety of applications by different localities across the state.

The City of Lexington’s definition of transient was “90 days or less” prior to the ordinance change. It is now set at 45 days.  Cities are currently allowed to define transient as not more than 90 days and counties are allowed to define transient as not more than 30 days.  On September 5, 2017 the City Commissioner of the Revenue found that 21 cities define transient as “90 days or less”, 2 defined transient as 60 days or less, 13 as 30 days or less, 1 of not more than 365 days and 1 did not have a transient tax.  

 

Bullet #2

Section 58.1-3703 (A}{7} does not permit a locality to require a business license for a rental property, whereas the Lexington Ordinance requires a business license for a short-term rental. The legislation directs the City to cease requiring a business license for short-term rentals and to refund the business taxes improperly collected to taxpayers.

It is accurate to say that Section 58.1-3703(C)(7) is intended to exempt landlords who own the property that they rent from paying a business tax.  It is also abundantly clear that 58.1-3703(C)(7) does allow a locality to require a business tax of homeowners who provide lodging to transients (tourists, travelers, etc).  The problem of making this distinction can easily be framed: when one stays at an AirBnB are they a tenant?  Is the operator a landlord?  The language used by those websites is “host” and “guest”.  Those are terms associated with lodging and not residential tenancy.  This practice is transient tenancy; this practice is running a business; it is clearly taxable under § 58.1-3703(C)(7).   The REALTORS don’t raise an issue that above a certain duration (e.g. 30 days) the tax is improper, they claim it isn’t proper for any duration (which position is wholly untenable).  However, the inconsistency in the state code, as referenced above, and the duration limit for the Transient Occupancy Tax, at least raise a question as to what the appropriate limit of transient occupancy should be.  This is a question that could be resolved if the legislature had the will and invested the time to clarify and codify the distinction between transient and residential occupancy.

To the extent that anyone argues that § 58.1-3703(C)(7) doesn’t allow the requirement of a business tax for transient lodging, it would be important to know that the City of Lexington has been requiring business licenses for transient lodging since before it became a City (January 1, 1966).  Prior to 1966, Lexington was a town, and the City has records from the Town Treasurer that indicate business licenses were required on hotels, tourist homes etc. as early as 1954.   Our ordinance is simply a continuance of a policy going back 50 years. 

 

Bullet #3

Section 15.2-983 expressly states that any locality may establish a rental registry for short-term rentals in its ordinance that can accomplish the same goals the City had in establishing a business license. Section 15.2-983 does establish certain exemptions from the registration program including hotels, real estate licensees, bed and breakfasts and other entities that are already regulated by localities, so there would not be a double registration program. State law authorizes a locality to charge a reasonable fee associated with the registration program.

As we have explained, and as is self-evident from the language of the code, a locality “may” establish a registry, but is not required to establish a registry.   Nothing in this statute or elsewhere in the code would suggest that localities aren’t completely free to decline to establish a registry, and to continue to regulate the provision of transient lodging in the way that they have historically.

 

Bullet #4

Section 58.1-3825 limits the City of Lexington to imposition of transient occupancy tax to lodging or short-term rentals "less than 30 days", whereas the Lexington Ordinance imposes this tax on short-term rentals "90 days or less". Apparently, the City claims it is "grandfathered” so this state law would not apply, but the City has produced no legal authority for that position. If such legal authority exists, the City should produce it. In the absence of confirmation of such legal authority, the legislation directs the City to cease imposing taxes in excess of that permitted by state law and to refund the taxes improperly collected to the taxpayers.

The City of Lexington’s definition of transient was “90 days or less” prior to the ordinance change.  Cities are allowed to define transient as not more than 90 days and counties are allowed to define transient as not more than 30 days.  On September 5, 2017 the City Commissioner of the Revenue found that 21 cities transient definition was “90 days or less”, 2 defined transient as 60 days or less, thirteen as 30 days or less, 1 of not more than 365 days and 1 did not have a transient tax.   Section 58.1-3825 limits short-term rentals to “less than 30 days”.  I believe the less than 30 days in this code was established to be in compliance with the County being limited to 30 days. 

 

 

Bullet #5

Section 15.2-2311 requires any notice of an alleged zoning violation be given to the property owner with at least a 30-day period to remedy the alleged violation, with a notice of a right to appeal to the Board of Zoning Appeals, whereas the Lexington Ordinance only provides the property owner a 14-day period to remedy the alleged violation and does not give the property owner notice of their right to appeal.  The legislation directs the City to conform its ordinance to state law.

The VAR response is incorrect in its interpretation of state code Section 15.2-2311. Appeals to Board.  That section of state law provides any person that has received a notice of violation from the zoning administrator, a right to appeal the notice of a zoning violation or written order within 30 days.  There is no mention of a time period to remedy a violation and only considers the appeal of a claimed violation.

All Lexington notices of violation include a statement of the owner’s right to appeal within 30 days to the Board of Zoning Appeals as is required in Lex City Code Sec. 420-18.2.C.    

Furthermore, an appeal shall stay all proceedings of the claimed zoning violation unless there is imminent peril to life or property per Sec. 15.2-2311.B.

 

Bullet #6

Finally, the Lexington Ordinance limits short-term rentals to one house that is owner-occupied in residentially zoned districts.  The Lexington Ordinance even limits a property owner from renting more than one bedroom in that one house.  There is no state law that permits the City to do any of this and therefore, the legislation directs that the City delete those limitations from its short term rental ordinance.

Section 420-11.3 of the Lexington zoning ordinance includes a number of use and design standards for 45 Nights or Less Rentals to limit the impacts those businesses may have on surrounding properties in an effort to promote the general welfare in those residential districts.  Standard B(5) specifically limits a host to operating only one residential dwelling unit in all of the residential zoning districts (R-1, R-2, and R-M) citywide as a 45 nights or less rental. 

The Lexington ordinance does not limit a property owner from renting more than one bedroom in that one house.  In fact, up to two bedrooms may be rented for up to 104 nights in a calendar year with the owner present during the rentals while the owner has further flexibility to rent out more than two bedrooms and not be present during the rental period for up to 45 nights in a calendar year.

State law does exist that provides cities and towns the ability to promote the general welfare of our citizens as found in § 15.2-1102.  A municipal corporation shall have and may exercise all powers which it now has or which may hereafter be conferred upon or delegated to it under the Constitution and laws of the Commonwealth and all other powers pertinent to the conduct of the affairs and functions of the municipal government, the exercise of which is not expressly prohibited by the Constitution and the general laws of the Commonwealth, and which are necessary or desirable to secure and promote the general welfare of the inhabitants of the municipality and the safety, health, peace, good order, comfort, convenience, morals, trade, commerce and industry of the municipality and the inhabitants thereof, and the enumeration of specific powers shall not be construed or held to be exclusive or as a limitation upon any general grant of power, but shall be construed and held to be in addition to any general grant of power.

Those additional powers granted by the state’s relatively new short term rental rules are not exclusive and do not limit Lexington’s general grant of power.  This is further supported by subparagraph D of the short term rental rules that were adopted in early 2017.

Sec. 15.2-983.D. Except as provided in this section, nothing herein shall be construed to prohibit, limit, or otherwise supersede existing local authority to regulate the short-term rental of property through general land use and zoning authority. Nothing in this section shall be construed to supersede or limit contracts or agreements between or among individuals or private entities related to the use of real property, including recorded declarations and covenants, the provisions of condominium instruments of a condominium created pursuant to the Condominium Act (§ 55-79.39 et seq.), the declaration of a common interest community as defined in § 55-528, the cooperative instruments of a cooperative created pursuant to the Virginia Real Estate Cooperative Act (§ 55-424 et seq.), or any declaration of a property owners' association created pursuant to the Property Owners' Association Act (§ 55-508 et seq.).

General conclusion (from City): In all significant respects, Lexington’s ordinance is allowable within the law.  If we cannot resolve this issue with the REALTORS lobby, we have the option of requesting opinions from the Attorney General’s office on these issues, as well as the option of filing for a declaratory judgement from a court to make a determination of these issues.

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