Legal Landscape:

Short-term rentals utilizing websites like Airbnb have been around for a while now, but since the Covid outbreak, they’ve exploded in popularity. More and more people are looking for vacation destinations that don’t involve leaving the country or traveling on a densely populated cruise ship.

This unprecedented popularity is beginning to strain communities around the U.S. especially homes on lake shores or in close proximity. Local authorities that initially allowed STRs now find themselves in a tug of war between those who want to maintain the serenity of their neighborhoods and entrepreneurs attempting to exploit residential properties for financial gain.

Battleground:

The battleground where this occurs is within the text of local zoning ordinances, where language defines the contours of allowable land uses, versus Michigan state statutes, where overzealous politicians attempt to rewrite the law to benefit realtors, their most generous political contributors.

Airbnb, Vrbo, and other websites catering to STRs have grown into a billion dollar industry. Their tentacles have reached deep into peaceful neighborhoods around the globe frustrating property owners and spawning lawsuits. Four of these legal cases have played out in both Michigan’s appellate and supreme courts. Decisions rendered in these suits have established legal precedents that can now guide local townships’ efforts in restricting STRs simply by constructing binding zoning ordinances. The four most relevant cases are as follows:

Case # 1: Pigeon v Ashkay Island – March 2020:

The decision by Michigan’s Court of Appeals held that the defendants (rental owners) created a nuisance per se by violating the township’s zoning ordinance on STRs. The key takeaways from this case is a list of example restrictions that can be used to effectively regulate STRs.

1. A covenant that limits the use of property to residential use.

2. A covenant that prohibits commercial use.

3. A covenant that bans STRs

4. A covenant that prohibits an owner from engaging in an activity that constitutes a nuisance.

Case # 2: Eager v Peasley – Nov 2017:

The Michigan Court of Appeals ruled in favor of HOA’s rental ban on STRs. The majority opinion relied on several Michigan Supreme Court cases to conclude that that transient use of property as a short-term rental did not constitute “private occupancy” under the restrictive covenant. Additionally, the court relied on O’Connor v Resort Custom Builders, Inc, 459 Mich 335, 336; 591 NW2d 216 (1999), which held that interval ownership did not constitute a “residential purpose” under another similar restrictive covenant. The majority opinion held that defendant’s transient short-term rental usage violates the restrictive covenant requiring “private occupancy only” and “private dwelling” and that the language was unambiguous.

Case # 3: Reaume v Township of Spring Lake – May 2019:

The Michigan Court of Appeals ruled that plaintiff’s use of the property for short-term rentals was never permitted under the Township’s R-1 zoning. This is consistent with case law establishing that commercial or business uses of property—that is, uses intended to generate a profit—are generally inconsistent with residential uses of property.

Case # 4: Reaume v Township of Spring Lake – June 2020:

Reaume appealed to the Michigan Supreme Court after the court of appeals (above case) upheld the circuit court’s decision that the township did not make an error when denying the STR permit. It affirmed by stating: “Plaintiff’s use of the property for short-term rentals was never permitted under the Township’s R-1 zoning. This is consistent with case law establishing that commercial or business uses of property, generally meaning uses intended to generate a profit, are inconsistent with residential uses of property”. All of these cases reinforce that restricting STRs in some locations is a viable legal strategy for townships if the zoning ordinance is properly constructed. The language needed to protect residential neighborhoods from commercial enterprises is not overly complicated. Now, with legal precedent established by the Michigan Supreme Court, township boards are in a favorable position to move forward with restricting STRs when necessary.

Nonconformity:

Another element of a zoning ordinance that needs to be addressed is how the concept of nonconformity relates to STRs. A fundamental part of Michigan’s zoning law is that a zoning ordinance cannot be made retroactive. Simply put, if a usage of the property was legal before amending a zoning ordinance, then that usage is grandfathered. STRs that a township have permitted will, for all intents and purposes, retain that right of usage even after the property is sold – providing that the application continues to meet the terms of the prior ordinance. Nonconformity has dire implications for communities. Every STR approved by a township board prior to an amendment of the zoning ordinance will become permanent until the property can be brought to conformity.

Criminal Aspect of Airbnb:

Short-tem-renters' commit crimes at a rate that is concerning to the reputation of the STR industry. This caused Airbnb to establish a special unit to 'fix' the problems before any negative publicity took its toll. In a recent report, it was revealed that Airbnb has been spending approximately 50 million a year to keep crimes resulting from its renters out of the press. The criminal activities included rape, murder, and other severe misconducts. I’m not going to cite sources here because a simple Google search with the keywords “Airbnb crimes” will drive the point home.

Conclusion:

After the Michigan Supreme Court decision, the Airbnb and Michigan Real Estate lobby went to work on Michigan legislators. They understood that since the aforementioned court decisions upheld local governments long established authority concerning land use, the only way forward for them was to coerce lawmakers to rewrite the law - hence the crafting of HB 4722. 

Although 4722 never came up for a final vote in the Michigan Senate, it came dangerously close. At the time, Aric Nesbitt, Michigan's 20th Senate District, chaired the senate regulatory reform committee. Under the assumption that he would become the new Senate Majority Speaker if Republicans held control after the election, he pushed 4722 out of his committee with a favorable vote. If republicans had kept control of the senate after the 2022 election, as Speaker, he would have been able to emphasize the passing of 4722. The real estate lobby was a strong supporter of Aric Nesbitt's campaign.