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Bill 41 (CO 22-7) – Oahu’s New Short-Term Rental Rules 2022 – Legal STR Properties

Bill 41 - Oahu Short-Term Rental Rules

Update 6.6.2022: The Hawaii Legal Short-Term Rental Alliance filed this lawsuit to try to block portions of Oahu’s new short-term rental rules Bill 41 (CO 22-7). Civil Beat reported it here. – Stay tuned for more…

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We saw it coming, on April 26, 2022, Mayor Blangiardi signed into law the final version of the controversial Bill 41 (CO 22-7).  We documented the audacity of earlier versions of the bill here.    

In summary, Bill 41 (CO22-7) brings these three most significant changes to Oahu:

  • 1) Rental terms of less than 90 days (formerly 30 days) in residential neighborhoods are illegal. Enforcement with hefty fines starts on 10.23.2022.
  • 2) Short-term rental properties (with rental terms of less than 90 days) must be registered and are subject to additional restrictions and requirements, including a $1K initial registration fee, and a $500 annual renewal fee.  
  • 3) Waikiki Banyan and Waikiki Sunset units are now all legal STRs, even the ones that don’t have a NUC.

See related article:  Guide to Condotels in Waikiki, Honolulu | Short-Term Rental Condos

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Which Properties Can Legally Advertise And Rent For Less Than 90 Days Per Tenant?

Rental terms of less than 90 days per tenant are limited to specific properties that are within one of these four categories:

1) Properties zoned “resort mixed-use” or “resort.” – This category includes the following legal STRs in Waikiki: Ilikai; Ilikai Marina; Waikiki Shore; Waikiki Beach Tower; Trump Tower; Ritz-Carlton; 2465 Kuhio; Marine Surf; Pacific Monarch; Bamboo; Luana; Regency On Beachwalk; Waikiki Grand Hotel; Cabana at Waikiki; Imperial Hawaii Resort; Kalakauan; Kuhio Village; Niihau Apartments; Royal Aloha; Seashore; Tradewinds Plaza;

also, in Ko Olina: Ko Olina Beach Villas; at Turtle Bay: Ocean Villas at Turtle Bay; and in Makaha: Cottages at Mauna’Olu.

 2) Individual properties with a NUC (Non-Conforming Use Certificate). – See all legal STR properties with NUCs: 793 NUC properties. The city stopped issuing NUCs in Sept. 1990.

 3) The condo building is grandfathered as a “non-conforming hotel” and exempt from the NUC requirement. – This category includes the following legal STRs in Waikiki: Aloha Surf; Hawaiian Monarch; Island Colony; Palms at Waikiki; Royal Garden at Waikiki;

also, outside of Waikiki in urban Honolulu: Ala Moana Hotel; Executive Centre.

4) Select properties allowed under Bill 41 within the “apartment precinct” and zone “A-1” and “A-2.” – This category includes the following legal STRs in Waikiki: Waikiki Banyan; Waikiki Sunset.

Waikiki - Banyan & Sunset
Waikiki – Banyan & Sunset

Also, in Ko Olina (subject to respective house rules): Kai Lani; Coconut Plantation; Ko Olina Kai Golf Estates; and the western sections of Ko Olina Fairways and Ko Olina Hillside Villas.

Ko Olina
Ko Olina

In addition, at Turtle Bay: Kuilima Estates.

Turtle Bay - Kuilima Estates
Turtle Bay – Kuilima Estates

That’s the universe of Oahu’s legal short-term rental properties.

See related article:  Waikiki Condotel Reality: Cash Flow vs Lifestyle

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Will The City Allow Special Rental Term Exceptions?

Some rental terms shorter than 90 days in residential neighborhoods may be allowed for temporary contract workers, traveling nurses, buyers and sellers waiting to close on new homes, others whose homes are undergoing renovations, and other special cases e.g., off-island family members who care for loved ones. This is subject to an application and approval process which the city will clarify before 10.23.2022.

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How Will The City Enforce The Rules?

Since 2019 when CO 19-18 (Bill 89) took effect, the city planned to hire seven more city inspectors. But due to a lack of funds, the inspectors never got hired. Hence the enforcement of CO 19-18 (Bill 89) was largely non-existent.

This time the city appears committed to hiring additional staff to aggressively monitor rental ads and wiping out illegal rentals. We will see how effective the DPP code enforcement will become.

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Will The New Rules Accomplish The Stated Goals Of Freeing Up Housing Stock And Improving Housing Affordability?

Bill 41 supporters forcefully argued that rental restrictions are needed to “get tourists out of residential neighborhoods” and to “increase Oʻahu’s housing supply by inducing owners to convert their short-term rentals to long-term rentals for local residents.” This is supposed to “improve housing affordability (!?)”

 “Extraordinary claims require extraordinary evidence.” ~ Carl Sagan

That sounds like a classic case of fluency heuristic. It’s an idea that can be explained simply and is easy to believe even though the simple-sounding idea is nonsense. E.g., building a train will not fix traffic congestion. Some will opt to take the train which will incentivize others to drive by car. It’s a variant of Parkinson’s Law applied to urban traffic. Dig a hole deep enough on the beach next to the ocean and it will fill up with water.

Then what results can we reasonably expect?

  • “Get tourists out of residential neighborhoods.” – It remains to be seen if Lanikai or the North Shore will indeed become less crowded with fewer rental cars.
  • “Increase Oʻahu’s housing supply… and improve housing affordability.” – Sounds like a noble goal we can rally behind, but will Bill 41 do the trick?

Perhaps enforcing the existing CO 19-18 (Bill 89) could have shut down some illegal STRs in residential neighborhoods. Regretfully, the DPP claimed to be overworked, understaffed, and proved to be ineffective. Will Bill 41’s tighter restrictions and additional requirements help ease the DPP’s challenges?

Just to be clear, I’m against illegal STRs in residential neighborhoods and fake 30-day rental contracts. But changing the threshold from 30 days to 90 days also comes with drawbacks.

As far as Bill 41 improving affordability? It is likely to disappoint and prove to be a misfit, a square peg in a round hole. It’ll do diddly squat to counteract the lack of affordable housing. We shall compare notes in the fullness of time. Housing values will remain what they have always been, elevated.

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What Are The Legal Challenges To The New Rules?

Some legal experts are objecting to the bill based on two concerns:

A) Could it be government overreach and illegal taking of long-standing constitutional property rights? The city modified the Land Use Ordinance and changed the definition of a Transient Vacation Unit from 30 to 90 days without protecting property owners’ continued lawful use of their property.

Both the Hawaii and Federal constitutions protect a pre-existing lawful use as a vested property right which cannot be taken away without due process of law.

H.R.S. Section 46-4(a) prohibits counties from using their zoning powers to adopt ordinances that prohibit “the continued lawful use” of a purpose for which the property was used at the time the ordinance was adopted.

Section 20 of the Hawaii Constitution, prohibits “damage” to property value and use without just compensation. Rentals offering stays between 30 and 90 days have been legal for decades. Private property owners expended substantial time, effort, and money acquiring and investing in monthly rental properties. Bill 41 severely damages, if not effectively destroys, the reasonable, investment-backed expectations of these property owners with no opportunity to continue the use through nonconforming use permits.

B) Could unfair favoritism establish hotels as a privileged class? That may have been one of the original primary hidden goals of Bill 41. Because hotels are not subject to the new regulation.

Bill 41 inappropriately penalizes legal short-term rentals in resort zones with the undue burden of excessive registration fees, additional restrictions, and administrative requirements while hotels are exempted.

Proponents of Bill 41 were pandering to the masses by promising to crack down on illegal short-term rentals in residential neighborhoods. However, penalizing legal B&Bs and TVUs in resort zones does nothing, zippo, zilch to advance the official stated goals.

— Attorneys are reviewing lawsuit precedents such as this one and preparing for legal actions. Stay in the know and sign up for our Blog updates.  

Sailboat - Sunset
Sailboat – Sunset

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What’s Next? 

Bill 2 (CO 22-6) took effect on March 28, 2022. 
Sellers of residential real property must provide to the buyer this Short-term rental (STR) disclosure form stating whether the property may be legally used as a STR.

1)  If the residential real property is being used as a short-term rental, the Seller shall provide the following evidence of legal use as a short-term rental to the Buyer before the execution of a real estate purchase contract by the Buyer:

  • The applicable government permit number, the NUC number, or the short-term rental registration number; and
  • Tax clearance certificates evidencing the current payment status of GET, TAT, and OTAT.

Further, within 7 days after the closing of the sale, the Seller must email the DPP (Department of Planning and Permitting) the completed form with supporting documentation to STR@honolulu.gov.

2)  If the Seller discloses that the property being sold may not be legally used as a STR, then the Seller only needs to check box #2 on the form and provide it to the Buyer. 

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Bill 4 (2022) is currently being deliberated.

Bill 4 proposes a separate property tax classification for B&Bs and TVUs that operate outside of the ‘resort mixed-use’ and ‘resort’ zone.

The city’s goal is to increase tax revenue by collecting a higher property tax from STRs that should not be classified as ‘residential’ or ‘residential A.’

Stay tuned for what the revised property tax rate will be.   

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The Silver Lining 

No doubt, Mayor Blangiardi’s stated intent to crush illegal short-term renting in residential neighborhoods is reflected in the recent legislation. Not stated is that Bill 41 and Bill 4 will blatantly benefit the hotel industry at the expense of legal STRs.

This new dynamic confuses some real estate investors in assessing the risk/reward balance of STR properties.

I have been an outspoken fan of legal STRs for wealth creation. We have assisted many buyers of legal STRs over the years. Congratulations to you if you bought the right property for the right reasons.

However, if you have been waiting on the sideline for the outcome of Bill 41 and Bill 4, don’t fret any longer. Because life is simple if you focus on what’s important.

Here are two reasons why the future profit potential for legal STRs looks bright:

  1. Hawaii will always be a top tourist destination for the ones that can afford it.
  2. Bill 41’s attempt to shut down illegal STRs will bring a net benefit to legal STRs.

See related article:  How To Improve Your Hawaii Condotel Rental Income

That’s why I just bought another legal Waikiki STR property just a couple of months ago. The glass is half full. Will you move forward this year and fulfill your dreams? You deserve it. ~ May you live well and prosper.

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— We don’t just write about this stuff. We are expert realtors specializing in representing buyers and sellers of real estate in any market condition. We are committed to providing the most excellent service available on the planet. We love what we do and look forward to assisting you too!

Contact us when you are serious and ready. We are here to help.

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Also…, we want to make this The Best real estate website you visit. We love to get your feedback on how we might improve. We are humbled by your support and remain committed to constant learning and growing with you.  ~ Mahalo & Aloha

Bill 41 (CO 22-7) – Oahu’s New Short-Term Rental Rules 2022 – Legal STR Properties was last modified: June 16th, 2022 by George Krischke
George Krischke
Principal Broker (R) Hawaii Living See my other articles

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10 Responses to "Bill 41 (CO 22-7) – Oahu’s New Short-Term Rental Rules 2022 – Legal STR Properties"

  • Garrett
    June 21, 2022 - 3:54 pm Reply

    Does this new lawsuit against Bill 41 put the Waikiki Banyan and Waikiki Sunset status as legal STRs carved out in Bill 41 in jeopardy if the Bill were to be defeated?

    • George Krischke, Principal Broker, Hawaii Living LLC
      June 23, 2022 - 2:18 pm Reply

      Aloha Garrett!
      Not likely, but nobody knows. The suit challenges only parts of Bill 41.
      If Bill 41 were to be defeated entirely, then Waikiki Banyan non-NUC units could still be legal STRs under the 10.22.2019 ruling for ‘Stipulation to Stay Proceedings’ originally filed on 8.1.2019.
      Not sure about the Waikiki Sunset non-NUC units.
      Some smart attorneys could weigh in and add clarity to this discussion. 😊
      We are only realtors and not attorneys.
      ~ Mahalo & Aloha

  • Kelly Alliger
    June 6, 2022 - 6:27 am Reply

    Thanks for the most detailed description of this new bill I have found out there. There are a few properties in this pink/resort zone (https://www.honolulu.gov/rep/site/dpp/str/STR_Waikiki.pdf) not mentioned so I’m wondering about the Kalakauan and Pavilion at Waikiki.

    If we bought a unit in either one of these and wanted to STR it, we would need to pay the permit/renewal fees, the specific STR taxes and that is all? If it wasn’t previously used as a legal STR, is there still a moratorium on new permits even if it’s in the resort zone?

    Mahalo!

    • George Krischke, Principal Broker, Hawaii Living LLC
      June 7, 2022 - 9:41 pm Reply

      Aloha and welcome back Kelly Alliger!
      We had communication in January regarding the Ilikai. 🙂
      — In case of inconsistencies between zoning and house rules, the more restrictive rules always prevail!
      We get countless emails from buyers that made the wrong purchase decision on incomplete or erroneous information.
      1) The Kalakauan is listed above as legal STR property because the house rules allow short-term renting, consistent with the zoning. That is unless a specific unit has been ‘dedicated for residential use,’ explained here: https://www.hawaiiliving.com/blog/new-rules-dedicating-condotel-residential-use/
      2) The Pavilion At Waikiki house rules prohibit STRs! 🙁
      Here is a picture from a notice posted in the Pavilion At Waikiki elevator lobby: https://www.hawaiiliving.com/blog/risks-of-short-term-vacation-renting/
      — There is no moratorium, provided a property meets all the STR legal requirements as outlined on our site.
      Call us when you are ready to proceed.
      We are here to help.
      ~ Mahalo & Aloha

  • Jia Kang
    May 28, 2022 - 11:23 pm Reply

    Some non conforming Condo Tels like Palms at Waikiki is also subject to $1K initial registration fee, and a $500 annual renewal fee? And also potentially pay higher tax under Bill 4?

    • George Krischke, Principal Broker, Hawaii Living LLC
      June 3, 2022 - 8:29 pm Reply

      Aloha Jia Kang!
      1) Non-conforming condotels that have been ‘grandfathered’ for hotel use in the apartment precinct, e.g. Palms At Waikiki, Aloha Surf, Hawaiian Monarch, Island Colony, and Royal Garden, are all subject to Bill 41’s $1K/$500 registration/renewal fees.
      2) However, the proposed Bill 4 (separate property tax classification) will not apply to these specific grandfathered condotels, because they are already being assessed the highest $13.90 Hotel/Resort property tax rate by default since CO 17-013 was signed into law in 2017.
      That is unless the individual unit has been “dedicated for residential use.”
      See details here: https://www.hawaiiliving.com/blog/new-rules-dedicating-condotel-residential-use/
      Let us know if there is anything else we can do for you.
      We are here to help.
      ~ Mahalo & Aloha

  • Takashi Misawa
    May 28, 2022 - 7:07 pm Reply

    As far as I know two properties in Ala Moana area are allowed to do a short-term lease (30 days minimum) such as One Ala Moana and Park Lane. Because of Bill 41, what do you think will happen to those two properties? Do you think their AOAO must follow this 90 days minimum guide line as well?

    • George Krischke, Principal Broker, Hawaii Living LLC
      June 3, 2022 - 8:10 pm Reply

      Aloha Takashi Misawa!
      The more restrictive rules always prevail!
      In the case of One Ala Moana, Park Lane, and others, Bill 41’s 90-day rental terms are more restrictive and prevail over AOAO/house rules that would have otherwise allowed 30-day rental terms.
      Let us know when you are ready to buy or sell again.
      That’s what we do best.
      We are here to help.
      ~ Mahalo & Aloha

  • Alex
    May 28, 2022 - 7:58 am Reply

    Aloha George. Thank you for detailed updates on Bill 41. I am an owner of a legal STR (Ilikai Marina) wondering if legal STR located in the Resort and Hotel zones on Oahu need to be registered separately under Bill 41?

    Any other changes that affect legal STR in the Resort zones? Mahalo

    • George Krischke, Principal Broker, Hawaii Living LLC
      June 3, 2022 - 8:11 pm Reply

      Aloha Alex!
      All STRs must get registered under Bill 41 and are subject to the initial $1K registration and $500 annual renewal fee afterward. That includes your Ilikai Marina unit in the Resort Mixed Use zone.
      Except, current NUC units are subject to renewal on October 1, 2022, and every two years after that (last two-year renewal fee was $600 in 2020).
      Bill 41 also requires that you prove that you are current on your GET/TAT/OTAT payments and carry $1Mill liability insurance. The city will let us all know how/what/where we need to provide that and anything else before October 23, 2022, that’s the day Bill 41 is expected to take effect.
      The entire Bill 41 is here: https://hnldoc.ehawaii.gov/hnldoc/document-download?id=13949
      We will see how effective the city will be in implementing the new rules.
      — Your Ilikai Marina unit is in the Resort-Mixed-Use zone. So your property taxes will remain the same at $13.90.
      For all other STRs outside of the ‘resort’ and ‘resort-mixed use’ zone that are currently being assessed at the lower ‘residential’ and ‘residential A’ rate, the proposed new Bill 4 is expected to raise property taxes shortly.
      As mentioned, the situation is fluid. Stay tuned for updates.
      We are here to help.
      ~ Mahalo & Aloha