Hawai‘i Supreme Court Upholds Prohibition on Short-Term Vacation Rentals in Agricultural Districts

In a recent opinion, Rosehill v. State of Hawai’i Land Use Commission, the Hawai’i Supreme Court (HSCT) reinforced the agricultural district’s purpose under state land use law, holding that farm dwellings in the agricultural district cannot be used as short-term vacation rentals. This decision underscores the state’s commitment to preserving agricultural lands for agricultural purposes, a principle enshrined in Hawai’i Revised Statutes (HRS) Chapter 205.

The HSCT’s Holding

At the heart of this case was a dispute over whether short-term vacation rentals could be allowed in farm dwellings in the agricultural district. The Rosehill Petitioners argued that their farm dwellings should be allowed to operate as short-term vacation rentals, pointing to the absence of a specific minimum rental period in the governing statutes. They claimed that their use of the dwellings as rentals for 30 days or fewer should qualify as a permissible use under HRS § 205-4.5(a)(4), which permits farm dwellings in agricultural districts.

However, the HSCT disagreed, siding with the Land Use Commission (LUC) and the County of Hawai’i. Both argued that allowing short-term vacation rentals would undermine the purpose of the agricultural district. The HSCT held that farm dwellings must be used in connection with a farm or involve income from agricultural activity, and short-term vacation rentals are incompatible with this requirement.

Preserving Agricultural Land Use

The HSCT emphasized that the primary goal of the agricultural district is to preserve land for agricultural use. The decision reinforces the legislative intent behind the state’s land use law, which, in sum, prevents agricultural land from being repurposed for non-agricultural uses that could erode the long-term viability of Hawai’i’s agricultural economy.

The HSCT pointed to the clear language of HRS § 205-4.5(b), which restricts any unpermitted uses in the agricultural district. Since short-term vacation rentals are not listed as a permitted use, they are prohibited. The HSCT further rejected the petitioners’ argument that farm dwellings could serve both agricultural and transient accommodation purposes, stating that short-term vacation rentals would undermine the agricultural focus of the land.

In re Kanahele and the Issue of Jurisdiction

In addition to the substantive land use issues, the case highlighted an important procedural point regarding the jurisdiction of appeals from agency declaratory orders under HRS § 91-8.  Citing its recent opinion, In re Kanahele, the HSCT held that Rosehill Petitioners should have directly appealed the LUC’s declaratory order to the HSCT, not the circuit court.

This jurisdictional rule stems from Act 48, which amended Hawai’i’s land use laws to provide for the HSCT’s direct review of certain contested cases. In Kanahele, the HSCT expanded its jurisdiction to hear direct appeals to agency declaratory orders. Consequently, the Rosehill Petitioners’ case was transferred to the HSCT; however, the HSCT held that “the circuit court’s findings of fact and conclusions of law have no weight.” This highlights the importance of navigating the correct procedural path when appealing agency decisions.

HSCT Defers to Agencies

In its decision, the HSCT addressed the issue of agency deference, affirming that it will generally defer to an agency’s interpretation of ambiguous statutes unless that interpretation is “plainly erroneous or inconsistent with the underlying legislative purpose.” The HSCT upheld the LUC’s interpretation of HRS § 205-4.5, emphasizing that the LUC’s reading aligned with the statute’s goal of protecting agricultural lands. In doing so, the HSCT explicitly noted that its approach to administrative deference differs from recent shifts in federal jurisprudence, particularly the U.S. Supreme Court’s (SCOTUS) overruling of Chevron v. Natural Resources Defense Council in Loper Bright Enterprises v. Raimondo. The HSCT pointed out that unlike the federal courts, which have moved away from deferring to agencies in cases of statutory ambiguity, Hawai’i courts continue to respect agency expertise in interpreting complex regulatory schemes when consistent with legislative intent. This approach underscores Hawai’i’s commitment to preserving judicial deference in administrative matters.

Key Takeaways

• Short-Term Rentals in Agricultural Districts Are Prohibited. The HSCT’s decision firmly establishes that short-term vacation rentals are incompatible with farm dwellings in agricultural districts.
• Enforcement of County Ordinances. The County of Hawai’i’s ordinance prohibiting short-term rentals on lots created after June 4, 1976, in the agricultural district was upheld. Counties can enforce such ordinances, even when they impose stricter limitations than state law.
• Direct Appeals Under Act 48. The HSCT’s citation to In re Kanahele reminds us that appeals from LUC declaratory orders must go directly to the HSCT, bypassing the circuit court. 
• Agency Deference. The HSCT expressly stated that it recognizes the principle of agency deference and disagrees with SCOTUS’s overruling of Chevron.

The Rosehill decision affirms the state’s commitment to protecting agricultural lands from incompatible uses and sets a clear line on allowed uses in the agricultural district. 

Haw. Appellate Court finds Private Right of Action to Enforce Zoning Violation

In Pavsek v. Sandvold, the Hawaii Intermediate Court of Appeals (ICA) considered the following question: "whether Hawaii Revised Statutes (HRS) § 46-4(a) (Supp. 2011) creates a private right of action that authorizes a 'directly affected' private real estate owner to seek judicial enforcement of the LUO [the City and County of Honolulu's Land Use Ordinance], without first bringing his or her claim before the administrative agency charged with enforcing the LUO."

The Plaintiffs are owner-occupants of a residence on Papailoa Road. Papailoa Road runs parallel to the beach and is near two tourist attractions, Laniakea Beach, known for the presence of sea turtles, and the beach that served as the set of the ABC television show "Lost." Defendants own residences on Papailoa Road.

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In their complaint filed with the First Circuit Court, the Plaintiffs alleged that Defendants operated a bed and breakfast home or a transient vacation unit without a non­-conforming use certificate, pursuant to LUO §§ 21­-4.110-1, 21-4.110-2. The Circuit Court dismissed Plaintiffs' complaint with prejudice.

On appeal to the ICA, Plaintiffs argued that the Circuit Court erred in dismissing their complaint, because they have a private right of action under HRS § 46-4(a) to file suit to enjoin Defendants' alleged violation of the LUO. The ICA agreed with Plaintiffs, but also held that the "enforcement action is subject to the doctrine of primary jurisdiction[.]" Consequently, the Circuit Court cannot dismiss the complaint with prejudice, instead the Circuit Court must either (1) retain jurisdiction and stay the proceedings, or (2) if the parties would not be unfairly disadvantaged, dismiss the case without prejudice. Either action allows the Plaintiffs to first bring their claim before the administrative agency charged with enforcing the LUO. In this case, the Plaintiffs must (1) petition the director of the Department of Planning and Permitting for a declaratory ruling as to the application of the LUO to the alleged violation, and (2) if the director's decision is adverse to the Plaintiffs, they must appeal to the Zoning Board of Appeals, before the Circuit Court can consider their complaint.

The ICA recognized the similarity between the concepts of primary jurisdiction and exhaustion of administrative remedies, and offered the following guidance from the Hawaii Supreme Court:

Courts have "developed two principal doctrines to enable the question of timing of requests for judicial intervention in the administrative process to be answered: (1) primary jurisdiction; and (2) exhaustion of administrative remedies." B. Schwartz, Administrative Law § 8.23, at 485 (2d ed. 1984). "Both are essentially doctrines of comity between courts and agencies." Id. (footnote omitted).

"'Primary jurisdiction' applies where a claim is originally cognizable in the courts, and comes into play whenever enforcement of the claim requires the resolution of issues which, under a regulatory scheme, have been placed within the special competence of an administrative body." United States v. Western Pac. R.R., 352 U.S. 59, 63-64, 77 S.Ct. 161, 164-65, 1 L.Ed.2d 126 (1956). When this happens, "the judicial process is suspended pending referral of such issues to the administrative body for its views." Id. at 64, 77 S.Ct. at 165 (citation omitted). In effect, "the courts are divested of whatever original jurisdiction they would otherwise possess." B. Schwartz, supra, § 8.24, at 488 (emphasis omitted). And "even a seemingly contrary statutory provision will yield to the overriding policy promoted by the doctrine." Id.

"Exhaustion," on the other hand, comes into play "where a claim is cognizable in the first instance by an administrative agency alone; judicial interference is withheld until the administrative process has run its course." United States v. Western Pac. R.R., 352 U.S. at 63, 77 S.Ct. at 164. "The exhaustion principle asks simply that the avenues of relief nearest and simplest should be pursued first." Moore v. City of East Cleveland, 431 U.S. 494, 524, 97 S.Ct. 1932, 1948, 52 L.Ed.2d 531 (1977) (Burger, C.J., dissenting). "Judicial review of agency action will not be available unless the party affected has taken advantage of all the corrective procedures provided for in the administrative process." B. Schwartz, supra, § 8.30, at 502.

See Kona Old Hawaiian Trails Group v. Lyman, 69 Haw. 81, 734 P.2d 161 (1987).

One Who Deals With Government Agents Assumes the Risk that the Agents Act within the Bounds of Their Authority

The Maui Vacation Rental Association’s (“MVRA”) members, who operate transient vacation rentals (“TVRs”), were assured by a previous Maui County administration that they could continue to operate their TVRs without seeking permits required under county law until the County adopted new TVR regulations.  Years later, Council had not adopted new TVR regulations, illegal TVRs proliferated, and the new administration decided to enforce the law as it received complaints from neighbors affected by the illegal TVR operations. 

The MVRA sued the County of Maui in US District Court.  See Federal Suit Filed Against Maui County to Stop it from Enforcing TVR Zoning Laws.  MVRA lost its District Court suit and appealed to the 9th Circuit Court of appeals.  See Maui Transient Vacation Rental (“TVR”) Suit Dismissed in Federal Court.

On December 10, 2008, the 9th Circuit issued its decision in Maui Vacation Rental Association vs. County of Maui, ruling in the County’s favor.  See Unpublished Memorandum.  The MVRA appealed the “the district court’s dismissal (without leave to amend) of its 42 U.S.C. § 1983 due process claim, and its equitable estoppel claim[.]”

Regarding its due process claim, the court held that “[t]he district court properly dismissed MVRA’s claims, because MVRA cannot prove a set of facts in support of its claims that would entitle its members to relief.”  The basis for its decision was the principle that “property interests arise only when the state law ‘truly ma[kes] [conferral of the benefit] mandatory.’”  Therefore, even if MVRA properly raised its “official assurances” argument, MVRA could not cite any Hawaii case or statutory law that supports a legitimate claim to its asserted entitlements; i.e., “that its members have both (1) the right to operate transient vacation rentals (“TVRs”) without required permits while Maui County processes permit applications and (2) the right to have Maui County indefinitely maintain its enforcement by complaint policy.”

Regarding MVRA’s estoppel claim, the court started with the definition of equitable estoppel as articulated in Life of the Land, Inc. v. City Council of City & County of Honolulu, 606 P.2d 866, 902 (Haw. 1980); i.e., “[e]quitable estoppel protects a developer’s change of position resulting from a ‘substantial expenditure of money in connection with his project in reliance . . . on official assurance . . . that necessary approvals will be forthcoming in due course, and he may safely proceed with the project.’”  In this case, the court held that MVRA members did not receive “official” assurances under Hawaii law, because “(1) government agents ‘must act within the bounds of their authority,’ and ‘one who deals with [government agents] assumes the risk that [the agents] are so acting’”, and (2) “MVRA members operating TVRs without permits were on notice that their conduct was unlawful and that Maui County retained discretionary authority to enforce the permit requirement.”

Kauai County Property Tax System Reform

Kauai County proposes real property tax reform in proposed Bill No. 2274.

According to the language of Bill, the intent of the policy is to "accomplish the overall policies of the County through tax incentives, which include: encouraging availability of affordable housing and homeownership on the island."

Transient vacation rentals are particularly concerned about possible rate increases.

Maui County Council Considers Ad Hoc Conditional Permit for TVR in Residential Neighborhood

The County of Maui is considering granting a conditional permit for another TVR in the residential district. Such action is an end around the law that currently allows TVRs only in the hotel district. Continuing to use conditional permits to allow a use that is clearly prohibited promotes uncertainty and distrust toward government. However, the controversy can be resolved by creating a TVR permitting process based on objective design and use criteria, which allows for community input.

The Maui County Code ("MCC") provides that transient vacation rentals ("TVRs") are permitted only in the hotel district. (See, Maui to Consider Transient Vacation Rental and Bed and Breakfast Bill.) Notwithstanding the clarity of the ordinance, the County Council's Land Use Committee has recommended that the Council grant a conditional permit to allow a TVR in a residential district. (See, Two-year permit recommended for Makawao TVR.) Under the MCC, a conditional permit is granted by the Council and signed into law by the Mayor. A conditional permit gives the Council the "opportunity to consider establishing uses not specifically permitted within a given use zone." However, the proposed use must be "similar, related or compatible to those permitted uses . . . for a particular location." MCC Sec. 19.40.010 .

A conditional permit is not the proper mechanism for granting TVRs in the residential district. First, conditional permits are for "establishing uses not specifically permitted within a given use zone." The law is not silent about where TVRs may be located in the County. The law specifically prohibits them in any district but hotel (with special allowances for certain nonconforming uses established prior to enactment of the restriction). MCC Sec. 19.37.010.

Second, the conditional permit process does not provide criteria for determining whether a TVR should be allowed. Assuming arguendo that TVRs can be compatible with residential uses, what criteria is the Council considering? How do applicants for a TVR permit know what impacts from their proposed use they should mitigate (e.g., parking, noise, etc.)? How are adjacent homeowners' concerns being addressed?

Instead of granting ad hoc permits, the County should create a TVR permitting process that is transparent, reasonable, orderly, and addresses the concerns of neighbors. A common permitting approach would be (1) a permit application reviewed by the planning department, and (2) approval by the planning commission based on specific criteria after a hearing. Under such a scheme, some TVRs may not be allowed where neighbors are adamantly against them; however, this is the nature of zoning: grouping compatible uses together to avoid nuisance claims.

Illegal TVR Operator on Maui faces $214,000 in Fines

Today's Maui News (‘Landmark’ case being built against TVR owner) reports on a recent battle in the ongoing war on illegal transient vacation rentals ("TVRs") in Maui County.

To start, a TVR on Maui “means occupancy of a dwelling or lodging unit by transients for any period of less than one hundred and eighty (180) days.”  TVRs are permitted only in the county's hotel district.  However, the county council granted at least eight ad hoc conditional use permits for TVRs in other districts, as reported by the county in September 2007.  (See, Maui to Consider Transient Vacation Rental and Bed and Breakfast Bill.)

The TVR at issue here received multiple warnings and a cease-and-desist order according to county zoning enforcement personnel, but it continues to operate without a permit vexing its neighbors who repeatedly complained to the planning department.  The TVR operator will challenge the fines levied by the county for violating the county zoning code.  Fines can be as much as $1000.00 for the violation and $1000.00 per day for so long as the violation continues.  This case will be heard by the county's Board of Variances and Appeals at a date to be determined.

For additional discussion on the TVR issue on Maui and other islands, see Transient Vacation Rentals/Units.

Transient Vacation Rental Supply Increased in 2007 According to DBEDT Study

According to the 2007 Visitor Plant Inventory (“VPI”) report released today by the Department of Business, Economic Development and Tourism Research & Economic Analysis Division, the number of visitor accommodation units statewide in 2007 increased by 1.3 percent from 2006 to 73,220 total units. The increase was due in part to Internet research of visitor units that were not included in previous surveys.

According to the report, 45.9 percent of the statewide visitor units in 2007 were located on O‘ahu. The island of Maui continued to have the second largest share of visitor units, followed by Big Island and Kaua‘i. The 73,220 visitor units statewide were composed of the following categories: hotels 58.2 percent; condominium hotels 20.3 percent; timeshare units 10.9 percent; individual vacation units (“IVU”) 7.9 percent; and bed & breakfasts, apartment hotels, and hostels each comprised less than 1 percent.

The report defines IVUs as follows: “An individual condominium unit (not in a hotel rental operation), house, cabin, villa, or cottage with very limited service, often with only basic cleaning supplies provided.” Thus, transient vacation rentals and transient vacation units (together, “TVR”) would fall under this category. The report’s “List of Properties” includes both registered and unregistered TVRs.

In 2007, there was a precipitous growth of TVR properties in the state: IVUs increased by 146.5 percent to 5,786 units, as shown in Table 2 below. As of 2007, the report found that each island had the following number of IVU properties : Oahu 69, Hawaii 127, Kauai 732, Maui 209, Molokai 15, and Lanai 1.

Source: DBEDT Release News 08-13.

New Transient Vacation Rental Regulations for Kauai County

Kauai County Ordinance 864, which was signed into law on March 7, 2008, provides new regulations for transient vacation rentals (“TVR”) in Kauai County. In summary, the Ordinance regulates two types of TVRs: Single-Family and Multi-Family.

Multi-Family TVRs

• Allowed in Hotels in the Resort Districts and Commercial Districts; and Resort Districts and Residential Districts within the visitor destination area (“VDA”)
• TVR’s existing prior to September 22, 1982 not located in the VDA, may continue as allowed uses under Sec. 8-17.2, which presently (a) allows “time shares” in Hotels in the Resort or Commercial Districts, (b) allows time shares in the Resort RR-10 and RR-20 Districts and multi-family R-10 and R-20 Residential Districts in the VDA, and (c) prohibits time shares in the R-1, R-2, R-4 and R-6 Residential Districts
• No additional multi-family TVRs will be allowed outside VDA after September 22, 1982

Single-Family TVRs

• New single-family TVRs are prohibited in all areas not designated VDA
• Nonconforming Single-Family TVRs, that were lawful before the effective date of Ordinance 864, must apply for and receive a Nonconforming Use Certificate (“NCUC”)
• NCUCs will not be issued for Single-Family TVRs unless built prior to June 4, 1976, or if a special permit was received under HRS § 205.6
• NCUC annual renewal fee is $150.00

All TVRs

• New TVRs and exiting lawful TVRs must register with Director of Finance within 180 days of effective date of Ordinance 864

Maui Transient Vacation Rental (“TVR”) Suit Dismissed in Federal Court

Today the Maui News reported that the vacation rental suit I discussed here, here, and here, was dismissed in federal court.

It appears that most of the Plaintiffs’ claims were dismissed; however, the court will allow Plaintiffs to amend the counts alleging equal protection violations under the 14th Amendment of the U.S. Constitution. The Plaintiffs will need to show that they were intentionally treated differently from others similarly situated and that there is no rational basis for such treatment. Equal protection cases in the land use entitlement arena are relatively new, but a recent U.S. Supreme Court decision gave landowners the go-ahead to challenge municipal land use decisions based on equal protection grounds. (See Village of Willowbrook v. Olech, S. Ct. 2000.)

Given the unusual, seemingly irrational approach the County has taken in allowing or denying TVR’s, the Plaintiff’s may have some ammunition to move forward.

Read the Complaint Seeking Judicial Intervention to Prohibit Maui County from Enforcing its Zoning Laws

I wrote here and here about the brouhaha over Maui County’s decision to enforce its zoning laws that prohibit transient vacation rentals (“TVR”) in all zoning districts but the hotel district. I have nothing to add, but here is a copy of the complaint filed by the Maui Vacation Rental Association in late September.

Federal Suit Filed Against Maui County to Stop it from Enforcing TVR Zoning Laws

Earlier this month, I wrote about transient vacation rental (“TVR”) operators who where gearing up to bring action against Maui County to enjoin it from enforcing its zoning laws. Today the Maui news reports that the Maui Vacation Rental Association filed suit in the U.S. District Court.

It looks like an uphill battle for the plaintiffs since they appear to be alleging that they don’t like the county’s zoning laws. However, zoning is a legislative action by the county council, and a court will not question legislative actions unless that law is contrary to the constitution. The plaintiff’s arguments appear to be that zoning restrictions don’t allow them to operate TVR’s where they want to or in the manner they choose. It is difficult to imagine a court overturning the county’s TVR legislation on that basis since zoning has been in the purview of local governments since the 1926 U.S. Supreme Court case Euclid v. Ambler. Moreover, TVR owners are not a protected class and the government’s regulatory activity here is not regulatory activity highly scrutinized by the courts.

What is required here is not litigation, but a legislative fix. Unfortunately for TVR owners, they have been trying for more lenient TVR laws since at least the early 1990’s, but the county council has not seen fit to introduce such legislation.

Maui to Consider Transient Vacation Rental and Bed and Breakfast Bill

Before working through the tapestry of laws that regulate Maui’s transient vacation rentals (“TVR”), bed and breakfasts (“B&B”), and O‘hana units, one must first understand what these terms mean under the Maui County Code.

• Transient vacation rentals or use “means occupancy of a dwelling or lodging unit by transients for any period of less than one hundred and eighty (180) days.” TVRs are permitted only in the county's hotel district under MCC Sec. 19.37.010. Although the MCC permits TVRs only in the hotel district, the county council has granted at least eight conditional use permits for TVRs in other districts, as reported by the county in September 2007. For example, the conditional use permit ordinance for Cherie Attix, a TVR granted in the residential district.
  

• Bed and breakfast home “means a use in which overnight accommodations are provided to guests for compensation, for periods of less than thirty (30) days, in a detached single-family dwelling unit occupied by the owner-proprietor or lessee-proprietor. The home shall include bedrooms, one kitchen, and living areas used by the family occupying the home and shall include no more than six bedrooms for short-term rental, as specified within the zoning district provisions of this title.” B&B are allowed in residential, country town business, B-1 neighborhood business, and B-2 community business.
  
  B&Bs are regulated under MCC Chapter 19.64. Permitting depends on how many B&B rooms are on a lot. Generally, Type I Permits (up to two bedrooms) are approved by the planning director, unless there are protests, a B&B is within 500 feet, or a variance is need, in which case planning commission approval is also required. Type II Permits (three to four bedrooms) are approved by the planning commission. And, Type III Permits (five to six bedrooms) are reviewed by the planning commission and final approval is granted by council.
  

• O‘hana units are not directly affected by the bill discussed below; however, it is often confused with TVRs and B&Bs. “O‘hana unit” is the vernacular term for “accessory dwelling,” which “means an attached or detached dwelling unit which is incidental or subordinate to the main or principal dwelling on a lot.” It is further defined under MCC Chapter 19.35, Accessory Dwellings. Only one accessory dwelling is permitted per lot, and only if the lot is at least 7,500 sq. ft. or greater in size. Accessory dwellings are permitted only in the following county zoning districts: Residential; Apartment; Hotel; and Interim zoning. A building permit application is required. An “accessory dwelling” is not a “farm dwelling,” which “means a single-family dwelling that is located on and used in connection with a farm.”

Whether and where to allow B&Bs or TVRs is the topic of an emotional debate between the county, business owners, and the public, ergo the Maui Planning Department’s draft Bill, dated September 5, 2007 (“Draft Bill”). The Draft Bill proposes substantive changes to the above provisions as follows:

• MCC Chapter 19.38, Transient Vacation Rentals, is added. TVRs will additionally be allowed in all business districts (up to twenty units per lot) and various resort districts.

• MCC Chapter 19.40, Conditional Permits, is amended to preclude granting TVRs by conditional use permit. This would specifically prohibit the council from granting TVRs by permit in districts where they are prohibited.

• MCC Chapter 19.64, Bed and Breakfast Homes, is amended so that B&B permits will expire when the term of lease of a lessee-proprietor expires, and the Draft Bill limits entities that can hold a permit to a “natural person” (i.e., not business entities like a corporation). These provisions may prevent a lessee of property from transferring the permit. In addition, the option of preparing food is allowed and a public notice provision is added.
  
  Significantly, the permit process is amended by abolishing the three permit types. Instead, B&B permits for one to six units may be granted by the planning director, unless protest letters are received from the surrounding area, a variance is required, or there is another B&B within 500 feet. In those cases, commission approval is required. Council approval is no longer required.

• MCC Chapter 19.30A, Agricultural District, is amended to allow B&Bs. However, the applicant must show a bonafide agricultural operation with an annual gross income of $35,000.

• MCC Chapter 19.29, Rural District, is amended to allow B&Bs.

In general, the Draft Bill limits TVRs to 20 per lot, but expands the areas where TVRs are permitted. The Draft Bill also expands where B&Bs are allowed, simplifies permitting , and takes council approval out of the equation.

The County Charter requires that the planning commissions review all land use ordinances. According to the Honolulu Advertiser, drafts currently are scheduled to be presented to the planning commissions in October.