When is a House a Hotel?

The information contained in this article is not intended as legal advice and may no longer be accurate due to changes in the law. Consult NHMA's legal services or your municipal attorney.

Local officials charged with drafting and enforcing zoning ordinances have a tough job. Statutes such as RSA 672:1 charge them with weighing the need for “a balanced supply of housing which is affordable to persons and families of low and moderate income” against the need to encourage economic and population growth through partnerships with the state and private enterprise to promote tourism, including agritourism. One of the major flashpoints in recent years has been short-term rentals, particularly those combined with accessory dwelling units (ADUs).

It’s no secret that New Hampshire has been suffering from a lack of housing inventory both for buyers and renters. Reports from the New Hampshire Housing Finance Authority (NHHFA) have been negative for years. For example, in June 2018, the NHHFA summarized current market conditions as among the most challenging that buyers and renters in New Hampshire have seen. Reports indicate that this housing shortage is having a direct impact on employers ability expand as they wrestle with their inability to attract and retain employees.

In the middle of this decade, attention started to be focused on ADUs as a potential solution to New Hampshire’s housing issue. Advocacy groups such as AARP,  and housing advocates such as NHHFA promoted ADUs as a way for multi-generational families, the elderly, recent graduates, single-parent households, and employers to find (or construct) affordable housing that meet their unique needs. Municipalities were not provided any guidance from the legislature until the 2016 – 2017 legislative session. During those years, the legislature enacted RSA 674:72 - :73, pertaining to ADUs. Together, those statutes require municipalities to allow one attached ADU per single-family dwelling but afford municipalities the authority to regulate (within limits) the building requirements of ADUs and prohibit, if they choose, detached and multi-unit ADUs.

Coinciding with the interest in ADUs has been a rise in availability of short-term rentals through online portals such as Airbnb and HomeAway. It is estimated that more than 30% of the U.S. consumer lodging market is dominated by those two companies, with revenues for both exceeding well-known hotel chain such as IHG, and Airbnb’s revenues exceeding that of Hilton. That translates to well-over a million stays a night through those companies, many occurring in formerly private residences or long-term rentals.

Nationwide studies have demonstrated that, despite a marked increase in interest in short-term, non-hotel rentals, prices have remained in line with overall inflation, suggesting that supply is keeping up with demand but, at the same time, no corresponding increase in construction has been seen. Instead, those studies have found that the prices of long-term housing are rising faster than overall inflation, suggesting a shortage of long-term housing. In other words, as more units become available as short-term rentals, fewer potential housing units are available to long-term renters or owner-occupiers, exacerbating the existing housing shortage.

In New Hampshire, local officials and local legislative bodies are on the front lines when it comes to designing and enforcing zoning ordinances which balance the requirement for a balanced supply of housing against the utilization of that housing as short-term rentals. RSA 674:16.

Much of the discussion thus far as focused on use of ADUs as short-term rentals. While ADUs were a common feature in single-family homes in the early 20th Century, post-WWII suburbanization and the deployment of “Euclidean” zoning resulted in them becoming far less prevalent. It was not until 2017 that many municipalities even had regulations in their zoning ordinances pertaining to ADUs. Still, the courts have had occasion to define “accessory use” as “one which is dependent on or pertaining to the permitted principal use, i.e. a subordinate use of the property occasioned by the main use, and an incident of it, rather than a principal use of itself.” Becker v. Town of Hampton Falls, 117 N.H. 437 (1977) (quotations and citations omitted). As applied to an ADU that means a secondary dwelling unit on the same property.

Yet, local officials are not only faced with secondary – or accessory – dwelling units being offered as short-term rentals. They are also faced with primary dwelling units – houses – being offered as short-term rentals.  The challenge local officials face is how to classify these different classes of short-term rentals. There, RSA 155-A:1 - :2, which states that all buildings, building components, and structures constructed in New Hampshire must comply with the state building code a.k.a. the 2009 International Building Code (at the time of this writing) provides some assistance. The Building Code distinguishes between residential occupancies containing sleeping units where the occupants are primarily transient in nature and those where the occupants are primarily permanent in nature. § 310.1. “Transient in nature” is defined as “occupancy of a dwelling unit or sleeping unit for not more than 30 days.” § 310.2. While these definitions are important, they are not controlling. Local officials can create their own definitions as part of the zoning ordinance, and that definition will determine whether short-term rentals are prohibited or restricted in each zone type.

A zoning ordinance adopted under RSA 674:16, may regulate the use of buildings for any purpose. It states that a zoning ordinance “shall be designed to regulate and restrict . . .the location and use of buildings, structures and land used for business, industrial, residential, or other purposes.” Although various statutes and court decisions impose limits on municipal authority to regulate property uses through zoning, but there is nothing that prohibits regulation of short-term rentals through the zoning ordinances.

The same cannot be said of housing codes. RSA 48-A:2 was enacted in 2017 for the purpose of preventing municipalities from using their housing codes to restrict short-term rentals. It states, “[t]he power conferred by this section shall not be used to impose any additional ordinances, codes, bylaws, licenses, certificates, or other restrictions on dwellings used as a vacation rental or short-term rental.”  The original language of the bill, 2017’s HB 654, would have limited the ability of municipalities to regulate short-term rentals through their zoning ordinances, but that language was rejected in favor of the provisions that merely restrict the use of housing codes to regulate short-term rentals.

Therefore, local officials concerned with whether a house is, functionally, a hotel should review their current zoning ordinances to determine how the definitions contained therein pertain to short-term rentals and what regulations also apply to those rentals.

It is important to note that the planning board will have an important role in reviewing the existing ordinance and determining whether it regulates short-term rentals. The board should ask itself whether the ordinance is permissive or prohibitory. A permissive ordinance is defined as one that prohibits all uses that are not expressly permitted in the ordinance. If a particular use is not mentioned in the ordinance, it is not allowed in the municipality, unless it can be deemed an accessory use to a permitted use. An accessory use is one which is subordinate or incidental to the permitted use. Marchand v. Town of Hudson, 147 N.H. 380 (2001) (defining what is not an accessory use). In contrast, a prohibitory ordinance permits all uses that are not expressly prohibited.

The determination of whether an ordinance is permissive or prohibitory is important for its application of definitions to short-term rentals. The term “short-term rental” will, most likely, not be defined by existing zoning ordinances – unless those regulations were recently updated – but other terms, such as hotel or bed and breakfast may encompass short-term rentals, depending on how those terms are defined, especially if those terms are defined broadly and reflect the International Building Code’s split between transitory and permanent dwellings. Those zoning ordinances with broad definitions for “hotel” may very well now lump some houses into that category.

Municipalities looking to clarify their zoning ordinances to regulate or not regulate short-term rentals should ensure that their definitions section clearly defines each relevant term and that all restrictions, prohibitions, or permissions are stated clearly. Municipal counsel should review these sections with an eye towards clarity and enforceability. And, most importantly, municipalities must plan to enforce these sections, especially if they are looking to restrict some uses. In addition, municipalities which permit short-term rentals should remember that those rentals are subject to site plan review under RSA 674:43.

Natch Greyes is Municipal Services Counsel with the New Hampshire Municipal Association.  He may be contacted at 603.224.7447 or at legalinquiries@nhmunicipal.org.