All About Jersey City’s Restrictions on Short-Term Rentals

For homeowners and investors, the ability to rent out properties via sites like Airbnb can be extremely lucrative, particularly in towns on the Jersey Shore and urban centers like Jersey City...

For homeowners and investors, the ability to rent out properties via sites like Airbnb can be extremely lucrative, particularly in towns on the Jersey Shore and urban centers like Jersey City. However, neighbors complain that the steady stream of people in and out is leading to increased noise, trash and other negative impacts. In response, municipalities like Jersey City, which were once supportive of home-sharing, are also increasingly enacting regulations to govern so-called transient accommodations. 

Jersey City was one of the first municipalities in the state to expressly authorize home sharing. However, in 2019, the city enacted rental regulations (Ordinance 19-077) establishing several new requirements for short-term rentals, such as mandating certain property owners be on-site, establishing permitting requirements, identifying what type of housing may be considered in short-term rentals, and limiting the time a person can rent the property. 

Last year, Jersey City’s ordinance restricting short-term rentals survived a legal challenge by Airbnb hosts who alleged the ordinance was unconstitutional. In Nekrilov, et al. v. Jersey City, a New Jersey federal judge granted Jersey City’s bid to dismiss the case after concluding that the plaintiffs didn’t have a constitutional right to pursue their rental businesses in Jersey City.

Challenge to Jersey City Ordinance

The Plaintiffs all operated numerous short-term Airbnb residences in Jersey City. In 2015, Jersey City passed an ordinance affirmatively permitting short-term rentals in the City. In 2019, however, the city passed another ordinance which limited such rentals. Ordinance 19-077, while not banning short-term rentals, imposed important new restrictions. First, it barred short-term rentals in non-owner-occupied dwellings in excess of a total of 60 nights per year. Second, it no longer permitted short-term rentals as subleases; that is, only property owners were permitted to rent their property on a short-term basis.

Before Ordinance 19-077 was passed, each plaintiff made significant investments in Jersey City real estate, for use in the business of short-term, Airbnb-style rentals. Some of those investments consisted of purchases of properties. On December 31, 2019, the Plaintiffs filed suit pursuant to the Takings, Contract, and Due Process Clauses of the United States Constitution, seeking an injunction and monetary damages.

District Court Dismisses Suit

On March 24, 2021, U.S. District Judge Kevin McNulty dismissed the suit. He further denied the Plaintiffs’ motion for a preliminary injunction and temporary restraining order.

Judge McNulty first addressed the Plaintiffs’ assertion that the ordinance violated the Fifth Amendment’s takings clause. While he agreed that the Plaintiffs had the right to the use and enjoyment of their properties held in fee simple interest, the right to use and enjoyment of long-term leases, and the contractual interest in short-term rental bookings which would be abrogated by Ordinance 19-077, he rejected the argument that they had a property interest consisting of their forward-looking right to “pursue their short-term rental businesses in Jersey City.” Judge McNulty went on to further find that Ordinance 19-077 did not amount to a taking.  

“Plaintiffs have not lost all economically beneficial use of their property,” Judge McNulty explained “Plaintiffs assert that their short-term rental businesses ‘will be totally lost as a result of Ordinance 19-077’ and that they have therefore lost all economically beneficial use of their specific property right in the operation of a business. … However, plaintiffs have no protected property right in the ongoing operation of their businesses per se. Loss of the practical ability to carry on the business of short-term rentals at a profit is not in itself a taking.”

Judge McNulty next turned to the Plaintiffs’ assertion that Ordinance 19-077 violates the Contracts Clause of the U.S. Constitution because it impairs vested long-term leases and short-term rental bookings. “I will dismiss plaintiffs’ contract clause claims,” he ruled. “Even assuming they have demonstrated substantial impairment of their contracts, plaintiffs have failed to show that Jersey City lacked a legitimate public purpose in enacting the ordinance or that the ordinance was not a reasonable adjustment of the rights and responsibilities of the contracting parties.”

Lastly, Judge McNulty considered the Plaintiffs’ claim that Ordinance 19-077 violates the Constitution’s Substantive Due Process guarantees, concluding that the ordinance passes rational basis review. “As explained regarding plaintiffs’ assertions under the contracts clause, the city had legitimate interests in increasing the long-term housing supply and reducing public nuisances,” Judge McNulty wrote. “Ordinance 19-077 rationally furthers those interests by removing short-term rentals, which reduced the long-term housing supply and made public nuisances more likely.”

Key Takeaway

While short-term rentals are extremely popular and can generate significant revenue for investors and homeowners, they are also subject to growing regulations. We encourage property owners, investors and third-party facilitators to work with experienced counsel to effectively navigate the shifting legal landscape.

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, Pat McNamara, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.