Overview: DC’s new short term rental (STR) laws

Many of our investor clients are in the short term rental (STR) business. Rather than leasing to tenants on a yearly basis, these investors rent out their properties for a few days or weeks, often with the assistance of a booking service such as AirBNB or VRBO.

There are several advantages and a few disadvantages to this REI business model, which we’ll discuss in another article.

Because STRs compete directly with hotels, and because they tend to change the neighborhood within which they operate to a more transient population, they have experienced resistance (both from the hospitality industry and the residents) in many locations around the country. The issue of whether a jurisdiction or community should allow or restricts STRs in some way produces heated debates. Facing pressure to act on this subject, DC in 2018 set out to establish laws regarding the operation of STRs within the city. The stated purpose of such laws were as follows:

To require the Department of Consumer and Regulatory Affairs to license the operation of short-term rentals, to establish duties and enforcement powers for the department, to provide for the establishment of enforcement procedures for short-term rental requirements, to require short-term rental hosts to obtain a license endorsement to operate a short-term rental, to create a new license endorsement for short-term rentals, to create a new license endorsement for vacation rentals, to establish health and safety requirements and other restrictions for hosts, to establish requirements governing the booking of short-term rentals, to permit limited vacation rentals, to require short-term rental hosts and booking services to maintain records, to require booking services to submit a monthly report of short-term rental booking information, to require hosts to pay transient lodging taxes, to require booking services to collect and remit transient lodging taxes, and to establish penalties for violations of this act.

Here are the most important aspects of the “Short-Term Rental Regulation Act of 2018”, which is just now in 2022 beginning to be enforced now that the structure of licensing and enforcement has been implemented:

  • The Act (and recently-promulgated regulations) establishes two (2) classes of licenses — Short-Term Rental and Short-Term: Vacation Rental. The license comes as an endorsement to the Basic Business License and lasts two (2) years. The fee to obtain each type of license is currently $104.50. A property can have both licenses.
  • The first hurdle to overcome with STRs is permitted use. A license is not obtainable if STRs are prohibited by the HOA, condo association or cooperative association within which the property is located.
  • The second hurdle to overcome is that a property used as a STR with either or both license types must be the owner’s primary residence. In other words, the property must be owned by an individual or individuals who have applied for and obtained the homestead exemption.
  • With a Short-Term Rental, the host rents out a portion (or portions) of the property such as a bedroom, an English basement, or an accessory dwelling unit, and the host remains present on the property during the occupancy, which must be thirty (30) or fewer continuous nights. There are no daily limits for the calendar year with respect to this type of rental.
  • With a Short-Term: Vacation Rental, the host rents out what is advertised as exclusive use of the property. The host does not remain present on the premises. This is your basic “whole house” rental. There is a ninety (90) day limit (within a calendar year) on this type of rental.
  • Fines for violating the law: $250 for the first violation; $500 for the second violation; and $1,000 and automatic revocation of the license endorsement for the third violation

DC has certainly put up some roadblocks to STRs with the new laws but based upon the framework there are clearly some workarounds possible to operating a successful STR business in the city. Feel free to reach out to us with any questions about purchasing investment properties of any type, including those intended to be used as short-term rentals.

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