L.A.’s New Short-Term Rental Ordinance

Los Angeles has finally addressed short-term rentals with a new ordinance. The ordinance comes in response to the increase in short-term rental activity—thanks in large part to the popularity of sites like Airbnb and Home Away—and addresses registration of short-term rentals as well as the tax requirements for operators.

“The issue of short-term rentals has been discussed by city officials for many years and has been considered by the City Council at length,” Andy Starrels, a Los Angeles-based attorney and member of the West Coast Land Use and Environment Group, tells GlobeSt.com. “The impetus was really one of necessity. Short-term rentals, defined as occupancy of all or part of a residential property for less than a 30-day term, are presently prohibited in most areas of the city. So without the new ordinance, home-sharing activity on platforms such as Airbnb was technically illegal.”

In addition to the dated definition of a short-term rental, the city was also being skirted potential tax revenues from these pseudo businesses. “The city had no mechanism to collect lodging occupancy taxes on short-term rentals, which are collected in many other municipalities,” says Starrels. “So the city had an incentive to permit, with conditions, short-term rentals at the same time as many residents wanted to be able to lawfully conduct short-term rental activity. Against this backdrop, several constituencies remain very concerned about short-term rental activity – for its potential to constrain the supply of rental housing, especially affordable housing, and for the risk that expanded short-term rentals will impair the character and nature of residential communities.”

Most notably, the new ordinance permits short-term rental activity, the legality of which had long been debated. It also outlines how short-term operators should register their property and comply with local tax laws. “First and foremost, their hosting activity will now be permissible, as long as they register with the city and follow the necessary procedures,” says Starrels. “They will have to collect and pay the applicable taxes assessed on their activities just as other lodging providers like hotels and motels do. In the past, the city had no way to collect these taxes because the hosting activity wasn’t allowed.”

While the ordinance says that hosts are ultimately responsible for collecting the tax, Starrels imagines that hosting platforms, like Airbnb, will likely collect the tax on behalf of the host. “Now we expect that many of the online platforms that facilitate hosting will in fact collect the necessary taxes from guests and help hosts with the necessary reporting and payments to the city,” he explains.

In addition to taxes, the new ordinance implements other regulations, including the number of days that an owner can rent a property and what qualifies as a short-term rental. “The new ordinance also places limits on the number of days per year that a host may conduct short-term rental activity and prohibits a host from operating at multiple properties within the city at one time,” Starrels says. “In basic terms, the ordinance permits a host to use only their primary residence for short-term rentals for no more than 120 days per year. Short-term rentals are still not permitted in second homes or properties owned for investment in most areas of the city. Additionally, rent-stabilized or rent-restricted housing may not be used for short-term rentals. And, apartment residents and other tenants must obtain their landlord’s consent for short-term rental activity.”

For landlords, the ordinance also provides new guidance. Specifically, that renter’s need the landlord’s consent to operate a short-term rental. “The ordinance confirms that a tenant cannot engage in short-term rentals of leased property without their landlord’s consent,” explains Starrels. “Moreover, the ordinance will provide comfort to landlords that home-sharing or short-term rental use of a rent-restricted unit will not result in tenants obtaining a “windfall” by profiting from the lower rent collected on the regulated unit.”

Landlords have had many concerns about short-term rentals, including how guests will impact surrounding tenants and the facilities at a property. “Many landlords also remain concerned that increased arrivals and departures of short-term rental guests at their properties will place a strain on management resources, personnel and maintenance needs if a multifamily property once occupied by non-transient residents becomes more like a hotel,” says Starrels. “Those property owners and managers now have the affirmative right to prohibit short-term rental activity by their tenants.”

If a tenant is listing a property as a short-term rental without the owner’s consent, the landlord now has recourse under the new ordinance. “The ordinance also affords a convenience to landlords who desire to prevent short-term rental activity at their properties: landlords can file a notification with the Department of City Planning confirming that short-term rentals are not permitted at a given address,” says Starrels. “We recommend that those landlords make this filing with the Planning Department when the ordinance takes effect next year and amend their lease forms to confirm that short-term rental activity is not permitted at the property.”