Dingeman Dancer

Local Regulation of Short-term Rentals in Michigan

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Author: Dane Carey

Short-term rentals have become ubiquitous in the tourist dominated parts of Michigan. The rise of Airbnb, Vacation Rentals by Owner, HomeAway and other online sites has opened up a new industry where homeowners can connect directly with guests to offer accommodations. In recent years, however, Michigan’s municipalities and courts have started to take action to curb the availability of short-term vacation rentals.

Unlike several other states that preserve the rights of homeowners to rent their homes as vacation rentals, Michigan has yet to enact a statewide system to protect those rights or regulate short-term rentals uniformly. As a result, Michigan has become a patchwork of municipal zoning and police power ordinances regulating or outright banning the practice. The rules vary dramatically for property owners throughout the State, and it has made short-term rentals a particularly hot topic in Michigan.

In January, the Michigan legislature introduced House Bill 4046 to amend the Michigan Zoning Enabling Act. This legislation is the same bill introduced last term (HB 4503). If passed, the new legislation would:

  • Eliminate local governments’ ability to regulate rentals of 28 days or less.
  • Declare that all short-term rentals constitute a residential use of property, allowable in all residential districts.
  • Prohibit additional regulations (e.g., permits, licenses, rental registration, inspections, etc.) for short-term rentals unless all other dwellings in the zoning area are also subject to the requirements.

Although there are legitimate reasons to be concerned about the impact of this bill on local zoning legislation, the positive aspects seem to outweigh the negatives. Chief among these are uniformity of regulations throughout the State, preservation of property rights, and increased availability of lodging and accommodations for the public. Assuming the bill does not pass, then the status quo of patchwork local regulation will continue for the foreseeable future.

In northwest Michigan, several municipalities have restricted or prohibited the ability of homeowners to use their property for short-term rentals. These municipalities have done so through two types of ordinances: zoning and non-zoning. And each mechanism presents interesting legal issues that could leave the local regulation open to challenge in court.

Some local governments, such as East Bay Township in Grand Traverse County, have elected to regulate short-term rentals using non-zoning ordinances, sometimes called “police power” or “regulatory” ordinances. This type of ordinance may only be used for purposes of regulating the public health, safety, and general welfare of persons and property. The authority to adopt such ordinances is implied under the Michigan Constitution, art 7, § 34, and expressly granted by the Township Ordinances Act, which provides, in part: “The township board . . . may adopt ordinances regulating the public health, safety, and general welfare of persons and property.”

The use of non-zoning ordinances to regulate short-term rentals is problematic because a police power ordinance is not permitted to regulate the “use of land.” Instead, such ordinances are generally limited to regulation of “activity.” For example, police power ordinances often address motor vehicles, health and food safety, signs, blight, junk, and noise. But importantly, when a local government regulates these issues, it may not designate where the activities are located.

Land use regulation, on the other hand, is a zoning function. When a municipality wants to regulate the use of land, it is required to go through the process of creating and adopting a zoning ordinance. This includes hearings, notices, adherence to a master plan, appeals, and various other procedural and substantive requirements that are not required for a non-zoning ordinance. The more cumbersome process needed to create and adopt a zoning ordinance is designed to place many legal protections on regulating the use of land, because as a nation, we place a high value on private property rights.

For this reason, a zoning regulation is precluded from being retroactive. In other words, existing land uses and activities must be allowed to continue. Although Michigan case law is still unclear, short-term rentals arguably qualify as a “use of land” subject to zoning, as opposed to an “activity” that can be regulated by non-zoning ordinances. This is especially true given the justification that a local government must have in support of a police power ordinance.

To determine whether a particular item qualifies as a non-zoning activity, it is necessary to look at the result that the local government is trying to achieve. When a township or city wants to prohibit short-term rentals, it is typically doing so because of the adverse activity that accompanies short-term renting. This includes things such as increased traffic, excessive noise, or unwanted trash. The act of renting for a short period of time itself is not the issue—it is the negative externalities associated with this practice.

Short-term renting does not harm the public health, safety, and general welfare of persons and property. Although increased traffic, excessive noise, and unwanted trash might sometimes result from short-term renting, the power of a local government to regulate through a non-zoning ordinance arguably only extends to those activities, and not to the act of short-term renting itself. The idea is nuanced, but important.

Perhaps for this reason, most local governments have elected to regulate short-term rentals through zoning. But this also presents an important legal challenge. As mentioned above, a zoning regulation does not prohibit the use of land that is already occurring. Existing land uses and activities are “grandfathered” for as long as that use continues. These are called prior “nonconforming” uses, buildings, or parcels. “A prior nonconforming use is a vested right in the use of particular property that does not conform to zoning restrictions, but is protected because it lawfully existed before the zoning regulation's effective date.”[1]

When zoning ordinances are used to regulate or prohibit short-term rentals, the issue of nonconforming use comes into play. Homeowners using their property for short-term rental purposes at the time of the zoning enactment could assert that they have a vested right to continue that use. Municipalities facing this question have argued that their preexisting zoning ordinances have always prohibited short-term renting, and therefore the use could not be prior nonconforming. “To be protected, the nonconforming use must have been legal at one time; a use that violates the zoning ordinances since its inception does not draw such protection.”[2] The question, therefore, becomes whether short-term renting is authorized under previous zoning regulations.

This is an argument that played out in Garfield Township in Grand Traverse County. In 2015, the Township updated the Township’s zoning ordinance and explicitly prohibited short-term vacation rentals in a certain residential zoning district. A group of homeowners claimed they held a prior nonconforming use to utilize their properties a short-term rentals. In response, the Township argued that short-term rentals were never permitted under the previous zoning ordinance, precluding the owners from holding a prior nonconforming use.

This issue was eventually appealed to the Michigan Court of Appeals.[3] The key question in this case—which is similar to the question that would arise in any municipality—was whether short-term renting was included in the definition of single-family dwelling, a use permitted by right under the previous zoning ordinance. If the term included short-term rental properties, then the homeowners' use would be prior nonconforming and allowed to continue. If a single-family dwelling did not include short-term rentals, then the use would not have been allowed under the previous ordinance and would not qualify as a prior nonconforming use.

Ultimately, the Court of Appeals reviewing the Garfield Township ordinance held that short-term rentals did not qualify as a single-family dwelling and were thus prohibited under the previous ordinance. Many local governments around the State have seized upon this opinion to conclude that short-term rentals are not permitted under the definitions of single-family dwelling, residential dwelling, or other such terms used in their zoning ordinances. This is not necessarily the proper conclusion to draw from the Court of Appeals’ decision in the Garfield Township case, however.

Indeed, the Court’s decision turned on the specific definitions in the Garfield Township zoning ordinance, which defined single-family dwelling as a “dwelling unit designed for exclusive occupancy by a single family which may be detached or semi-detached” and dwelling unit as a “building or portion thereof designed exclusively for residential occupancy by one (1) family, and having cooking facilities.” The zoning ordinance further defined family to include relationships of a “non-transient domestic character,” but to exclude those “whose domestic relationship [was] of a transitory or seasonable nature or for an anticipated limited duration of a school term or other similar determinable period.”

Because short-term rentals are inherently transitory, the Court held that the particular definition of single-family dwelling in the Garfield Township plainly prohibited short-term rentals. If the zoning ordinance definition did not expressly include domestic relationships of a “non-transitory” character and expressly exclude those of a “transitory or seasonal nature,” then perhaps the Court would have decided the case differently. Regardless, the main factor in whether short-term rentals would be deemed prior nonconforming uses in other municipalities is whether the use is allowed under the specific language of the zoning ordinance in each municipality.  

In short, the status of short-term rental regulations in Michigan is far from clear. The pending legislation before the Michigan Legislature could help resolve certain issues, but in the meantime, the patchwork of local zoning and non-zoning ordinances will present interesting legal questions and inevitable challenges.

If you have any questions or would like to learn more, please contact any of the municipal attorneys at Dingeman & Dancer. Dane Carey can be reached my phone or email at (231) 929-0500 or dcarey@ddc-law.com.

Footnotes

[1] Lyon Charter Twp v Petty, 317 Mich App 482, 489 (2016).

[2] Id.

[3] Concerned Property Owners of Garfield Township v Garfield Township, No. 342831 (Mich Ct App Oct 25, 2018) (unpublished opinion).

 

 

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