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FEDERAL CASE FILED FOR MOLOKAI VACATION RENTALS

Monday, July 13, 2020 7:50 AM | Jen Russo (Administrator)


Caption: The Molokai Happy House where many Molokai Residents and Visitors have enjoyed staying for over 15 years

HONOLULU: Late Friday, July 10, 2020 the Maui Vacation Rental Association (MVRA) along with 4 homeowners on Molokai filed a lawsuit in federal court against the County of Maui seeking to reinstate their permits to operate as Short-Term Vacation Rentals.

On March 10, 2020 Maui County passed Bill 22, signing into law Ordinance 5059 that set the Molokai legal, short term rental cap to zero. This, effectively, canceled the operations of 17 families, the existing reservations for visitors with plane tickets, and the jobs of some Molokai residents, on December 31, 2020. Many of these homes had operated legally for 15 years or more. Many had permits saying they could operate into 2021. 

=“Litigation was our last resort. We met with County Council members, with the Mayor and with the Planning Department. Ultimately, they were not able to protect these Molokai property owners and residents.” said Jen Russo, Executive Director, Maui Vacation Rental Association. “Reluctantly, we decided we must stand for fairness and for abiding by the Constitution. This is about creating good policy, we all benefit from that.”

The case is being handled by Attorney Terrance Revere, of Revere and Associates Honolulu, who filed a lawsuit in Federal Court on behalf of the affected homeowners and the Maui Vacation Rental Association.

It is stunning that a County with 1/3 of its population unemployed would still be engaging in an anti-small business agenda while promoting off-island corporate interests. We are taking this action because even though my homeowner clients did nothing wrong and had no complaints against them, the County decided to make the number of STRH’s permitted on Molokai to be zero.  Instead of grandfathering in existing permit holders, they told my clients-- with no due process whatsoever-- that their STRH permits were being yanked away,” says Revere. 

The case asserts that under state and federal law the County violated the permit holder’s right to due process. Also, many of these legal vacation rental home owners will have to answer to potential claims from the renters they must now cancel. 

Most people on Molokai didn’t even know it was on the table to shut them down. Some prominent business owners didn’t even know they are no longer allowed. I am still getting Molokai people wanting to book short term homes for next year and I have to tell them sorry, Molokai people don’t want them, don’t you know?” Dayna Harris of Molokai Vacation Properties, one of the affected businesses on Molokai, exclaimed.

“We are encouraged by the community outpouring of support for the legal vacation rental program, especially now when small businesses are hurting”, says Greg Mebel, President of the MVRA. When the Planning Commission recently heard a question about lowering the caps on STRH permits, it spurred one of the highest numbers of attendees to a Planning Commission meeting ever, via a virtual Blue Jeans video conference (at times over 200). A Planning Department sponsored STRH feedback session, held earlier this year, was attended by so many the Department scheduled an encore second session to accommodate supporters. Subsequently, the Planning Department decided not to pursue a phase out of the legal vacation rentals. 

Recently, legislation has been proposed that would take away short term rental rights from hundreds of legally operating condo owners. “While the MVRA always prefers to work with local policy makers, we’ve been forced to also raise a legal fund. Condo owners have been calling the Planning Department for information. Then they call MVRA and ask what can be done, how can they join?” says Terry Tolman, former Executive Director of the Realtor’s Association of Maui and current MVRA Chairman.

“This (Molokai) case should protect short-term rental operators in Maui, which is why our members are coming to the aid of the Molokai 17”, continued Terry, “Many fear they’ll be next.”

“There is a lot of frustration locally with high costs of living and lack of affordable housing, which we understand. That frustration has created attacks on legal vacation rentals that are simply not supported by facts. Unfortunately, these attacks won’t affect the problems they’re supposed to solve,” adds Jen Russo. “The members are prepared financially to go all the way with this lawsuit, but we sincerely hope we can resolve this amicably with the County long before then.” 

Summary of Legal Details

The lawsuit describes multiple violations with Ordinance 5059 (Bill 22): 

  • Ordinance 5059, and its application is inconsistent with and conflicts with other zoning provisions and County approvals that were granted and issued to the permit holders on Molokai. Ordinance 5059 violates Haw. Rev. Stat. § 46-4, which prohibits an amendment of a zoning law to prohibit a lawful pre-existing use, and it violates the Hawaii and United States Constitutional protections for non-conforming uses and vested rights

  • The permit holders went through a rigorous permitting process and made investments to rent properties pursuant to these provisions

  • Many Molokai residents and businesses are dependent on the tourism industry and have been harmed by the elimination or uncertainty surrounding these legal vacation rental homes in the resort areas, including house cleaners, landscapers, contractors, property managers, and booking agents.

  • Many other businesses, such as retail merchants, restaurants and activity providers, are also economically supported, in part, by these legal rentals

  • Ordinance 5059 will have a direct and substantial impact on Plaintiffs, its members and those similarly situated, who currently rent properties legally under the current regulations and desire to continue to do so

  • Ordinance 5059 is an unconstitutional restraint on property rights, its broad application unreasonably impairs previously granted property rights, and its application does not serve any legitimate public purpose or benefit.

  • The Ordinance 5059 is contrary to the express purpose of the Ordinance No. 3941 which is not only to: “retain the character of residential neighborhoods” but also “to allow for varied accommodations and experiences for visitors.”  In setting a cap of zero and revoking the permits that had already been granted, the Molokai Planning commission and the County Council failed to show any evidence that the permitted STRH properties had created any deleterious impacts on their neighborhoods beyond the unsubstantiated allegation that they impacted the availability of housing.

 

The Molokai Community Plan was adopted in 2018 and included an important component to expand complementary tourism markets, support limited growth of alternative lodging units, and support increased enforcement of the STRH ordinance. Less than 1% of Molokai’s residential housing has been granted an STRH permit to allow short term rental uses. This is in line with the goals set forth in the Molokai Community Plan. 

The plaintiffs ask the court to have declared invalid and enjoin the enforcement of Bill 22. 

The owners of vacation rentals on Molokai are being denied due process rights and not being treated equally under the law. The County of Maui has disparately regulated permitted and lawful vacation rentals, causing devastating economic impact on the owners, interfering with their investment-backed expectations, and intentionally discriminating against these owners. This amounts to a regulatory taking, entitling the owners to just compensation. 

Greg Mebel, President of MVRA, full statement: 

“We are encouraged by the community outpouring of support for a legal vacation rental program, especially now when small businesses are hurting.  When the Planning Department held a community forum asking whether the community supported STRH’s, so many people showed up to support, they had to have a second, impromptu session to give everyone a chance to enter the forum. When the Planning Commission recently heard a question about lowering the caps on STRH permits, attendance was among the highest ever to a Planning Commission meeting. They were overwhelmingly in support of maintaining a legal STRH program. Our community knows that this program is one of our strongest tools, to vet, tax, regulate, and control vacation rentals.  It’s how each neighborhood’s voice is heard. Our program leads the entire State.

On Molokai, this program was implemented, permitted, and relied upon for years. There were no complaints against the 17 permit holders there. Suddenly removing the program and telling those permit holders that their permits will terminate, some even before the expiration date, was neither constitutional nor fair. So, our group was forced to challenge that action. We met with Council members, Planning Department and the Mayor and did not make this decision lightly. In fact, it’s the first time our small group has had to create a legal fund.

Short term rental homes make up around 200 homes of the 54,000 plus (per last US census) households on Maui. This is 1 in 267 homes. All legal STRH’s have signs out front, with contact phone and permit numbers. It’s mathematically and clearly impossible for this group to adversely affect the characters or health of neighborhoods. 

The STRH program has built in safeguards against affecting home values. Only people who have owned their home for five or more years can apply. New home owners can’t apply for a permit.

There are an estimated 11,000 – 15,000 second homes on Maui. This is about 1 in 5 homes. At this concentration, second homes could affect whether a long-term neighbor “knows” who the new neighbor may be. Many second home owners have friends who come to stay in their place with rental cars. They may look like short term renters, but unlike permitted Short term rental homes, there are no regulations on these visitors. This is where we’ve seen a great amount of confusion.

Maui’s STRH regulations include a host of requirements that the property manager must enforce, like occupancy limits, quiet hours, parking restrictions, no parties, as well as safety checks to ensure that homes are safe for the visitors and those visitors do not impact neighbors. This is why there are virtually no complaints against legal, short term vacation rental homes (STRH’s). There simply is no empirical data suggesting STRH’s detrimentally affect neighborhoods. The STRH program on Maui took that into account when it was created.  On the contrary there is plenty of data showing the benefits of a regulated, balanced program. That’s why our County's stakeholders got together and created it in the first place.”

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