Hoang Tran Jan. 28, 2016, 1:12pm


HURLEY, N.Y. (Legal Newsline) - The short-term rental industry should be thrilled by a recent New York appellate court ruling in favor of a man who found himself targeted by his town after renting out one of his rooms over the Internet, a Ballard Spahr attorney says.

In David Fruchter v. The Zoning Board of Appeals of the Town of Hurley, decided in November, the Appellate Division-Third Department sided with Fruchter and stated that, due to the nature and wording of the Town of Hurley’s zoning ordinances, its zoning board could not prohibit residents from renting out rooms to vacationers.

“The short-term rental industry is thrilled or is likely thrilled with the result that supports their views that individual renters and individual residents should have the free ability to rent their units to whomever they want and that these regulations shouldn’t interfere with that right,” said Christopher W. Payne, leader of Ballard Spahr's Resort and Hotel Group.

The Zoning Board for the Town of Hurley issued an order against Fruchter for what it claimed was an illegal operation of a bed and breakfast. Fruchter began renting out one of his rooms in 2012, insisting that he served neither food nor alcohol.

The decision does not specify on which sites he placed his room. Popular short-term rental sites include Airbnb, HomeAway and VRBO.

Fruchter appealed, and the case eventually went to the Ulster County Supreme Court, which dismissed his petition. He once again appealed, contending that the Town Code did not require a special use permit for the type of short-term rentals he provides.

The Appellate Division agreed with him, stating that the wording in the ordinance did not forbid residents to rent their property out and the noted the town had not updated its ordinances to address the ramification of the emerging “sharing economy.”

The sharing economy is something that has been affecting municipalities due to tax issues and loss of revenue.

“That’s the primary reason why the municipalities are looking to amend their ordinances. Ultimately the court didn’t stop the town [of Hurley] from deciding to look at amending its ordinances.," Payne said.

"They just concluded that the prior ordinance that was drafted to deal with this new economy didn’t cover the new economy. What we’re seeing is, most of the towns are looking to update their ordinances rather than stretching the old rules to fit the new situation."

Updated ordinances usually require residents to obtain a special permit, Payne said. Part of that process is agreeing to pay taxes on sales.

Collecting those taxes can be a challenge for municipalities, Payne added.

"There’s so many individuals that the taxing authorities don’t want to spend the time pursuing all of those individuals. But if the individuals do secure that permit, then it’s like paying your property taxes," he said.

"The municipalities will know where you are and who you are and will send you a notice and put the responsibility on the individual to pay those taxes.”

Companies in the short-term rental industry are not idle in their response to these new updated ordinances. They are in support of having taxes paid. The reason? It’s ultimately on the individual owners to pay those taxes, according to Payne.

“It’s ultimately [on] the individual owner. Players like Airbnb are making money through facilitating the rental opportunities and the exchanging opportunities. But they aren’t ultimately responsible for the tax on the income generated,” he said.

The short-term rental industry is willing and wanting to work with the states, he added.

“There is also a trend by the short-term rental industry to propose on a state basis the compromise position that if the states legislation clarifies that state tax will be paid on short-term occupancy, then the state legislation will also preempt and prohibit local ordinances," Payne said.

"So basically the short-term rental industry is saying, ‘We don’t want to fight all of these battles in every city and every municipalities throughout the country where it could be inconsistent. We want one-rule-fits-all, and we’re willing to say that one rule will include the responsibility to pay taxes.' It’s an easy compromise to make because they’re not the one to pay the taxes.”

As the short-term rental industry works with states to new regulations, expect cases against it to increase, Payne said. However, cases like the Fruchter one was unique.

“The case that is specific to the town of Hurley is a bit unusual. And I’m not sure that there will be as many of those cases where you have an old ordinance and a zealous zoning department and a case that goes all the way up to the court of appeals. So that was all pretty unique,” Payne said.

The likely cases facing the short-term rental industry will come from homeowners associations, he said.

“It’s more likely you’ll have a board that has an individual owner that doesn’t like that their neighbor is renting out the properties for parties and for transients," Payne said. "The decision to the board of directors is far easier to obtain than a court decision.

"Those disputes will very likely be increasing.”

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