Takeaways:
- A property owner’s intended use of a property should be reviewed with applicable local zoning and uses laws.
- The Jersey City ordinance restricting and limiting a residential usage as a short-term rental does not diminish the property’s value to constitute a regulatory taking under the Constitution.
- To best serve and anticipate clients’ needs, real estate professionals should be informed about the regulatory landscape for short-term rentals and residential properties.
A federal New Jersey District Court upheld the constitutionality of a Jersey City ordinance that restricts private property owners’ use of residential properties as short-term rentals.
The lawsuit, brought by operators of numerous short-term Airbnb residences, challenged the constitutionality of an ordinance that restricts short-term rentals in Jersey City. Under the ordinance, non-owner-occupied properties cannot host more than sixty (60) rental nights per year, and residents occupying properties as a leasing tenant are completely prohibited from offering short-term rentals as a sublease.
Plaintiffs argued the ordinance’s effects amounted to an unconstitutional regulatory taking, where a governmental action completely denies all economically productive use of property without just cause or compensation. Plaintiffs further argued the ordinance rendered their properties’ economic prospects worthless and deprived their constitutional property rights to pursue the short-term rental business.
The aggrieved Plaintiffs outlined how they invested substantial sums into their properties with specific intentions of capitalizing on the Airbnb short-term market prior to the ordinance’s enactment. To bolster their claims, they cited a previously enacted, but now obsolete, 2015 Jersey City Ordinance legalizing short-term rentals to illustrate the 2019 prohibiting ordinance was passed for arbitrary and politically-motivated reasons.
The Court granted Jersey City’s motion to dismiss explaining that the City sufficiently showed the ordinance served the public’s interests of increasing housing stock and preventing substantial nuisance. While limiting in nature and inconsistent given the City’s history of supporting short-term rentals, the court held the ordinance did not completely wipe away Plaintiffs’ properties’ economic uses, a required element to prove an unconstitutional taking claim. Such future lost profits were also deemed speculative to support a complete deprivation of property rights.
In April of 2021, Plaintiffs filed an Appeal of the dismissal with the Third Circuit Court of Appeals. Oral arguments were heard in November, 2021. A decision is pending.
Nekrilov v. City of Jersey City, 528 F. Supp. 3d 252 (D.N.J. 2021).