State legislation restricts municipalities in enforcing illegal short-term rentals

Overview map shows the average monthly STR listings along the Wasatch Front. (Photo courtesy Kem C. Gardner Policy Institute at the University of Utah) 

The popularity of short-term rentals (STR) has been booming throughout Utah. What started as a way for local residents to offset housing costs for some has turned into neighborhood nuisances and own-of-state property management owners profiting off of vacation rentals for others. Local municipalities, cities and counties have been attempting to address these issues but have been restricted by legislation passed by state officials.

In 2023, the “Evolving Landscape of Utah’s Short-Term Rental Market” report released by the University of Utah’s Kem C. Gardner Policy Institute recorded a 39 percent increase in STR from 2021 (23,428). As the number of STRs rise, so do the recorded complaints from neighboring residents.

Accounts of residents routinely reporting nuisances to their local municipal officers have been reported throughout the state. These range from trash and property maintenance issues to criminal activity, safety concerns, over-occupancy, noise complaints, excessive car crashes and parking violations.

Unfortunately for these residential callers, prosecuting any specific short-term rental property proves difficult for officers because of one very specific piece of state legislation.

Knotwell Rule

Affectionately called the “Knotwell Rule” after its bill sponsor, former Rep. John Knotwell, HB253 prohibits the use of short-term rental websites. (Senate President Stuart Adams served as the floor sponsor for this bill.) This “rule” originally came into effect in May 2017.

“The Knotwell Rule is: (political subdivisions) can’t use website listings as evidence of short-term rentals. That is the sticking point,” said Rep. Gay Lynn Bennion.

Bennion explained how confusing language within the bill of Knotwill’s Rule has ended up landing Salt Lake in litigation.

“Other cities are resistant to enforce (STRs) because no city wants to be in litigation,” Bennion said.

Enforcement not able to enforce

Per the Knotwell Rule, local enforcement officers cannot visit the Airbnb, VRBO or HomeAway websites and pull a listing to use as evidence in investigating or prosecuting an illegal short-term rental — even if neighboring residents have called in nuisance complaints. Instead, officers have to rely on gathering other forms of evidence.

Code Enforcement Officer Erica Wendell detailed the process of working through a single STR case. Two officers needed to work in tandem to gather sufficient witness statements, even with multiple nuisance complaints already being called in. This work took between 15 and 25 hours. Part of that investigative work involved getting enough information to start a case.

“We cannot open a case without a specific address,” said Wendell, noting calls regarding parking complaints are not specific to one property as they have to address the whole street.

Since website listings cannot be used as evidence, and many do not pinpoint specific addresses publicly anyway, simply opening a case file to address complaint calls can prove daunting.

Officers then work to compile evidence. Retrieving witness statements can be difficult as most renters don’t want to talk to them. (Wendell added many of us wouldn’t want to talk to officers while on vacation too, so she gets it.) Some renters are even encouraged by property owners not to open the door to officers.

In addition, evidence must be gathered in the same time period as when the complaint is reported. If there isn’t a code enforcement officer on duty at night when a complaint comes in, evidence can’t be gathered. And without sufficient evidence, prosecutors simply dismiss the case.

Fines as business expense

Based on current guidance from the state for fee structures, some STR property owners see incurring a fine from local enforcement as a risk they’re willing to take.

“Some Airbnbs are $1,000 per night, versus the $650 fine,” explained Cottonwood Heights Police Chief Robby Russo.

“STRs are going to make the housing crisis worse,” said resident of Cottonwood Heights Kylee Birgdee. “This will continue to price residents out of their homes.”

Current state legislation

One of the focuses for the state Legislature is to get an accurate understanding of just how many STRs there are out there. Two compliance software companies, Granitus and Deckard, have reached out to state leadership to help show them where their STRs are.

“People are laughing … about Utah … and the state regulations throwing cities under the bus,” Bennion said.

Local municipalities have been pleading with state authorities to alter the Knotwell Rule so they can tackle STR regulation and enforcement in their own communities.

“We have constraints on us imposed by state legislation that are being mitigated,” said Cottonwood Heights Councilmember Suzanne Hyland.

Neil Walter and Sen. Evan Vickers sponsored HB256, which would allow a website listing to count as evidence if paired with a supplemental piece of evidence. It would also allow for higher fines, further define time durations and address the transient room tax. (Gov. Spencer Cox signed HB256 on March 19.)

Tax revenue unknown

Currently, the taxing process for STRs requires property owners to pay taxes on their preferred listing platform (like VRBO or Airbnb). Then, those related companies go directly to the state to pay their total taxes. The state then districts out that tax revenue sum to the cities.

“We get a lump sum from the state, but that includes the hotels,” said Cottonwood Heights Mayor Mike Weichers.

“Airbnbs are hotels under the tax code,” said resident of Cottonwood Heights John Owens. “This is going to hit the housing market for children and immigrants. The solution isn’t legalizing them.”

Bennion explained how those taxes aren’t tied to any identified parcels, so local municipalities don’t know if they’re getting enough of that tax revenue, estimated at $5.5 million annually.

Municipality brainstorms

The consensus among city and municipal leaders is they do not want to restrict STRs entirely, but they do want to have a better handle on how they are legalized and enforced appropriately throughout their communities.

“Most operators want to do this legally,” said resident of Cottonwood Heights Nick Olifont. “Please allow us to do this legally and correctly.”

Local municipal leadership have been considering ideas for regulation and enforcement related to owner-occupancy, limited-occupancy maximums, inspections, safety licensing, compliance monitoring software enforcement, business permitting, time restrictions, zoning regulations, local property manager requirements and re-enrollment programs.

“There is a lot of genius out there being able to combat this in a successful way. We want to copy genius from across the West,” said Planning Commission Vice Chair Sean Steinman.

Some of the regulations municipalities have been brainstorming and implementing throughout the region are:

• Both Denver and Boise are requiring lodging tax payments. In addition, Denver has implemented requiring safety inspections.

• Colorado Springs differentiates between owner-occupied and non-owner-occupied STRs.

• Las Vegas has imposed a $55,000 fine (up to $180,000) for operating an illegal STR.

• In Utah, Washington County (with Moab and St. George) would like to capture their local tax base.

• Both Murray and Millcreek require owner-occupied STRs (with Millcreek putting a cap on a maximum total number), while Kanab requires a local property manager.

• Holladay raised its fine to $1,000.

• South Salt Lake has encouraged STRs in small regulated quantities in re-investment areas.

• Brighton’s STR regulations won’t allow property owners to re-apply for licensure if they go against regulations.

• Hurricane has implemented compliance monitoring software.

To see our previous coverage on STRs, visit the City Journals website at www.valleyjournals.com and search for the following article titles:

• City Council greenlights hosted STRs (Murray)

• Murray targets short-term rentals (Murray)

• Regulations for short-term rentals in the works (Cottonwood Heights)

• STR Policy to get overhauled by City Council (Cottonwood Heights)

• Holladay showing its teeth at STRs (Holladay)

“Outsiders are buying places to do nothing but short-term rentals. … The closer we get to the Olympics, the more that’s going to happen,” Cottonwood Heights resident Al Steward shared his concern. (iStock/Ryan Tishken)