Bill 108 is Now An Ordinance -How Will It Affect Vacation Owners and New Buyers?

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With months of wrangling behind us and the dust now settling, the County of Hawaii has passed Bill 108 and it is now an ordinance, which lays the ground rules going forward for everyone who owns short term vacation rentals on Hawaii Island.

According to the ordinance, “short-term vacation rental” means a dwelling unit of which the owner or operator does not reside on the building site, that has no more than five bedrooms for rent on the building site, and is rented for a period of thirty consecutive days or less.

As a new buyer, you will only have the ability to create a short term vacation rental business if you either (a) buy a property in a resort, hotel, or commercial zone; or (b) buy a property in a neighborhood with residential or agricultural zoning that qualifies for a non-conforming use permit, has applied within six months of the effective date of the Act, and keeps the permit valid.

If you are considering purchasing a condo in West Hawaii for use as an investment property or to use as a short term vacation rental either until you can move to the island permanently or as an income stream while you are not on island, most condos are located in zones which allow short term rentals and you should be ok, although, please check with your Realtor to ensure the complex is in the zone.

If you are looking to buy a single family home to operate short term rentals, you have to ascertain if the current owner has taken the steps to obtain a certificate giving them the right to operate in that neighborhood. This is possible if the home was ALREADY in use as a vacation rental BEFORE the ordinance took effect and that the County director has deemed that the home has been in compliance with the rules and restrictions of being a “good neighbor” with noise and parking issues. If you are reading this and you currently own a vacation rental, as of April 1, 2019 you must register your rental(s) by October 2019.

This is the time to ensure you have all your building permits in order and to pay your 2018 TAT and GE taxes as owners must show evidence that they have paid transient accommodations tax and general exercise tax on their rental income, that they are current on property taxes, and that the dwelling being rented has final approvals on all permits.

For those of you with your rentals showing on AirBnB and VRBO and other sites, the tax is now 14.689%. Also the state requires you to have your license number posted on your listings. The tax office is actively scouring all listings on all islands and sending compliance demand letters to those without GE and TAT numbers listed.

If you were thinking about buying a rental home now, no new vacation rentals will be allowed in residential or agricultural zones, so it is already too late to buy a home that has never been rented and market the property on Airbnb or, or buy vacant land and build a home with the intention of renting it out for short term vacation use. You won’t be able to get a permit and will be subject to fines by the County if you get caught running an illegal rental business.

Rules and Regulations of the New Ordinance

Short term rentals shall only be established within a dwelling that has been issued final approvals by the building division for building, electrical and plumbing permits.

All STVR have to register by submitting a required form that will verify that:

  • Hawaii state general excise tax and transient accommodations tax licenses are in effect and County property taxes are paid in full.
  • Certification that the requisite amount of parking pursuant to 25-4-52, is available.
  • Submittal of a site plan showing the rooms for rent and requisite parking.
  • Verification that notification letters from nonconforming use applicants have been sent to all owners and lessees of record of all lots of which any portion is within three hundred feet of any point along the perimeter boundary of the short-term vacation rental property. The notification letter shall provide detailed information about the short-term vacation rental operation including: number of units being rented; maximum number of guests permitted; number and location of required parking spaces; and instructions on how to submit complaints to the planning department about the subject rental operation.

Upon change in ownership, the new owner shall notify the director of the change in ownership and provide contact information for the reachable person. Registration shall automatically continue, subject to termination by the new owner. Any short-term vacation rental that has not lawfully registered within the deadlines shall be considered an unpermitted use and subject to the penalties until such time as proper registration and compliance with applicable requirements are obtained.

Key point to note: All print and internet advertising of short-term vacation rentals, including listings with a rental service or real estate firm, shall include the registration or non-conforming certificate use number.

If your short term vacation rental is located in an area that outside a permitted zoning district prior to the effective date of this ordinance, the owner needs to obtain a short-term vacation rental nonconforming use certificate in order to continue to operate, and this certificate needs to be reviewed annually at a cost of $250 to be paid to the director of finance. ALSO, the director needs to see evidence that the short term vacation was in use as a rental prior to the ordinance and that all the permits are in place. To prove the dwelling was used as a short term vacation unit, tax documents can be used.

If your permit is denied, you can appeal the decision, which is worth taking the time to do if you are considering selling your home in the near future, as a legal permit will be a key selling point with the house. Just like a restaurant, all permits need to be in a place where they are easily seen by any inspector.

Click the link for more information and to read the ordinance directly, go to: HawaiiCountyOrdinance

How will this affect home values in the short run?

Lance Owens, LUVA Realtor and immediate past President of the West Hawaii Association of Realtors, (WHAR), pointed out some ramifications of this new ordinance. “WHAR was trying to get “subdivisions” that have always allowed short term vacation rentals legally and had them recorded in their CC&Rs, to continue. The County would not budge on this one. I fear this may create lawsuits when the rules take effect, which will pretty much bring sales to a halt, driving values down tremendously, because banks don’t lend to buyers if the HOA is any type of a lawsuit”, Owens stated.

Basically, it would mean only buyers who could pay cash could purchase in these instances. Owens feels that this scenario will further hurt local buyers and create an unfair opportunity for mainland “cash” investors to come in and scoop up these properties. Owens pointed out the “pros and cons” of the ordinance saying that the pros are that the ordinance protects subdivisions and condo complexes that have always banned short term vacation rentals. (ie: Pualani Estates, Pines, Lokahi Makai, Kailu View Estates and many more.) It may also add a few homes that were operated illegally in these areas as vacation rentals to the long-term rental market, which is very much needed.

The “cons” he believes is that the ordinance will take away significant value to a property which was purchased legally with the intent to utilize it as a vacation rental and it impedes upon homeowners rights – which, as Realtors, we do our best to uphold private property rights.

If you have a rental home and you need a property management company that can abide by the rules of being able to be “reachable” within and hour by phone and at the property within 3 hours, as the new ordinance makes clear, consider LUVA Real Estate. We would be happy to discuss including your property in our LUVA Vacation Rentals portfolio.