Pennsylvania Supreme Court Upholds Local Ordinance Prohibiting Short-Term Rentals in Residential Zoning District | Practical Law

Pennsylvania Supreme Court Upholds Local Ordinance Prohibiting Short-Term Rentals in Residential Zoning District | Practical Law

The Supreme Court of Pennsylvania held that an owner of a single-family home violated a local zoning ordinance by using the property exclusively as a short-term rental. The opinion departs from a series of decisions by the Commonwealth Court of Pennsylvania supporting homeowners' rights to participate in the expanding short-term rental market, especially through online platforms like Airbnb, HomeAway, and Vrbo. While the Commonwealth Court has been reluctant to interpret zoning ordinances to prevent property owners from offering their homes for short-term rental, the Supreme Court refused to accept as a legal basis that uses not expressly prohibited in a zoning ordinance must be permitted.

Pennsylvania Supreme Court Upholds Local Ordinance Prohibiting Short-Term Rentals in Residential Zoning District

by Practical Law Real Estate
Published on 13 May 2019 • Pennsylvania, USA (National/Federal)
The Supreme Court of Pennsylvania held that an owner of a single-family home violated a local zoning ordinance by using the property exclusively as a short-term rental. The opinion departs from a series of decisions by the Commonwealth Court of Pennsylvania supporting homeowners' rights to participate in the expanding short-term rental market, especially through online platforms like Airbnb, HomeAway, and Vrbo. While the Commonwealth Court has been reluctant to interpret zoning ordinances to prevent property owners from offering their homes for short-term rental, the Supreme Court refused to accept as a legal basis that uses not expressly prohibited in a zoning ordinance must be permitted.
On April 26, 2019, in Slice of Life, LLC v. Hamilton Township Zoning Hearing Board, the Supreme Court of Pennsylvania held that a municipal zoning ordinance clearly and unambiguously excluded purely transient uses of property in a single-family residential zoning district, including short-term rental uses ().

Background

The subject property (Property) is a single-family home located in Hamilton Township in the Poconos and was owned by Slice of Life, LLC (Slice of Life), a Pennsylvania single-member limited liability company. Slice of Life's sole member never lived at the Property or considered it his personal residence. Instead, Slice of Life was a special purpose entity formed to purchase the Property as an investment property to be used exclusively for short-term rentals.
The Property is in a district under the Hamilton Township Zoning Ordinance (Ordinance) that includes single-family detached dwellings as a permitted use. A "dwelling" is a building or structure to be used as "living quarters for one or more families," but does not include "hotel, motel, rooming houses, or other tourist home." "Family" is defined in the Ordinance as "one or more persons, occupying a dwelling unit, related by blood, marriage, or adoption, living together as a single housekeeping unit and using cooking facilities and certain rooms in common." "Single housekeeping unit" is undefined in the Ordinance.
Slice of Life's sole member, a New York real estate investor, advertised the Property for a minimum of two nights and a maximum of one week through HomeAway and Luxury Stay, both internet-based home reservation companies like Airbnb. Slice of Life rented the Property 25 times in a single year.
In 2014, a Township zoning officer issued an enforcement notice ordering Slice of Life to stop using the Property as a hotel/transient rental facility in violation of the Ordinance.
Slice of Life appealed the enforcement notice to the Township's zoning hearing board. While Slice of Life denied that the Property constituted a hotel or "transient boarding house," its member admitted that people who rented the Property could be considered "transient," and that he operated the Property as a business that paid Pennsylvania's hotel occupancy tax.
Evidence was presented at the hearing that the use of the Property threatened public health, safety, and welfare, including numerous neighbor noise complaints to police. The record includes allegations of nudity, lewd conduct, public urination, bonfires, fireworks, and loud parties at the Property, and a suggestion that the Property's septic system was inadequate for the number of people regularly occupying it.
The board denied Slice of Life's appeal. It concluded that the Property violated the Ordinance as part of a transient lodging business enterprise typical of a hotel or motel operation. The Monroe County Court of Common Pleas affirmed the board's determination that the Property was being used as a short-term transient lodging business in violation of its zoning for single-family use.
Slice of Life then sought relief in the Commonwealth Court, which has jurisdiction over most appeals from local government actions. Following a string of similar holdings (see Legal Update, Pennsylvania Commonwealth Court Continues to Reject Local Efforts to Restrict Short-Term Rentals), the Commonwealth Court determined that the Ordinance was ambiguous and had to be strictly construed in favor of Slice of Life and the broadest use of the Property. Specifically referencing Airbnb, the Commonwealth Court, while acknowledging that website rental platforms have expanded possible uses of single-family units, ruled that municipalities cannot "shoe-horn" existing ordinances to fit uses not contemplated by their drafters.
The housing board and the Township appealed the Commonwealth Court's decision to the state Supreme Court. The Supreme Court accepted jurisdiction.

Outcome

The Supreme Court unanimously reversed the Commonwealth Court's decision and reinstated the zoning hearing board's decision. The court also expressly overruled two recent Commonwealth Court decisions (Shvekh v. Zoning Hearing Bd. of Stroud Twp., 154 A.3d 408 (Pa. Cmwlth. 2017) and Marchenko v. Zoning Hearing Bd. of Pocono Twp., 147 A.3d 947.A (Pa. Cmwlth. 2019) that both held that:
  • A zoning hearing board has an obligation to construe the words of a zoning ordinance as broadly as possible to give the landowner the benefit of the least restrictive use when interpreting its own ordinance.
  • Any doubt as to undefined words or terms in the ordinance must be resolved in favor of the landowner and the least restrictive land use.
While confirming the legal principal that zoning ordinances are in derogation of a person's property rights and must be strictly construed, the Supreme Court ruled that undefined words and phrases that appear in a zoning ordinance are to be given their plain and ordinary meaning (see 1 Pa. C.S.A. § 1903(a)).
The court's analysis included an "excluded-unless-expressly included" standard because a single-family home can be used in as many ways as the imagination allows (citing a restaurant, bed and breakfast, school, halfway house, and pigeon sanctuary, among other examples), and imposing a burden on drafters to define all terms in zoning ordinance is an impossible task.
The court concluded that Slice of Life's use of the property was purely transient in violation of the Ordinance and that the requirement that courts strictly construe an ordinance does not mean that they must ignore uses that clearly fall outside those that are permitted by an ordinance.

Practical Implications

This decision can be interpreted as a defense of traditional residential neighborhoods against property investors using web-based short-term rental platforms to exploit for profit outdated municipal zoning codes defining single-family use. The decision is also a clear rebuke to the Commonwealth Court for eroding Supreme Court precedent for keeping purely transient uses out of residential zoning districts.
The Supreme Court appears intent on establishing public policy for municipal control over short-term rentals. The court also heavily relied on evidence presented before the zoning hearing board that the operation of the Property created a serious threat to the health, safety, and welfare of innocent neighbors which is within the municipality's police power to prevent.
Although web-based short-term rental operators and residential property owners who use those services may have taken a hit in Pennsylvania with this decision, the issues are far from resolved. While local governments could take a certain amount of comfort that undefined terms in their zoning ordinances will not automatically doom enforcement, it is also clear that because of internet-based businesses, transient occupancies have already infiltrated traditionally residential neighborhoods and need to be regulated, if at all, according to local community standards.
The application of this decision to home sharing is also unclear. In this case, Slice of Life's sole member was an industry-savvy New York investor who never spent a single night at the Property. The decision does not specifically address another common scenario of a property owner renting a room or only a portion of a dwelling while serving as on-site host, although the issues of transient and single-family use zoning restrictions on this type of short-term occupancy may also apply to these fact patterns.
Nationwide, Airbnb and similar web-based businesses have long been providing reasonably priced hotel alternatives, with no hint that they are a passing fad. In fact, hotel operators like Marriott are joining the vacation home market in a strategy to gain market share by capitalizing on brand name recognition and operational economies of scale. New disruptors, like WhyHotel, are using web-based platforms to rent units short-term during the lease-up phase of new apartment buildings.
It may also now be possible for homeowners to apply short-term rental income from a principal residence in refinance applications, which is an additional incentive for property owners to open their homes to strangers for a price (see Legal Update, Lenders to Consider Airbnb Income from a Principal Residence in Refinance Applications).
Even though the Pennsylvania Supreme Court has interpreted a zoning ordinance to prevent a property owner from offering an investment property for short-term rental in a residential zoning district, the decision took five years winding through the courts. Local governments, in Pennsylvania and nationwide, should consider enacting appropriate legislation to deal with the burgeoning short-term rental market rather than seeking relief through litigation.
The case also adds to the ongoing debate around the country about the best methods for managing the growth of short-term rentals fueled by Airbnb and similar services. For examples of various approaches, see Legal Updates:
For more information on short-term rental websites and regulation, see Legal Update, To Host or Not To Host: The Shared Housing Question.