How the Short Term Rental (STR) Market in Arizona is Changing

Vacation rentals have been around forever, but prior to the internet they were both challenging and expensive to lease up. In the digital age of social media, and with sites like VRBO, and AirBNB it is easier than ever to have a side-hustle and monetize a second home. This is exciting for obvious reasons; it’s a good way to diversify a personal portfolio. It’s worth noting, however that the massive increase in short term rentals (STR’s) has had unintended consequences. Many homeowners who permanently reside in their homes feel left in the lurch as they deal with “neighbors” in their community that host transient renters who are sometimes a nuisance and disrupt their peace. That frustration has increased as they lacked the tools to create or enforce any “good neighbor” considerations.

Today’s post will discuss the legal evolution of regulations concerning STR’s in Arizona past, present, and future. We will also cover what qualifies as an STR, and a few tips on how to own and operate an STR while still being a good neighbor.

As the industry has evolved, laws and regulations have also evolved. In 2016, Governor Ducey signed SB1350 into law. This authorized STR’s in the State of Arizona and prevented state, county and local municipalities from taking action to restrict them. While the law prevented government restriction of STR’s it left a loophole open that private parties (such as HOA’s) began to use to restrict STR’s in specific neighborhoods through deed restrictions and covenants, conditions, and restrictions (CC&RS). Since 2016 many HOA’s have taken action to amend their CC&RS to restrict STRs in their communities.

In March 2022, the Arizona Supreme Court delivered a decision in the Kalway case, (which incidentally has nothing to do with STR’s), but has rendered many, if not all CC&R amendments void or ineffective. The Courts decision significantly limits the rights of HOA’s to make amendments. If they do amend the CC&RS the changes have to be attached to a previously existing subject or clause in the original document.

Because many of these communities amended CC&RS and recorded those amendments with the County Recorders Office, legal action will be required to clarify the property owners’ rights and responsibilities and remove the unenforceable amendments. However, if the CC&RS were amended incorrectly (according to the Supreme Court opinion) then anyone who amended the CC&RS and recorded them may be subject to civil liability per A.R.S. §33-420, including damages and attorneys’ fees.

In July 2022 a new law, SB 1168, was signed into effect by Governor Ducey that allows local governments to require short-term rentals to obtain and maintain a local regulatory permit or license. The purpose of the law was to provide local governments with a means to hold “bad actors” accountable for their actions.

The City of Scottsdale has already adopted regulations for STR’s based on the new law. On October 25, 2022, Scottsdale City Council unanimously adopted Ordinance 4655. The new ordinance requires owners and operators to obtain a license for each rental property and comply with several requirements. The ordinance takes effect Nov 24, 2022, and owners must use the license application portal to complete registration and obtain licenses by January 8, 2023.

STR owners should perform their due diligence and be aware of all State, County, and City requirements that they may be subject to. As an example, if you own and operate a vacation rental or STR in Scottsdale, these are a few factors to consider:

– The state requires a “Transaction Privilege Sales Tax (TPT)” and a Transient Tax liability, which require a license with the State of Arizona Department of Revenue.

– Maricopa County requires that all STR’s file with the county prior to being occupied, as required by ARS 33-1902. It is illegal to rent a property before it is registered with the Maricopa County Assessor.

Scottsdale

– Scottsdale specifically requires the name and contact information of a person designated as an emergency contact, as well as the owner for responding to complaints in accordance with Section 18-150 of the city code. The designated emergency contact must respond in-person to the property within one hour of the city’s notification in the event of an emergency.

– You also must be licensed and pay tax if you lease or rent property in Scottsdale.

– The ordinance also includes pool barrier/safety regulations

Other cities have also been working towards using these new legal provisions to better manage STR’s within their municipalities.

While STR’s can be a nuisance to their neighbors, they also contribute to the state’s tourism economy and support thousands of small businesses across the state. This incentivizes local municipalities to find ways to work with STR owners on good business practices that allow them to monetize their property, support the local tourism economy and be good neighbors.

The City of Scottsdale has published a couple of “Good Neighbor Guides” that provide some excellent information. Click here to see the guide for owners and managers of STR’s. Click here for a guide for renters/visitors.

Arizona is continuing to prove that they support owners who operate short term rentals and recognize the economic benefits they bring. They are also working to refine and provide more tools to local governing bodies for enforcement of “good neighbor” policies that allow STR’s to operate while minimizing potential damage to the surrounding neighborhoods and owners.

Disclaimer

This article is of a general nature and reflects only the opinion of the author at the time it was drafted. It is not intended as definitive legal advice, and you should not act upon it without seeking independent legal counsel.