Legal Changes in Favor of Short-Term Renting

10.13.2021

Author: Attorney Eric S. Johnson

Short-term renting is generally defined as renting a home for a period of time less than 30 consecutive days. Occupants use the home for tourist (i.e. transient) purposes, rather than full-time residential occupancy. Short-term renting is growing in popularity as a way for homeowners to supplement their income by renting out rooms in their home or as way to pay for the purchase of a vacation home when it is not occupied by the owner. Online platforms, such as VRBO and Airbnb are making it easier for homeowners and tenants to connect.

Short-term renting often faces resistance from neighboring homeowners. They allege that short-term occupants are louder and less courteous than full-time occupants. This has led to a variety of efforts to prohibit or limit short-term renting by local governments. Recent developments in the law have shifted the balance in favor of homeowners engaging in short-term renting.

Many local governments have zoning ordinances that restrict the use of land in a residential district to “single-family dwellings.” Dwellings are then defined as “any building designed or used exclusively as a residence, but not including boarding or lodging houses, motels or hotels.” Historically, zoning boards argued that this language prohibited short-term renting because the occupancy was less like a single-family dwelling or more like a hotel.

In the case of Heef Realty & Investments, LLP v. City of Cedarburg Bd. of Appeals, (2015 WI App 23, ¶ 10, 361 Wis. 2d 185, 192, 861 N.W.2d 797, 801), the Wisconsin Court of Appeals determined such zoning ordinances did not prohibit short-term renting. The Court reasoned that only a single family could occupy the dwelling at a time, regardless of whether many different families would occupy the dwelling over the course of one month. Hence, even a property engaging in short-term rentals is used as a “single-family dwelling.” The Court ruled, since public policy favors the free and unrestricted use of real estate, the local governments need to expressly ban short-term renting in their ordinances by prohibiting tenancies less than a certain duration.

A couple years after the Heef Realty case was decided, the Wisconsin Legislature passed a statute (Wis. Stat. § 66.1014) that limits the ability of cities, villages, towns and counties to enact or enforce an ordinance that prohibits the rental of a residential dwelling for 7 consecutive days or longer. The statute allows local governments to limit to 180 days in any 365-day period the total numbers of days a residential dwelling is rented for periods of more than 6 but fewer than 29 consecutive days. Rentals for periods less than seven consecutive days may be prohibited.

Wis. Stat.§ 66.0615 gave authority to municipalities to impose and collect a tax on the privilege of furnishing rooms or lodging to transients (the “room tax”). The room tax was to be collected from the occupant. This was made difficult by the use of online short-term rental platforms because the owner of dwelling may have no or little contact with the occupant. Changes to Wis. Stat.§ 66.0615 required marketplace providers like VRBO and Airbnb to collect the room tax on occupancies, unless they receive a waiver from the municipality. A municipality may not collect the room tax from the owner of the dwelling if the municipality collects the room tax from the marketplace seller.

Taken together, these changes lift many restrictions on engaging in short-term renting and make the process easier for those that do. It is important to keep in mind short-term renting can still be prohibited or restricted in many circumstances. Local governments can ban short-term renting for periods of less than 7 consecutive days. Local governments likely could fashion limitations on even short-term rentals for more than 7 consecutive days, so long as they stop short of outright banning the rental. Short-term renting may also be banned or restricted in condominium documents, subdivision covenants or deed restrictions, which are not subject to the limitations on local governments.