LAYING DOWN THE LAW
Christopher J. Charles, Esq.
SCOTTSDALE ENACTS NEW ORDINANCE REGULATING SHORT TERM RENTALS
Reports estimate that as many as 4,300 residential properties in the City of Scottsdale are utilized as short-term rentals. Another report estimates that as many as 3% of all homes in Scottsdale are short-term rental properties. Short-term rentals emerged in popularity in the Valley around the time that Glendale last hosted the Super Bowl in 2015 (also the same time that online platforms like VRBO and Airbnb began exploding in popularity). Since at least that time, City of Scottsdale officials have wrestled with finding the best solution to regulate short-term rentals while also protecting owners’ property rights. Managing the tension created by the competing interests of neighbors in residential communities alongside the interests of owners, investors, and property managers has proven to be complicated. In many ways, the City of Scottsdale has led the way for other municipalities on the topic of short-term rental regulation. For that reason, many officials in other cities across the state have waited with bated breath for Scottsdale to pass its ordinance regulating short term rentals, especially after the enactment of SB 1168. See https://www.providentlawyers.com/three-strikes-youre-out-short-term-rental-violations-are-going-to-count/
On October 25, 2022, the City of Scottsdale Council unanimously adopted Ordinance 4566 aimed at providing appropriate oversight of short-term rental properties in Scottsdale. This new law is important not just because of the large number of short-term rental properties in Scottsdale, but because it is predicted that many other local jurisdictions will soon enact local ordinances that are closely modeled after Scottsdale’s new ordinance. Below is a summary of the key provisions of Ordinance 4566.
Short Term Rental Operators Must Obtain a Vacation Rental License
This new law has teeth. First, the new law requires any short-term rental operator to apply for and obtain a vacation rental license in order to engage in short term rental operations. Indeed, “effective January 8, 2023, no person shall operate a vacation rental or short-term rental in the city without first having obtained a current vacation rental license from the city and paying the applicable fees. A separate current vacation rental license is required for each house or dwelling unit where a vacation rental or short-term rental is operated.” Ordinance 4566. The license is valid for one year from the date of issuance and the license is not transferable either as to location or as to person. And a separate license is required for each property. The license application must state the property address, the contact information for the owner, the contact information for the owner’s designee, and the telephone number for the individual person who will serve as the emergency contact. The owner must agree to comply with all applicable laws, and the owner must attest that they are not a registered sex offender and that they hold a valid transaction privilege tax (TPT) license.
The City May Suspend the Vacation Rental License Due to “Verified Violations”
Per the new law, the city may suspend a license if the owner receives three verified violations within a 12 month period. For the purpose of the ordinance, “verified violation” means a finding of guilt or civil responsibility for violating any state law or local ordinance relating to a purpose prescribed in A.R.S. Sections 9-500.39(B) or 9-500.39(K) that has been finally adjudicated.
Or the city may suspend a license for a single violation that results in one of the following:  a felony offense committed in the vicinity of the property;  serious injury or wrongful death that occurs in the vicinity of the property;  knowingly housing a sex offender, allowing offenses related to adult-orientated businesses, sexual offenses, or prostitution, or operating and maintaining a sober living home; or  knowingly using the property for an unauthorized special event that would otherwise require a permit.
If the owner receives notice of license suspension, the new law provides the opportunity for appeal. And importantly, the violation must be “verified,” meaning that the owner has to voluntarily plead responsible to the violation or a court hearing must occur, and due process must be observed, including the owner’s right to legal representation, presentation of a defense, and exhaustion of appeals.
Owners May Be Assessed Fines for Violations
The ordinance also provides for steep fines if the owner fails to timely respond to an emergency within one hour. “In the event of an emergency” means any time police, fire or other public safety personnel respond to a vacation rental or short-term rental for a call for service including responding to a nuisance party or unlawful gathering. Failure to respond to the call within one hour results in a fine of $500 and failure to arrive to the property results in an additional fine of $250.
Owners Must Carry Adequate Liability Insurance
Also, the new law requires owners to carry primary liability insurance coverage of at least $500,000 for the short-term rental property. (This author recommends considering policy limits of at least $1,000,000.) If the owner does not already have an existing insurance policy with express coverage for short term rental operations, the owner should immediately call their insurance broker today to obtain coverage.
Further, the ordinance requires the owner to place a written notice, prominently displayed in the property, that includes the following language:
USE OF THIS PROPERTY FOR ANY OF THE FOLLOWING PURPOSES IS PROHIBITED;
VIOLATORS MAY BE SUBJECT TO SUBSTANTIAL PENALTIES:
1. Any commercial, industrial, manufacturing, or other non-residential purpose; or
2. Operating a retail business, restaurant, event center, banquet center or similar use; or
3. Housing sex offenders; or
4. Operating or maintaining a structured sober living home; or
5. Selling liquor, controlled substances or pornography; or
6. Operating any adult-oriented business including nude and topless dancing; or
7. Any uses prohibited under A.R.S. § 9-500.39, or federal, state or local law; or
8. Any use that constitutes a substantial disturbance of the quiet enjoyment, and peace,
health, safety or general welfare of private or public property through a nuisance party or unruly
gathering, including, but not limited to, excessive noise or traffic, obstruction of public streets by
crowds or vehicles, public drunkenness, the service of alcohol to minors, fights, disturbances of
the peace, litter, spirituous liquor served to, or in the possession of, or consumed by any minor,
or where illegal drugs are in the possession of, or consumed by, any person.
9. The occupancy of this premises is limited to a single family of one to six adults and, if
any, their related dependent children as defined in Appendix B, Sec. 3.100 of the Scottsdale
10. None of the following may occur where such acts may reasonably be viewed by the
public whether at ground level or from a reasonable vantage point of a nearby property, such as
a deck or balcony:
a. Urination or defecation;
b. Nudity; or
c. Sexual acts.
Owners Must Comply With Strict Sex Offender Background Checks
Also, the new law requires strict adherence to sex offender background checks. “No later than twenty-four (24) hours before every stay the owner or owner’s designee shall perform a background check on the person booking the short-term rental through the online national sex offender public website operated by the U.S. Dep. of Justice….” Violation results in a minimum $1,000 fine.
Owners Must Notify Neighbors of Their Short Term Rental Operation
Further, the ordinance requires owners to provide certain notice of the short-term rental operation to all neighbors adjacent to the property and directly and diagonally across the street from the short term rental property.
The City May Assess Accelerated Fines for Multiple Violations
And finally, Ordinance 4566 provides for accelerated fines for multiple violations of the ordinance:  the first violation in a 12-month period results in an additional fine of $500 or an amount equal to one night’s stay as advertised, whichever is greater;  a second violation is $1,000 or two night’s rent; and  a third violation is $3,500 or three nights rent.
This new law aims to be a game changer regarding short-term rental operations. Many questions still remain unanswered regarding the provisions of the law, but what is clear is that short-term rental operators should prioritize obtaining their short-term rental license and take reasonable precautions to avoid renting their property to the wrong people. Owners and property managers should also require all guests to agree to their own short term rental agreement, including rules and regulations, in addition to any terms and conditions required by their online platform provider such as VRBO.
If you or someone you know has questions regarding this new ordinance, or any other issue involving short term rentals, including how to obtain a short-term rental agreement, call our office today to schedule a consultation with Christopher J. Charles.
Christopher J. Charles is the Founder and Managing Partner of Provident Law ®. He is a State Bar Certified Real Estate Specialist and a former “Broker Hotline Attorney” for the Arizona Association of REALTORS ® (the “AAR”). In 2017, Mr. Charles obtained one of the Top Ten Civil Verdicts for his client in a real estate dispute. Mr. Charles holds the AV ® Preeminent Rating by the Martindale-Hubbell Peer Review Ratings system which connotes the highest possible rating in both legal ability and ethical standards. He serves as an Arbitrator and Mediator for the AAR regarding real estate disputes; and he served on the State Bar of Arizona’s Civil Jury Instructions Committee where he helped draft the Agency Instructions and the Residential Landlord/Tenant Eviction Jury Instructions. Christopher regularly teaches continuing education classes at the Arizona School of Real Estate and Business, and he can be reached at Chris@ProvidentLawyers.com or at 480-388-3343.