Arizona Legislature passes a measure to restore some power to cities

August 1, 2022

By Paris Achen
After years of fighting against an Arizona state law that prohibited cities from regulating short-term rentals differently from long-term rentals. Cities have been granted the authority to establish STR licensing and permitting programs, as well as to suspend or revoke licenses for STRs who have repeatedly violated the law.
In a last-minute rush, Senate Bill 1168 approved the new regulating powers one day before the statutory close of Arizona’s legislative session. Gov. Doug Ducey signed this bill on July 6th, and it will be effective on September 24th.
SB 1168 is the result of many years of negotiations between STR advocates and city government officials, as well as state legislators.
“SB 1168 was a compromise that both sides reached that essentially will give cities the ability penalize and eliminate bad actors, or as we call them, the one percent,” Linda Curry, president of Arizonans for Responsible Tourism (an advocacy group that fights for fair STR regulations), said.
“Nuisance in neighborhoods is not beneficial to neighbors or the ST industry. We can all agree that fair regulation is needed to curb these issues.
Preemption law in Arizona
Moreover, SB 1168 protects STR owner’s property rights by preserving Arizona’s preemption law which prohibits cities from banning short-term rentals or limiting their availability.
Senate Bill 1350, 2016, was Arizona’s preemption law. The law forbade cities from limiting or banning short-term rentals. It also prohibited cities from regulating short term rentals differently to long-term rentals.
The Arizona League of Cities strongly opposed the law. Cities believed that they had no recourse options to address problems with short-term rentals in their communities like nuisance and party houses without licensing and permits programs.
During subsequent legislative sessions the legislators’ allies filed dozens upon dozens of bills to repeal or weaken the law. However, none made it to the governor’s desk for signature.
Local STR ordinances test the preemption laws
Some towns have tried to regulate short-term rentals in their own way, while others are still trying to follow the state’s lead. Paradise Valley passed an ordinance in early 2022 that was meant to curb short-term rentals that host loud parties.
Some of the requirements were not allowed by Arizona law. For example, the ordinance required operators to conduct background checks on all guests and submit reservation information within 24 hours.
On March 30, Arizona Attorney General Mark Brnovich issued an opinion declaring that Paradise Valley’s ordinance was in violation of the state preemption law. The law was specifically violated by a ban on “social gatherings” at short-term rentals. In addition, there were violations of registration requirements and fines. Paradise Valley also found that it could not require STR owners to meet with guests and verbally explain all rules and regulations prior to occupancy. The town did not have the authority or authority to impose fines on online lodging platforms.
The ordinance was investigated by the attorney general’s office under a 2016 law which allows state legislators to initiate a review if they believe that a local government is violating state law. If the attorney general finds a violation of state law, the local government could lose its share in state income tax revenue. According to the Arizona Mirror, this would amount to approximately $1.6million for Paradise Valley.
For repeat offenders, increased penalties
2019 saw the passage of House Bill 2672, which gives cities the power to fine STR operators who are found to have violated local or state laws.
The bill was intended to target STR party house and increased the penalty for each repeat offense in a 12-month period. A maximum penalty of 50% of a vacation rental’s gross monthly income is set at 50%.
Senate Bill 1168 expands on this authority.
“There were already laws in place to eliminate bad actors (in STR space), but Senate Bill 168 really helps cities go after them,” said John Hildebrand. He is a member of the AZRT board, president of Scottsdale Short-Term Rental Alliance and owner of Hilde Homes, a vacation rental property management company. It also protects neighbors who have had problems with bad hosts.
The law allows cities the right to require a regulatory license or permit. The fee must not exceed the cost of issuing the permit or licence or $250, whichever is lower. However, the permit or permit must be issued or denied within seven days.
Penalties for violations are limited to $500 or one night’s rent for the first violation; $1,000 or two nights’ rent for second violation; and $3,500 for three nights rent for the third violation within a 12-month span.
The bill contains a three-strike rule that allows cities to suspend or revoke licenses or permits for up to a whole year if STR operators are found guilty of three health and safety violations within a 12-month time period. If an STR operator is convicted of felony, murder, or housing a sexual offender, a city can suspend or revoke their license.
STRs can also be required to have liability insurance of at minimum $500,000 or to offer each rental through an internet lodging marketplace that provides equal, or greater coverage.
Operators may also be required to provide contact information as well as permit/license numbers for all single-family residential properties that are adjacent to or diagonally opposite a short term rental.
Operators may also be required to provide an emergency contact to respond to any complaints or emergencies that arise in person, if necessary by public safety personnel.
What’s next?
Many cities with vibrant STR markets, such as Sedona, Phoenix, and Scottsdale, will likely quickly act to pass new ordinances using their new powers under SB 1168. Their ordinances will likely be fairly uniform due to the detail in the law.
“Ideally, this doesn’t have an effect on the good actors of the marketplace,” stated Ashley Hodgini (Expedia Group regional government affairs manager). It is intended to give local jurisdictions the ability to address bad behaviour and regulate the industry in a way that preserves property rights and preserves Preemption. However, it also gives cities a little more comfort that they can turn to if there are any concerns from neighbors.
Photo courtesy Levi Meir Clancy

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