When does a house stop being a house? (And start being an office or a hotel?)

When is a house not a house anymore?

The subject of real property ownership has long been settled in the United States. Property is held in fee simple subject only to the four basic powers of government over real property; the power to tax; to escheat (claim by right of abandonment); power of eminent domain (right to take real property by payment of just compensation), and the police power. This last is the most important and draws on the states’ rights to enforce regulations for the betterment of public health, safety, morals and general welfare.

This last power of government, the police power, is what gave rise in 1929 to the landmark case over zoning rights known as Euclid v. Ambler. The Supreme Court ruled in Euclid that zoning land use was a reasonable extension of the police power and had a rational basis for its enactment. Interestingly at the time, Ambler did not show cause that the zoning negatively impacted its property value, so the court concluded that no taking had occurred. Since that time, zoning powers have proliferated throughout almost every city in the U.S. Florida also enacted the Bert J. Harris Jr. Private Property Rights Protection Act, which aside from state or federal taking claims, seeks to protect property owners from regulations that inordinately burden, restrict or limit private property rights.

When you own a property in fee simple, you posses six fundamental rights: the right to sell, mortgage, lease, occupy, subdivide ownership interests, or do nothing. These six rights are called the “bundle of rights.”

What does all this boring law and history have to do with your house?

Let’s talk about your right to lease your house. You can lease your house for 12 months, and it is beyond zoning’s power to restrict this fundamental right. Your tenant can “roll-over” to month to month tenancy; zoning cannot control. But what happens when you place your house on VRBO on a weekly basis? Say your house gets so popular, people start wanting to rent it by the weekend. Zoning’s ability to control your fundamental property right to lease stops at the threshold of any property’s approved use.

So, if you are in a single family residential zone, you generally cannot rent individual bedrooms in your home since this would constitute a multi-tenant/multi-family use not permitted by zoning. But Airbnb and VRBOs are bringing individual families into residential neighborhoods. Should it matter the length of the lease? But at what point does your house become a hotel? Is this adverse to neighborhood property values if instead of the same neighbor sleeping next door, it’s a different neighbor? Should apartment properties be permitted to act as hotels? Condominium law has already developed to sanction condo-hotels as an ownership class where the condo unit owners voluntarily consent to renting their units in a rental pool with an operating structure similar to a hotel.

Some have asserted that the technology allowing Airbnb and other competitors to provide competitive lodging/booking services impinges on the value of area hotel real estate. To be fair to our lodging industry, hoteliers do collect substantial hospitality and tourism taxes as part of their operations, and imposing those taxes on all nightly guest accommodations regardless of zoning, probably makes sense. Eliminating homestead exemptions when the home is being used for rent is already standard practice.

But the question we may be forced to answer soon enough all comes back to Euclid. When does a house stop being a house (and become “an office” or “a hotel”)? I find no moral, health, safety or general welfare defenses that would allow zoning to control short-term rentals of a similar use. How short-term is too short to rent your house to another family? The fundamental fee simple right to lease property does not specify a minimum duration of that lease. If in fact properties used for short-term rental become more valuable than area-occupied homes, and they thereby suffer economic damages as a result of zoning restrictions seeking to limit short-term rentals, a claim of taking (eminent domain), or a Bert Harris claim may arise.

It has been over 90 years since anyone challenged the fundamental premise of zoning. I predict it is very likely to face a challenge soon enough.

The real question is whether society will side on the interests of all citizens’ fundamental property rights, or will society seek comfort under the warm blanket of regulatory authority in the guise of public welfare.

This story was originally published March 16, 2018 at 8:00 AM with the headline "When does a house stop being a house? (And start being an office or a hotel?)."