Short-term rentals and the regulations that govern them are becoming increasingly controversial in New Jersey. 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 restrict so-called transient accommodations.

State Tax on Transient Accommodations

Last year, New Jersey enacted a new law that imposes the State sales and use taxes on “transient space marketplaces” like Airbnb. Under P.L. 2018, c. 49, New Jersey municipalities may also impose the following taxes and fees on transient accommodations where applicable: the municipal occupancy tax, the sports and entertainment facility tax - Millville, the Atlantic City luxury tax, the Atlantic City promotion fee, the Cape May County tourism tax and assessment, and the hotel occupancy tax.

Under the new law, a transient accommodation is defined as a “room, group of rooms, or other living or sleeping space for the lodging of occupants, including but not limited to residences or buildings used as residences.” P.L. 2018, c. 49 mandates that transient space marketplaces like Airbnb collect and pay the tax on behalf of the property owner. Transient space marketplaces are also required to maintain certain data for at least four years, including the name of the person who provided the rental, the name of the renter, and the rental rate.

The goal of the law was to place short-term rentals on par with hotels/motels with respect to taxation and level the playing field between the two industries. However, critics have raised concerns that it is having a negative impact on New Jersey’s tourism industry.

In response to concerns, Gov. Murphy recently signed legislation (A4814/4520) that limits the scope of the law to exclude transactions made directly between property owners and renters. As amended, the law now only applies to “rentals of professionally managed units and rentals obtained through a transient space marketplace or travel agency, as long as the transient space marketplace or travel agency does not exclusively offer transient accommodations owned by the marketplace or travel agency.”

Local Regulations on Short-Term Rentals

While once supportive of short-term rentals, municipalities have also increased oversight over rental marketplaces like Airbnb and VRBO. In June, Jersey City enacted controversial new short-term rental regulations. Just four years ago, Jersey City was one of the first municipalities in the state to expressly authorize home-sharing.

In support of the new regulations, the City Council argued that, if left unregulated, the growing number of short-term rentals could lead to negative impacts in the community.  The ordinance expressly states that “it is in the public interest that short-term rentals be regulated in order to help preserve housing for long-term tenants and to minimize any potential deleterious effects of short-term rental properties on other properties in the surrounding neighborhoods in which they are located.”

The ordinance (Ordinance 19-077) establishes 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. Below are several key provisions:

• A property owner may continue to operate the investment property as a short-term rental if a designated individual lives on-site. If a short-term rental property owner wishes to rent their property while they are not physically on-site, the property can be rented for a maximum of 60 days per calendar year.
• Property owners with under four units who wish to rent must reside on-site.
• No short-term rentals are allowed in any unit in which rents are set by HUD, a State agency, or the City’s rent control ordinance.
• To operate a short-term rental under the ordinance, property owners must obtain a permit through the City’s Division of Housing Preservation. Each permit is valid one year and must be renewed annually and may be suspended and/or revoked based on “substantiated” complaints.
• Violations of the ordinance may result in fines of up to $2,000.

Jersey City’s short-term rental ordinance is scheduled to take effect on January 1, 2020. However, critics, including  Airbnb, argue that its requirements are too onerous. After the City Council voted to leave the ordinance in place, a referendum petition to repeal the regulations is poised to go before voters in November.

At this point, it is unclear whether Jersey City’s regulations will take effect or whether the City Council may have to go back to the drawing board. Either way, the home-sharing industry is likely to face additional regulations in the future. We encourage property owners, investors and third-party facilitators to work with our experienced counsel like Ashley Brinn, Esq. 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, Ashley Brinn, or the Scarinci Hollenbeck attorney with whom you work, at 201-806-3364.