What Are Short Term Rentals In Hawaii?
Hawaii’s islands are among the most sought-after vacation spots in the world. Offering things to do and see for nearly everyone, the state’s popularity has increased the demand for a greater range of visitor accommodations, in particular for short-term rentals as they are often more affordable than traditional hotels and offer features that make them desirable to tourists such as full kitchens, laundry facilities, and multiple rooms. Although there is no single universally-accepted definition of short-term rentals (STRs), they are generally defined as lodging in a dwelling unit or partially-occupied dwelling for less than 30 days (or whatever is the minimum stay required under Hawaii law). The advent of STRs has been primarily facilitated by global online platforms such as Airbnb, VRBO, and HomeAway which offer peer-to-peer marketing and rental transactions of STRs. As such rental transactions are facilitated via internet-based platforms , STRs are sometimes referred to as ‘online short term rentals’ (or ‘OSR’s) or ‘internet short term rentals’ (or ISRs). Separately, some owners even rent out their properties via the more traditional method of placing newspaper ads.
Because STRs provide greater rental returns with substantially lower business operating costs than for short-term rentals, owning and operating a STR can be a lucrative option for property owners. In addition to generating income for owners, STRs also provide benefits to state and local governments by promoting the local economy through expenditure by visitors. STR guests typically spend twice the amount that a traditional hotel guest spends on goods and services as guests at STR must often rent a vehicle to travel to and from recreational venues, eat out at restaurants and fast food outlets, and shop at local businesses. The tax revenue generated from STR guests who participate in state and county tax programs can be substantial.
Short Term Rentals Defined In Hawaii
To establish the legal definition of a short term rental, we look to Hawaii’s Revised Statutes (HRS) § 237D-1.5. Under that statute, a single-family home rental is considered short term if the average period of rental occupancy is less than 180 days. For multi-family residences or condominium units (as defined by HRS §§ 514A-3 and 514B-3), a short term rental is defined as an average period of occupancy of less than 90 days. The key to all of this being legal, however, is that they must be unhosted rentals.
A typical short term rental in Hawaii averages five days. This is appealing to many because it allows them to maximize their income for returning guests; however, this is also what drives most areas to restrict or limit rentals.
There have been cottage industries that build up around these short term rentals, but they are businesses. Any business that is located within a residential zone comes with scrutiny and concerns from the community. Many communities see out-of-state owners renting to out-of-state managers and they see no benefit for residents who have contributed to the economy of the area. They also see nuisance issues and fears of parking problems for their friends and family who come to visit.
Existing Hawaii Short Term Rental Laws And Ordinances
Short-term rentals in Hawaii are regulated on both the state and county levels. The majority of counties require a valid permit and may limit the number of permits to be issued for short-term lodgings within their borders. In addition, some counties and municipalities in Hawaii primarily restrict short-term rental activity to designated resort zones. These regulations may place restrictions on activities such as advertising, although most counties observe general trend in enforcement, with counties usually providing warnings first.
In Hawaii County, permits are required for short-term rental use under the zoning code. If a short-term rental property is in a resort or resort district, no additional permits are required. However, if the property is not in a resort or resort district, the short-term rental must obtain a short-term vacation rental permit. Hawaii County observes a "regulated rental time-frame" season, which runs from September 1 to June 14. A short-term vacation rental is a dwelling unit rented for a period between 30 days and one year. These rentals must be registered at the Department of Finance for a fee of $500. The maximum number of short-term vacation rental certificates issued is capped at 2,000. As of June 2015, 797 permits had been granted. The fee is based on the number of bedrooms and the size of the units.
The county’s minimum occupancy requirement is a ten-day rental and with a minimum rate of $25 per night. The maximum occupancy for a short-term vacation rental is ten persons, and one additional person for every bedroom beyond three, capped at 14. Short-term vacation rentals must be inspected annually. Taxes are imposed on short-term rentals at a rate of 8.25 percent plus an additional 3 percent, meaning a total of 11.25 percent. However, in transmitting collected taxes the County keeps only 1 percent and transmits the rest to the state. Violations may lead to a fine up to $1,000 for the first, and up to $10,000 for subsequent violations.
Maui County requires a bed-and-breakfast home permit. If short-term rentals are being conducted at a hotel, no permit is required. Short-term vacation rentals must also pay a $100 application fee, an $800 permit fee and an annual renewal fee of $500. If a bed-and-breakfast home rental is located in an apartment or multi-family neighborhood, applicants must prove that the business is allowed under restrictive covenants or deed restrictions.
In addition, owners of bed-and-breakfast homes are required to maintain a log of all visitors, their names, dates of stay and contact information. The owners of these establishments are also required to post and enforce a strict no-visitor policy after 10 p.m. or 11 p.m., depending on their location. The county charges taxes at a rate of four percent, plus an additional nine and a half percent. The entire tax amount is remitted by the county to the state. Violations may lead to a fine up to $1,000 for the first violation and up to $5,000 for the second. Depending on the severity of the violation, the county may revoke performance of the permit. Maui County has observed 611 active bed-and-breakfast home permits as of June 2015.
Honolulu regulates short-term rentals under its short-term rental ordinance, requiring a zoning permit that is separate from the license to operate. In order to obtain a permit, owners must show proof of space reserved offsite for parking (if not provided at the rental unit) and written documentation showing that the owner has obtained a nonconforming use certificate for apartments or single-family dwellings. Owners of short-term rentals must pay annual fees of $500 for the permit and $600 for the license to operate, as well as taxes at a rate of 9.25 percent. Violations can lead to a fine of up to $1,000 for each day of violation.
As of June 2015, the county observed 303 active short-term rental permits around the island. Of the 3,500 active vacation rentals around the island, approximately 80 percent of them are believed to be operating in violation of the law.
Hawaii County Laws Governing Short Term Rentals
Each Hawaiian island, and within each island, each county has its own regulations, including occupancy restrictions, permitting processes and fees. Here we detail the requirements that are currently in effect in each county for short term rentals:
Until mid 2019 the only island in Hawaii where short term rentals were not strictly prohibited was the Big Island (Hawaii). At that point in time both Hawaii County (the Big Island) and Kauai began issuing permits for short term rentals subject to certain restrictions, while Maui County (which includes Molokai, Lanai and the uninhabited Kaho’olawe) remained the only one that had a full ban in effect.
As of March 2019, Hawaii County has issued 93 short-term rental licenses (STLicenses) on a first-come, first-served basis. STLicenses are valid for three years. Permits may be renewed at the end of the licensing period. In these three other islands short-term rentals without permits are strictly prohibited. Hawaii County requires permit holders to comply with the following restrictions: Although Kauai County (Kauai) has a full ban on short term rentals in place until September 2019, it plans to issue 180 licenses to residents who successfully submit applications during the pre-licensing period (now until September 2019). Kauai’s regulations will apply after a licensing period begins, including the following restrictions: The County of Maui (Maui) and the Islands of Lanai and Molokai all currently prohibit short term rentals, however Maui County is currently considering new regulations. The new measures will be voted on shortly, so stay tuned for further updates. If passed, the proposed regulations would include the following restrictions: On the small but beautiful islands of Molokai and Lanai, short term rentals are only permitted to those individuals who have received a transient accommodation license from the state of Hawaii. This license is effective for one year and may be renewed annually thereafter. Such license is issued by the Department of Taxation (DOT). In addition, individuals must obtain a permit from the appropriate county where the property is located. However, they are not required to apply for a building permit if the dwelling already exists and complies with the construction and building rules of the appropriate county.
Overview And Summary Of Recent Hawaii Short Term Rental Laws
Over the past few years, there have been a handful of significant legislative changes impacting short term rentals in Hawaii. The State and local governments have introduced new rules and regulations, amendments, and clarifications to existing regulations related to licensing, taxation, and restrictions on short term rentals, including a few bills that failed and therefore have not yet become law.
In 2019, the Honolulu City Council adopted Bill 89, establishing a new online registration site for short term rentals. It required hosting platforms to collect and remit taxes on both transient accommodations tax (TAT) and general excise tax (GET) for all transient accommodations listed on their websites, and it established fines for non-compliance. Bill 89 also established that transient accommodations would be deemed illegal unless the operator (including hosting platforms) presented a registration number that was recorded on the property tax map key, and it established an annual fee for such registration. Areas zoned for "bed and breakfast homes" could operate without having to record the registration number on property tax maps, as bed and breakfast operators are currently required to do.
On January 1, 2020, the County of Hawaii implemented Bill 108 (2019), establishing a new online registration portal for short term rentals, through which short term rental operators and websites hosting or facilitating short term rentals are required to register and obtain a registration identification number. Previously, short term rentals in the island’s visitor destination areas, defined as Waikoloa Beach, Maui-Kaiminani, Kailua-Kona, and Volcano, were defined as resort zoning districts permitting bed and breakfast uses only. Under the new law, bed and breakfasts would be permitted only in one-unit dwellings, except in service commercial zoning districts, with a 180-night minimum stay or longest term permitted by applicable county laws. In addition, prior to January 1, 2021, the County will survey the public for comments and prepare a report to the State legislature requiring changes to the revision of Chapter 281C, HRS (the TAT law) to provide for the collection of GET for short term rentals beginning January 1, 2021.
In the 2019 session of the Hawaii Legislature, several bills were introduced related to "transient accommodations handling agents," a newly defined term limiting a property manager’s license as a transient accommodations broker or agent. The 2019 bills (HB 1133/SB 1444) would have limited transient accommodations handling agents to booking services and other specified limited services, and expressly prohibited transient accommodations handling agents from collecting any payment for goods or services. The bills did not pass. Similar bills were introduced in 2018 (SB 2361/HB 2304), as well as a measure imposing the TAT on hosting platforms.
There is also currently legislation pending in the Hawaii legislature that would amend the state land use law by establishing a special management area use permit for short term rentals, and would define short term rentals and expressly subject them to County ordinances.
More recently, in February 2020, the Hawaii State Department of Taxation published proposed amendments to its regulations requiring tax-identifying information on 1099 forms issued by hosting platforms and proposed a new Chapter 238, HRS. The proposed rules would require hosting platforms to collect and remit both the applicable TAT and GET on behalf of any operator (including property owners or managers) earning more than $2,000 in gross rental proceeds per year.
Amendments to the County of Kauai Planning Department regulations went into effect September 12, 2019, emphasizing that transient vacation rentals in the county after this effective date are restricted to two guests per bedroom and may not book more than six consecutive days, regardless of the hosts’ license type. However, the amendments also allow transient vacation that were registered prior to January 1, 2019, to operate as a whole-home transient vacation rental instead of a bed and breakfast home.
General Guidance On How To Follow Hawaii Short Term Rental Laws
All short term rental activity in the state must have a current registration certificate before conducting business, and shall have a current tax map key number displayed on all listings. All short term rentals must be reported on short term rental activity reports, which are to be filed with the Department of Planning and Permitting (DPP) on a monthly basis. Hosts must pay the appropriate fees and taxes and remit them to the State of Hawaii and County where the rental is being offered as appropriate for the rental.
To date, DPP has only issued short term rental registration certificates to Tiers 1 and 2 registrants. Tier 3 registrants must receive a valid certificate from DPP before a short term rental is offered . There are 3 tiers, with Tier 1 registrations indicating properties with nonconforming use, under a building permit, or hosted short term rentals. Tier 2 registrations indicate transient occupancy with nonconforming status. Reservations with either Tier 1 or 2 registration may close when the property becomes unavailable. Tiers 1 and 2 registrations do not require proof of property use in the 180-day period prior to July 1, 2022. Tier 3 registrations must demonstrate proof of short-term rental use in that period prior to receiving a certificate.
Short term rental registration in Kakaako must be renewed annually. Registrations last for two years in urban areas of Oahu.
DPP offices are now open to the public and are accepting applications for short term rentals. An online portal is also available.
Consequences Of Not Obeying Hawaii Short Term Rental Laws
A range of penalties may be levied for violations of Hawaii’s short term rental laws. If a violation is found, the county conducting the administrative hearing shall recommend an appropriate fine to the council, which may range between $1,000 and $10,000. These penalties are applicable to the entire state of Hawaii.
A separate avenue for criminal prosecution of a short term rental is available under Hawaii County Code – Section 10-3. An individual who violates any provision of this chapter or any rule, regulation, order, permit, license, certificate, map, certificate of occupancy or subdivision approval required by this chapter shall be fined not more than $2,000 for each offense. The fines shall continue to fines for each day the violation occurred. In addition to the fines mentioned above, the county may institute proceedings to prohibit the short term rental of residential property.
The county may also institute a civil action for the recovery of civil penalties in a court of competent jurisdiction.
Future Developments Relating To Hawaii Short Term Rentals
A number of state-wide initiatives have been launched over the past several years. These initiatives intend to have a statewide uniformity in regulation of the short term rental industry. As this is an ongoing and moving piece of legislation, as is the short term rental industry, shifting political attitudes and evolving economic pressures will determine the trajectory of future legislation. While there remains uncertainty in how this development will play out, we can logically predict that with the continual pressure and encouragement of having uniform state-wide regulations, the State will eventually enact something of this nature.
As for property owners’ rights, there is a statewide rental cap, which legally limits the number of days each property can be rented short-term. The current rollout, however, does not include an enforcement mechanism. If a property owner rents their property more than the allotted days, someone would have to file a complaint with the county to enforce the limit, which would be difficult to administer and costly to the counties. Statewide enforcement should increase efficiency of the regulatory process and bring the number of violations down.
There is also the risk that there is over-regulation of the industry which will drive short term rentals to illegal party properties or causes the industry to head underground as it has in many cities nationally. Without enough legal, affordable and accessible hotels and lodging options, the effect of over regulation could be flight risks to other countries.
As we look to the future state of short term rentals in Hawaii, we find that while we cannot predict exactly what will happen, as a community we can stay cognizant of local and state happenings to be in a position to effectively maximize profits and legally operate our businesses.
Takeaways
In conclusion, navigating Hawaii’s short term rental landscape requires a thorough understanding of the various competing legal frameworks that affect these businesses. Interested entrepreneurs should carefully review the Hawaii County and Maui County Municipal Codes, the Department of Transportation regulations and the applicable County ordinances to determine where these laws impose conflicting obligations. The planning and building permit requirements for short term rentals are different in each county and have substantially different application procedures, deadlines and fees . As the final section above highlights: the rules constantly change, and not always in ways that are logical to people from the outside. The various agencies involved may even be unaware of the applicable rules and their enforcement powers. Consequently, prospective applicants must make every effort to confirm all relevant information before investing large sums of money into changing the use or building permit process.