The City of Santa Monica has enacted an ordinance that effectively prohibits AirBnb-type vacation rentals; this ordinance is being challenged as unconstitutional through a class action filed in the Central District of California (Los Angeles) by the Los Angeles law firm of Esensten Law on behalf of property owners in Santa Monica who have lost substantial income and potentially face imprisonment of up to six months as punishment for renting out their property as short-term vacation rentals.

The last few years have seen a massive growth in the market for online short-term vacation rentals utilizing websites such as AirBnb and HomeAway, which allow property owners to earn additional income by listing their properties for short-term rental while they are away on vacation or otherwise.  The rapid growth of the market for such rentals is a reflection of the benefits provided to both travelers and owners.  However, because such vacation rentals are typically at least 50% less expensive than hotels, the impact is felt by hotels in lower occupancy as well as by cities that obtain less revenue from taxes paid by hotels.

By its express terms, the Ordinance prohibits all persons from engaging in “vacation rentals,” whereby the owner does not simultaneously reside on the property with the renter.  The Ordinance also contains a partial ban on “home sharing,” where the owner simultaneously resides on the property.  To use the home sharing exception, the listing owner must obtain a City-issued business license, which is available only to property owners residing in their Santa Monica properties.  The advertising of any such vacation rentals or home sharing is also prohibited by the Ordinance.

The impact of the Santa Monica Ordinance is substantial and financially devastating to the thousands of owners in the City of Santa Monica who offer their otherwise vacant properties for short-term rental to earn additional income.

The City of Santa Monica has been vigorously enforcing the Ordinance, budgeting $410,000 to employ three inspectors to ensure enforcement of the Ordinance during the first year of enactment.  In enacting the Ordinance, the City of Santa Monica estimated that the complete ban on vacation rentals would slash Santa Monica Airbnb listings from 1,700 to 300.

The class action filed by Esensten Law seeking to invalidate the Ordinance is based on the violation of the dormant Commerce Clause of the Constitution of the United States, which prohibits legislation that discriminates against interstate commerce.  Based upon the constitutional violations, the class action seeks to have the Ordinance declared invalid and to prevent enforcement of the Ordinance by way of an injunction, which is a Court Order prohibiting the City from enforcing the ban on vacation rentals, as well as seeking a return of the fines the City has already collected and will collect until the case is tried before the Court.   The motion for an Injunction, the motion to certify the class of Santa Monica property owners effected by the Ordinance and a motion by the City of Santa Monica to have the litigation dismissed are pending before Judge Otis Wright.