Federal appeals court upholds Santa Monica’s ban on short-term vacation rentals

A federal appeals court on Thursday unanimously upheld a Santa Monica ordinance banning most short-term vacation rentals.

A three-judge panel of the U.S. 9th Circuit of Appeals rejected a potential class-action lawsuit against the city, which passed the law in 2015 on the grounds that visitors who rent through Airbnb Inc. or other companies “sometimes disrupt the quietude and residential character of the neighborhoods.”

The ordinance prohibits vacation rentals of 30 days or fewer, except when a primary resident remains in the home.

Santa Monica resident Arlene Rosenblatt had been renting out her home for $350 a night when she and her husband traveled. She charged in a lawsuit that the ordinance hindered commerce in violation of the federal Constitution.

Online short-term rental companies allowed tourists access to affordable lodging over “the ultra-luxurious, highly occupied and pricey hotels in the city,” the lawsuit argued.

Santa Monica’s real intent in passing the ordinance, Rosenblatt contended, was to boost demand for the hotels and reverse a decline in revenue from the city’s 14% transient occupancy tax, paid by hotels but not by short-term renters.

The lawsuit alleged that the ordinance illegally denied travelers from out of state access to Santa Monica’s residential neighborhoods. The 9th Circuit rejected that contention, concluding the city offered reasonable alternatives to the vacation rentals.

The ordinance “does not discriminate against persons outside of Santa Monica, who stand on equal footing with Santa Monica residents in their ability to purchase Santa Monica property and reside there,” Judge Jacqueline H. Nguyen, an Obama appointee, wrote for the court.

Rosenblatt also alleged that the ordinance directly regulates interstate commerce because 95% of short-term rentals in Santa Monica involved out-of-state travelers. Disagreeing, the 9th Circuit said the law penalizes conduct only in Santa Monica, regardless of whether the visitors come from California or elsewhere.

Santa Monica is considered to have one of the strictest bans on short-term rentals in the country. A report by Conde Nast Traveler last year identified cities around the world that regulate Airbnb in varying degrees. They include Los Angeles, San Francisco, Charleston, Amsterdam, New York, Mallorca, Paris and Barcelona.

After more than three years of debate, Los Angeles passed its ordinance last December limiting short-term rentals to primary residences, not second homes or investment property. The law was intended to deter people from buying apartments and running them like hotels, a practice that activists said was exacerbating the housing crisis.

But the rules did not take immediate effect. Los Angeles gave hosts until November to register with the city through a new system.

In a letter sent to city officials last week, Airbnb argued it needed more time to build a computerized system to share rental information with the city — one of the ways that online platforms can comply with the new ordinance. A spokesman for the city’s planning department said there were other ways to comply and the new rules would take effect Nov. 1.

Rosenblatt’s challenge to the Santa Monica ordinance reached the 9th Circuit on an appeal of a district judge’s decision to dismiss the lawsuit. Without a trial, the judge ruled there was no legal basis under which Rosenblatt could prevail.

The 9th Circuit rejected another challenge of the law earlier this year by Airbnb and Expedia Group Inc.’s HomeAway.