Planning Commission Memo
MEETING DATE: September 11, 2024
REPORT DATE: September 4, 2024
RESPONSIBLE STAFF: Jim Wasilak
SUBJECT:
title
Recommendation to the Mayor and Council on Zoning Text Amendment TXT2024-00264, to Regulate Short Term Residential Rentals; Mayor and Council of Rockville, Applicants
end
BACKGROUND:
On February 22, 2021, Mayor and Council held a work session to discuss a proposed Zoning Text Amendment and amendments to City Code Chapter 18, Rental Facilities and Landlord-Tenant Relations, to address short-term rentals. At that meeting, it was determined that the rental of rooms for residential purposes should also be regulated through Chapter 18 like other types of residential rentals. Staff subsequently determined that Chapter 18 should be amended to only regulate the rental of rooms and that a new Chapter 18.5 should be created for the regulation of short-term rentals, as there is a significant difference between the purpose and procedures in Chapter 18, and that of short-term rentals. This resulted in the creation of a new Chapter 18.5, Short-Term Rentals.
The reason for a new chapter to regulate short-term rentals is that while Chapter 18 regulates landlord and tenant relations and different types of licenses and leases, short-term rentals do not have similar standards. Short-term rentals operate more like a hotel than residential rental property. While attempting to draft regulatory requirements in Chapter 18 for short-term rentals, it was readily apparent that most of Chapter 18 would not apply at all to short-term rentals. Administratively and procedurally, it was clear that a new chapter for short-term rentals was needed.
Currently, no regulations in Rockville exist that directly address short-term rentals. If an owner desires to rent the entire home, or a complete living facility with a separate kitchen and sanitary facilities, within a home, current City code requires that the rental home be licensed, and that the lease must be offered initially for a full-year term, which is longer than any short-term rental occupancy would be.
Any existing short-term rental units in the city are operating without sanction or approval, as they are out of compliance with City requirements for when a complete living facility or entire home is rented without a rental license and in a manner that violates Chapter 18 of the City Code. In addition, short-term rentals are not currently addressed within the zoning ordinance.
DISCUSSION:
Proposed Regulations
This section provides an overview of the draft Chapter 18.5 (see Attachment B) that would regulate short-term rentals, and the accompanying Zoning Text Amendment (see Attachment A). Although Chapter 18.5 and the Zoning Text Amendment must work in tandem to regulate short-term rentals, these two amendments must go through separate review and approval processes. Both Chapter 18.5 and the Zoning Text Amendment are recommended by staff to be timed so they jointly return to Mayor and Council for public hearing and consideration to adopt at the same meetings.
Chapter 18.5: Residential Short-Term Rentals
A summary of the proposed regulations included in Chapter 18.5, are listed below.
Definition:
• Short-term rental means the rental of lodging accommodations in a dwelling unit for periods of less than 30 consecutive days to transient guests.
Licensing Requirements:
• Only property owners are permitted to operate short-term rentals.
• A license will be valid for a one-year term.
• An operator’s license will be suspended after the third violation occurrence within a 12-month period.
• Renewal or reinstatement of licenses must follow procedures established by the City Manager.
Application Requirements:
• All local taxes and fees must be paid.
• The same building code and safety standards that are currently required for a single-unit rental license must be met, including installation of smoke detectors and carbon monoxide detectors as appropriate.
• Applicant must certify that the use is not prohibited in the homeowner’s association or condominium documents. Any association fees must be no more than 30 days past due.
• There must be no open zoning, building or fire code violations for the property.
• Contact information for the owner (to address maintenance issues and complaints during the operation of a short-term rental) must be provided.
• A short-term rental shall not be permitted in an accessory dwelling unit or a Moderately Priced Dwelling unit (MPDU).
Informational Notice:
An informational notice shall be provided by the applicant to:
• All properties that are adjacent to the short-term rental property.
• Neighbors living across the hall and those that share a ceiling, floor, or walls with the applicant’s unit in a multi-unit building.
• Any applicable homeowner’s association, condominium association, or housing cooperative.
Property Inspection:
• The property will be inspected prior to the issuance of the first license and prior to each renewal.
Residency:
• The short-term rental may only be operated by the property owner. One of the property’s owners must be included on the application.
• When the owner is not present, a designated emergency representative, whose name, address, and phone number are included in the application, must reside within 15 miles of the short-term rental and be accessible for the entirety of any short-term rental contract period.
Tax Structure:
• Short-term rental operators must remit both the Montgomery County Hotel Rental Tax (7%) and the Rockville Hotel Rental Tax (2%).
Restrictions:
• Licensee may not operate a short-term rental for more than 120 days per calendar year.
• Guest capacity is limited to 6 adults, or a maximum of two adults per bedroom, whichever is less.
• Only registered guests are permitted on the property, in addition to the licensee, other residents and the licensee’s agents and employees.
Guest Registry:
• Operators must maintain a guest registry that includes the number of guests, check in/checkout dates, and amount paid.
• The registry must be submitted annually and available for inspection by the city.
Parking:
• The property shall have two off-street parking spaces. The parking requirement can be reduced to 1 space when the unit is located within 7/10ths of a mile walking distance to a Metro station.
• Short-term rentals with no parking provided must advertise as such.
Required Posting:
• The valid license, with the appropriate contact information for the licensee or the designated emergency representative, must be posted prominently in the rental.
• Rules and regulations for guests must also be provided.
Signage:
• No signage is permitted for short-term rentals.
Approval and Renewal:
• The City Manager must approve or deny a rental license or renewal within 15 days after receipt of all fees and the inspection of the dwelling is completed. A license is good for one year and is renewable for additional one-year terms.
Challenge to Certifications:
• A challenge to any required certification made by an applicant must be filed with the City Manager within 30 days after the application is filed by a resident or owner of property within 300 feet of the subject property, any homeowner’s association with authority over the property or any owner of the property used for an STR.
• Within 60 days after a challenge is filed, the City Manager must provide notice of the challenge to the applicant or licensee and provide an applicant the opportunity to respond to the challenge.
• The City Manager must investigate the questions of fact raised by the challenge and either revoke or deny the license if one or more of the facts certified by the applicant is false.
Suspension, Revocation or Denial of a Renewal
• The City Manager may suspend or revoke a short-term rental license or deny a renewal if the licensee, after ten working days’ written notice, fails to eliminate violations of the ordinance, the terms of the license or any related regulations.
• If the applicant has been cited for three or more violations of the City Code within a two-year period, the City Manager must deny an application for a new license or renewal.
• Violation of any provision of Chapter 18.5 is considered a municipal infraction. No penalty is to be imposed for the period of time when a good faith attempt is made to comply.
• The revocation period is one year for the licensee and the premises involved.
Appeals
• Appeals of a decision by the City Manager to suspend, revoke, deny or approval a license are made to the Board of Appeals. The Board must hold a public hearing within 60 days of the notice of appeal being filed. Appeals of the Board’s decision are taken to the Circuit Court for Montgomery County.
Change in Ownership
• Licensees must notify the City Manager of a change in address or ownership within ten days of the change.
• A short-term rental license is not transferrable, and a new license must be obtained by the new owner when a property transfers.
Inspections
• A short-term rental must be inspected for compliance with Chapter 18.5 and any other applicable sections of the City Code upon receipt of a completed application for a license and prior to issuance, renewal, or reinstatement of a short-term rental license.
• As a condition of receiving a short-term rental license, the licensee must also allow the short-term rental to be inspected by City staff upon a reasonable suspicion of a violation and to verify that a violation has been abated.
• The City must provide at least 72 hours written notice prior to any inspection, by certified mail sent to the owner and by posting at the main entrance of the short-term rental.
• If a violation of this chapter or any other section of the City Code is noted during the inspection, the City must notify the owner in writing of the nature of the violation and the time within which the violation must be abated. The City may require the short-term rental to be reinspected to verify that the violation has been abated.
Existing Short-term Rentals
• Any person operating a short-term rental existing prior to [enactment date of ordinance] must receive a short-term rental license by [enactment date plus six months]. A person who fails to receive a short-term rental license by [enactment date plus six months] and operates a short-term rental is in violation and will be provided written notice and be subject to fines.
Third-Party Monitoring and Enforcement
A third-party vendor will be necessary to assist with the management and enforcement mechanism of short-term rentals. Generally, third-party systems provide key services such as address identification. Vendors examine between 80-100 different short-term rental websites, such as AirBnB, VRBO, Homeaway and similar providers to compile a list of addresses and owners of all identifiable STRs. The system reviews listing status (availability) and screenshots of pictures, reviews, and the like to create a record showing that a unit is being actively advertised.
Another component is compliance monitoring, which allows the City to send enforcement letters within the system for identified violations of noncompliance with Chapter 18.5. The screenshots captured in the address identification module above can be used to document unit condition and status, from which a violation letter can be generated. The use of a 24/7 hotline can also be used to address compliance related concerns, as well as provide a portal of permitting and registration, tax collection and reporting of non-emergency incidents.
Montgomery County currently uses the firm Host Compliance, which is one of the leading providers of this service. In discussing their experience with County staff, they indicated that the company excels at identifying properties, generating letters for enforcement and renewal purposes, and providing for a portal that helps property owners achieve compliance through licensing. The County does not use the service for tax collection purposes. The City of Gaithersburg does not use a company to provide this service.
Zoning Text Amendment
The proposed Zoning Text Amendment defines a short-term rental as:
Short-term Rental means the rental of lodging accommodations in a dwelling unit for periods of less than 30 consecutive days to transient guests.
The Zoning Text Amendment proposes that short-term rentals be permitted in all zones where residential dwellings are permitted, including single family residential (R), residential medium density (RMD) and mixed-use (MX) zones.
Montgomery County and City of Gaithersburg Regulations
Montgomery County and the City of Gaithersburg have similar requirements for STRs. Both limit rentals to less than 30 consecutive days and the days the unit is collectively rented out as a STR to no more than 120 days during the 365-day license term. The regulations require one off-street parking space unless the online listing indicates that vehicle parking is prohibited.
Montgomery County allows STRs as a limited use in all zones except for industrial and permits up to six total adult occupants with a limit of two adults per bedroom. The City of Gaithersburg allows STRs in many residential and commercial zones, but not all, and permits up to two adult occupants per bedroom.
Table I. Comparison of STR Regulations in Montgomery County and the City of Gaithersburg
|
Issue |
Montgomery County |
City of Gaithersburg |
|
Rental Length |
Less than 30 days |
Less than 30 days |
|
Maximum Days of Use |
120 days if property owner or owner-authorized resident is not present in the residence. If present, then there is no limitation. |
120 days |
|
Use |
Limited Use |
By Right |
|
Zones Allowed |
All zones except Industrial |
R-A, R-90, RP-T, R-20, R-18, CBD, CD |
|
Occupants Allowed |
Six total adults; two adults per bedroom |
Two adults per bedroom |
|
Parking |
One off-street parking space unless the online listing indicates that vehicle parking is prohibited |
One off-street parking space unless the online listing indicates that vehicle parking is prohibited |
Mayor and Council Discussion
The Mayor and Council discussed short term rentals at several meetings in early 2023 and asked the following questions of staff prior to authorizing the filing of the text and code amendments. The following is provided for the Commission’s information.
Third Party Enforcement of Compliance:
• How long would it take to get a tracking mechanisms in place with a third-party vendor? Staff can potentially ride an existing contract with Montgomery County and secure a third-party vendor in approximately 3 to 4 months following adoption of the regulations.
• Are there any lessons learned from Montgomery County and Gaithersburg? While Gaithersburg does not use a third-party compliance firm, Montgomery County has a contract with Host Compliance, one of the leading firms in this specialty. Their experience has been positive, and Host Compliance has identified more than 1,200 short term rentals in the County. Their strengths appear to be address identification, compliance and renewal support and licensing.
• Verify costs of tasks that City wants firms to do: The basic service, address identification and monitoring, providing an informational web portal for property owners, as well as revenue tracking and various related reports, amounts could range between $6,000 and $10,000 per year depending on the number of short-term rentals. Add-ons, such as an STR hotline/tip form, compliance mail outreach, an online registration portal and lodging tax collection portal, can range from $5,000 to $10,000 depending on the additional task.
• Can vendors track the number of days that rentals are rented and violations? Yes, they can.
Cost, Taxes and Fees Associated with Short-Term Rentals
• More information is needed on the recommended license fee. The fee is proposed to be $250 compared to the current rental license fee of $200 (proposed to be increased to $220). This fee is based on the time allocated to conduct the required inspection, accomplish the administrative tasks associated with licensing and to pay a third party. This short-term rental fee is expected to cover the cost to administer the short-term rental regulations. Staff expects to bring a final recommendation on the fee to Mayor and Council as part of a revised fee resolution.
• What are the actual costs associated with administration and inspections? Staff estimates that the travel time, inspection, and administrative follow-up associated with a short-term rental permit would take 1.5 hours for inspections without violations and 2.0 hours for those with violations. Based on this and staff hourly rates, staff estimates that approximately $30,000 will be needed to cover staff costs and $30,000 will be needed for the consultant services. At $250 per short term rental permit and 200 permits, this would cover the $60,000 per year needed to fund the program.
• Program should pay for itself, but excess revenues should be directed to Housing Opportunities Fund. Comment noted. Finance Department staff indicate that this is possible with that direction, and would be more easily tracked if a new cost center was established for short term rentals. Staff have noted that the amount transferred to the Housing Opportunities Fund would be transferred on an annual basis in the next budget year, after the prior year was completed and audited.
• Where are taxes collected from units in Rockville going? The room rental and transient tax for Montgomery County apply to properties in the City, so providers are likely collecting the County tax.
• Would back taxes be owed if operators don’t register and are then caught operating a short-term rental? The City will need to establish agreements with all rental platforms through the third party vendor once the regulations are adopted, so that those platforms would begin paying the hotel tax to the City. In an instance when a short-term rental is rented through a platform that we do not have an agreement with, potentially the City could collect back taxes.
Compliance enforcement
• What will it take to bring currently operating short-term rentals into compliance? Once the ordinances are adopted, staff will undertake a robust outreach program to the public, outlining the requirements and timeline associated with obtaining a license. We will also use the third-party vendor to identify the locations and owners of the short-term rentals and then notify each owner of the requirements and when they must comply to avoid violations and possible fines.
• What can the City do to minimize the use of short-term rentals for parties and events? The City can make this and any other concerns a condition of receiving a license, along with the regulations that are to be posted in the rental unit. The owner that allows this to continue could lose the license and not be permitted to operate.
• Is the capacity of short-term rentals limited to adults? Capacity limits are typically expressed as persons, which in most cases means adults. Any children would not be included in a capacity limit, unless specified.
• Text should read “City Manager or designee” regarding enforcement. Text added to draft ordinance.
Inspections
• There should not be a difference in inspections from other residential units, with annual inspections favored. Comment noted. Staff had recommended a license term of two years, but the text has been modified to include an annual inspection for these units. Due to the number of different renters, more frequent inspections are merited.
• For self-certifications, should affidavits be required? How do other jurisdictions handle? Staff finds that affidavits are not necessary, as it will be a condition of the permit that the certifications are true. Any violation would be enforced as such.
General
• Require presence of a fire extinguisher in the unit. Added to draft ordinance.
• How can short-term rentals not impact availability of long-term residential units? One of the most effective ways to do so is to limit the number of days per year that a short-term rental may be rented, which makes securing a long-term tenant more desirable. The current proposed number of days is 120 per year.
• Applicant must certify that the use is not prohibited in the homeowner’s association or condominium documents. Any association fees must be no more than 30 days past due. Staff finds that the certification should be achievable with input from the association and would be submitted along with the application.
• Designated emergency representative: When the owner is not present, a designated emergency representative, whose name, address, and phone number are included in the application, must reside within 15 miles of the short-term rental and be accessible for the entirety of any short-term rental contract period. Staff recommends deleting the 15-mile requirement as unenforceable.
• Registration fee: The short-term rental registration fee is proposed to be $250, $50 higher than the current rental license fee.
• Concern about rentals with no parking provided. Short-term rentals with no parking provided must advertise as such, so that no vehicles are brought to the rental.
STAFF RECOMMENDATION:
Staff recommends that the Planning Commission recommend approval of the Zoning Text Amendment that would add Short Term Residential Rentals as a conditional use in residential zones.
PUBLIC OUTREACH:
For the March 2023 Mayor and Council meeting, notices were provided to homeowner associations, civic associations and through Nextdoor. Staff undertook similar outreach to the community in advance of the Planning Commission meeting date.
NEXT STEPS:
Although the Commission is not required to make a recommendation on the Code amendment, staff have provided it to aid in the Commission’s deliberations on the text amendment. Both amendments (Chapter 18.5 and the ZTA) will return to Mayor and Council for a public hearing and ultimately a decision concurrently subsequent to the Commission’s discussion and recommendation.