By Nicholas Bartzen and Howard Dakoff Published by CondoLifestyles
On June 22, 2016, the City of Chicago adopted an Ordinance that establishes regulations, and bolsters protections for condominium and homeowners associations, affected by the recent surge in home-sharing and vacation rentals via platforms such as www.airbnb.com and www.VRBO.com.
The ordinance requires companies such as VRBO and Airbnb to be licensed as a short-term rental intermediary or advertising platform. It also requires individuals who wish to list their townhome or condominium unit as a temporary or transient rental to register the unit with the City (any individual owning and operating more than two units as short-term rentals will be required to not only register, but also obtain an operator’s license). This will better allow the City to track units made available for lodging, respond to complaints and penalize those who break the rules.
The ordinance sets a great number of protections to address the quality of life issues in community associations where transient rental is popular. These protections include: designating a set number of allowable units within a building which may be rented, requiring all those who wish to rent their units to register with the City, and requiring those who reside in community associations, when registering, to sign an attestation that the association has no prohibitions in its by-laws on vacation or transient rentals. Buildings with more than five units will be limited to one-quarter of the total number of dwelling units, or six rental units (whichever is less) that may be rented at any given time.
Prohibited Building List
Most importantly, the City will maintain a “Prohibited Building List” (the “List”) that, at the discretion of the association’s board of directors, will allow for a blanket prohibition on short-term rental activity within that particular building. The List may include apartment buildings containing five (5) or more dwelling units, along with co-ops, condominium buildings
or any building governed by a homeowner’s association regardless of the number of dwelling units in those buildings, which prohibit any short-term rental activity (i.e., rental or occupancy of a dwelling unit for 32 or fewer consecutive days). The Department of Business Affairs and Consumer Protections (“Department”) is in charge of overseeing the List and taking appropriate enforcement action to ensure that dwelling units in the building on the List are not rented through intermediary platforms like Airbnb.
In order to have a property included on the List, an authorized agent of the association (which could include a managing agent or the association’s attorney) must submit a notarized affidavit to the Department certifying the association has a valid ban on short-term rental activity in the governing documents. A copy of the affidavit is included here or can be found on the Business Affairs and Consumer Protection website at www.cityofchicago.org/bacp.
Two items the Board must consider before taking action to include a property on the List:
1. The Board must be authorized to put the association on the List.
A simple rule within the association’s rules and regulations banning short-term rental is insufficient for the board to include the building on the List. A board of directors must be authorized by the association’s declaration or by-laws to include the association on the List. The authorization
would come in the form of a ban on short-term vacation rentals within the declaration or by-laws. A recent case from the Illinois Appellate Court (Stobe v. 842- 848 West Bradley Place Condominium Association) held that a condominium board may not simply adopt a rule restricting unit leasing if the declaration recognizes the unit owner’s right to lease. Accordingly, should the board wish to include the association on the List and no such prohibition on short-term rental is contained in the declaration or by-laws, then the board must consider amending its declaration to prohibit such rental activity.
2. Owners and Lessors must disclose that the association appears on the List.
Once the association is included on the List, any unit owner selling or legitimately leasing their units (i.e. long-term leases) must disclose the fact to the buyer or potential tenant that the association is on the List. The seller or lessor must receive a written receipt of acknowledgement from the buyer or tenant that such information has been disclosed.
The City will enforce the ordinance by seeing to it that buildings that appear on the List are immediately removed from any rental or home-sharing intermediary or online platform. The City will also take action against individuals renting units without a license or in buildings that appear on the List. Complaints will be made via the City’s 311 non-emergency line or the City of Chicago website (i.e. filing a complaint against an individual for operating a business without a license or operating an illegal business). Platforms such as Airbnb and VRBO will be required to consult said lists and remove any listings in order to maintain their right to operate in the City. Those selling or legitimately leasing their units (for non-transient purposes) within buildings that appear on the “Prohibited Building List” must disclose that information to (and receive a written receipt of acknowledgment from) the buyer or tenant.
Finally, the City of Chicago has mandated that cites such as Airbnb establish a 24-hour hotline that can be reached by dialing the City’s 311 non-emergency line to report any violations or quality of life issues that may be related to transient or vacation rental.
With the passage of this ordinance, Chicago becomes the first City in the United States to establish a requirement for uniformed operations between vacation rental platforms and for the removal of listings from a company’s platform for violation of a City’s ordinance.
If your community association’s governing documents contain prohibitions on short term and/or transient rentals, the board of directors should consider registering as a Prohibited Building.
One should consult an attorney to assist your board or association in determining whether inclusion on the List is permitted by its governing documents, preparing amendments to the governing document to permit inclusion on the List, and to assist your board in ensuring that the affidavit is completed correctly.