Kakaako condos – new vacation rental rule?
On 2/25/2016 PBN published an article titled: “Regulators warn Honolulu condo unit owners about vacation rental rule.” The article states: “Under current rule by the Hawaii Community Development Authority, the State agency regulating development in the area, condo units may not be rented for fewer than 180 days.”
The article also quotes a resident manager of one of Honolulu’s high-profile condos: “..many resident managers in the (Kakaako) area did not know about the rule.”
The article further states: “The vacation rental rule came from the 2011 revisions of the 2005 Kakaako Mauka Area Rules, according to the HCDA, which noted that, at that time, all landowners were notified of the changes.”
The article further quotes a local realtor: “This may cause some problems with developers too.”
Really? – Let’s find out what the buzz is all about.
Where can we find this alleged new vacation rental rule?
See the official Hawaii Community Development Authority website and read all HCDA rules and revisions. We checked them all. There is no vacation rental rule, except HCDA’s Q&A section reads in simple terms:
“Q: Will HCDA have rules to prevent residential housing from being turned into vacation rental units?
A: Short-term rentals or transient housing projects are not permitted by the HCDA rules in the KCDD.”
According to Deepak Neupane, P.E., AIA, Director of Planning & Development with HCDA, contrary to what the article reads, there was no vacation rental rule change in 2011. There was no new vacation rental rule added in any of HCDA’s revisions over the years.
Kakaako neighborhood vacation rental rules have always been the same: HCDA never allowed ‘short-term rentals’ or ‘transient housing projects’ in Kakaako, consistent with HCDA’s Q&A section above.
What is the existing vacation rental rule?
A recent letter from Anthony J. H. Ching, HCDA’s Executive Director, dated 12/29/15 makes an attempt to clarify in response to an inquiry by a resident manager of another high-profile Kakaako condo:
In other words: Vacation rentals are not allowed in Kakaako, and you shall not rent out your Kakaako apartment for less than 180 days (?!?) The letter cites two government source documents as basis.
Let’s check both documents (click respective headline blue hyperlink to read full text) starting with:
1.) Chapter 130-2 Classification of Condominiums – City & County of Honolulu, Rules & Regulations, Dept. of Budget & Fiscal Services:
For the purpose of clarifying the appropriate property tax rate, chapter 130 establishes condominium classifications based on the actual use:
“Residential use” means the use of a dwelling that you may rent out for 30 days or more per tenant lease, but not less. “Transient vacation unit” means a dwelling that you may rent out for less than 30 days per tenant lease.
2.) §18-237D-1-01 Transient Accommodation Tax – Hawaii Administration Rules (HAR)
18-237D-1-07 – “Transient Accommodations” Definition:
For the purpose of clarifying Transient Accommodation Tax (TAT), chapter 18-237D-1-07 establishes definitions based on rental terms less than 180 days:
“Transient accommodations” simply means rental terms less than 180 days, nothing else. Do not confuse this with: ‘transient accommodation units’, ‘transient vacation units’, ‘short-term vacation rentals’, ‘short-term rentals’, ‘transient housing projects’, ‘condotels’ or anything else.
Conclusion – What does it all mean to you:
Both cited government documents are: A.) not Kakaako neighborhood specific, means they apply to all of Hawaii, and, B.) both documents are well known and in existence for a long time.
That means: There really is no new Kakaako condo vacation rental rule, consistent with what Deepak Neupane, P.E., AIA, Director of Planning & Development with HCDA told us by phone Monday 2/29/2016.
The HCDA letter really makes no sense to us. We do not know why the letter states rental terms shorter than 180 days are prohibited in Kakaako. Could HCDA gotten confused? This has created a bit of a stir since the real estate industry has been operating for years with the assumption that 30 day minimum rental terms are allowed and consistent with “residential use.”
In regard to Kakaako condos, prior to the controversial letter, this is how the general real estate community has been operating:
1.) Kakaako condos are developed and offered for sale for “residential use” and are not “transient vacation units”. Consistent with “residential use” you may rent out your Kakaako condo for 30 days minimum per tenant lease, but not less. Some individual condo house rules may further restrict by requiring 60, 90, or 180 day minimum rental terms. If you rent out your Kakaako condo, all gross rental income is subject to General Excise Tax (GET).
2.) If you rent out your Kakaako condo for less than 180 days but at least 30 days per tenant, you will need to also file and pay Transient Accommodation Tax (TAT) besides GET.
3.) If you rent out your Kakaako condo for less than 30 days per tenant lease, means on a ‘short term vacation rental basis’ less than 30 days per tenant, you will be in big trouble and subject to hefty fines.
For now we are left scratching our heads waiting until HCDA’s upcoming April hearing. Strange letter isn’t it?
What do you think.., we’d like to hear from you.
Disclaimer: We are a real estate brokerage licensed in the State of Hawaii. We are not attorneys. For legal matters always consult with your favorite qualified professional legal counsel.
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