New short-term rental regulations represent a significant change in Philadelphia

As the short-term rental market has grown in recent years, state and local governments across the country have been challenged to craft legislation that reliably enforces operating standards that maintain the character and safety of their cities, towns and neighborhoods. These attempts at regulation range from an outright ban on short-term rentals in some municipalities to special permit and licensing requirements with specific rental standards and restrictions.

Courts across the country have heard cases in which such legislation has been challenged as an unconstitutional hold due to the restricted freedom of use of the owner’s property and the loss of economic value due to the loss or reduction in rental income. The United States Court of Appeals for the Third Circuit addressed some of these issues in a recent case involving a dispute over a zoning ordinance in Jersey City, New Jersey, imposing certain restrictions on short-term rentals (allowed only for owners and limited to 60 nights per year). To see Nekrilov against Jersey City, 45 F.4e 662 (3rd Cir. 2022). In Nekrilov, the circuit court held that the loss of rental income was not such an extreme write-down that it could characterize a taking because the property has many other productive and beneficial uses. Similarly, the argument for landlord freedom of use was dispelled by the circuit court’s decision that the ordinance was “a general zoning by-law restricting permitted uses of residential dwellings for the purpose of protecting the residential housing market”. The circuit court ruling reinforces many laws and regulations that have been implemented across Pennsylvania over the past several years, including recent legislative actions in the city of Philadelphia.

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