Andrew Miller, zoning, land use, real estate law, government relations and municipal law attorney at Burce & Cracchiolo talks short term rental dos and don'ts.
Transcript:
Michael Gossie
Welcome to the AZ Big podcast sponsored by Burch and Cracchiolo. I am Michael Gossie, editor in chief, at AZ Big Media. I am joined by my co-host, our publisher, Amy Lindsey. Today I'm very excited to have this guest in the studio, Amy, and here's why.
We're very excited to have this guest because he's literally shaped the growth and development of Arizona, particularly in Paradise Valley, where he oversaw the development of ready. Here's a few projects, you ready Montelucia, Mountain Shadows, Sanctuary, Camelback Inn and the Ritz Carlton Resort that’s being built right now.Amy Lindsey
Some of our favorite places.Michael Gossie
So, I'm very very very happy to have Andrew Miller of Council at Burch & Cracchiolo. Hello Andrew, thank you so much for being here today.Amy Lindsey
Wow, that was quite the setup. I hope you're ready.Michael Gossie
Ready, so here's the thing, like I've been covering news that this guy had like intimate involvement with for so many years in Arizona, so it's just very, very exciting for me to meet him and he's just, you know, shaped so much so many of our favorite places.Amy Lindsey
I love it when Michael gets excited, it's hard to keep him in the seat with the headphones on.
So, Andrew, start off, give us a little bit more information about yourself other than the big lead in that Michael just said. Tell us a little bit about yourself and your practice at Burch & Cracchiolo.Andrew Miller
Sure, sure, I'm very excited to be at Burch & Cracchiolo. A great group of attorneys, 52-year history, and 40-plus people with a diverse number of backgrounds and specialties and so it's just exciting to be there, mostly practicing a lot in land use and in real estate. So saw a lot of that in Paradise Valley, obviously. I was there for 22 years plus and was able to retire. I promised my wife that when I got to 30 years in the municipal system I'd retire and make sure I locked in the pension so that she and my youngest son would have money for the rest of their lives.
So, the goal was accomplished, and just started looking around at private firms and got a couple of calls from people who said, hey, you gotta call over to Burch & Cracchiolo because they're busy, I think they can use your skills. And it's been a good fit, so I'm just so excited to be there and one of the things I get a lot of calls about is short-term rentals because that was a big issue in Paradise Valley when I was there and it continues to be a big issue with a lot of municipalities right now.Michael Gossie
Yeah, and absolutely especially this time of the year. You know, as we're getting into like you know, college football, bowl games, where we're hosting the Super Bowl again. We have Cactus League so I know that I've had people knock on my door in the past and they said, hey, are you interested in renting out your house for the Super Bowl? So, if I wanted to do that, what do I need to know before, before, I I get myself into that mess?Andrew Miller
Well, kind of the good news is if you go to a lot of the websites for a lot of the cities and towns now, just put short-term rental in Scottsdale, for example. They'll take you to a page where they sort of lead you through what their requirements are, and so one of the recent changes is that there's a Senate bill last year, Senate Bill 1168.Which gave a little more authority to cities and towns to have some additional regulations as well as to have requirements for licensing. And so, there's a number of different licensing steps, but now the cities have been empowered to require an actual physical license, so the fee is typically up to $250 Scottsdale PV.
They're going to both charge $250, and there's a lot of things need to fill out. One of those things you must do first is get a transaction privilege tax license because cities like their revenues and short-term rentals are subject both to a residential rental tax as well as the bed tax that is on top of that because it's a short-term stay of less than 30 days.
So, there's that TPT tax license from the state of Arizona. Something a lot of people will overlook is you also have to register any rental residential rental property with the county assessor's office.
The nice thing is that some of the cities actually have easy links to those, so you can get that form. It's an easy form to fill out and you may be subject to an additional property tax or may not, depending on how much your business activity is. The other thing you're going to need to do is abide by a lot of unique city and town code provisions.
Michael Gossie
So, do all the Cities and towns have different rules and regulations?Amy Lindsey
Yeah, I didn't realize it was different per city.Andrew Miller
Some cities have more regulations than others. I think right now Glendale doesn't quite have their licensing requirement yet, but they do have a do you need to have an emergency contact and let the city know that.I think Glendale is still looking at adopting an ordinance and even though hosting the Super Bowl. They've got some discussions and you know you'll see a lot of pushback from people who rent properties when the city start looking at these new ordinances.
But, at the same time you see a lot of people who just say we hate these things, get rid of them. We don't want them. Well, you can't do that in Arizona because of a bill back in 2016, Senate Bill 1350, which preempted the cities and towns.
The city attorney for Sedona and I were the two people who went down to lobby against that bill back in 2016, and we were told we really don't want to hear from you but we do want to hear from the Goldwater Institute and we want to hear from Airbnb and the sponsor of the bill was on the committee. They did make a few changes. I had some language suggestions, mostly to make sure that the cities and towns retain the authority to keep these to residential use for the rentals.
You can't use them for wedding venues or auction houses or a Super Bowl reception center. When I was the town attorney in Paradise Valley, we saw a lot of that activity and we regularly prosecuted those who were, say, renting their house out to an ad agency in New York, which then hosted the Audi Reception Center.
Amy Lindsey
Oh wow.Andrew Miller
Yeah, we had a house where they suspended an Audi on cables over the pool and painted the whole side of the house black and projected images of Audi cars and got a lot of complaints from that neighborhood and ended up getting five different people fined on that including the owner of the property.Michael Gossie
So, you can't rent out a property just to have a party?Andrew Miller
Correct, all the cities have regulations, and the state statute still says you can't use it as an event center or restaurant or some similar kind of use. We in the past had landlords who would actually put in the website regular rate, $2,000 a night, weddings $5,000, and so they were easy to prosecute because they even gave us the evidence that they were intended.Amy Lindsey
It was nice of them to make it easy for you.Andrew Miller
Right and in Paradise Valley, we set up a process where the police had a series of questions they would ask the father of the bride usually, you know to kind of get to the point of saying, yeah, the landlord knew I was running this for a wedding, he charged us extra and you know we didn't want to shut down weddings or cause that kind of heartache and that was one of the policies we talked about.Do we shut down an event like that? I think for weddings at least the determination. It was we wouldn't shut them down, but we would prosecute the owners and we usually try to get the tenants to help participate in that because we need that kind of evidence
Michael Gossie
So, Andrew, how do HOAs play a role in this? Because I've got to imagine there's a lot of HOAs that were set up before Airbnb became a thing. So how does that play into this?Andrew Miller
Yeah, I've done a lot of research in that because in the private sector, it's one of the things that we can actually advise that if you have HOA regulations that are amendable and you don't have provisions today that prohibit short-term rentals.You can go and amend that. Forrest Highlands up in Flagstaff about four or five years ago amended theirs to eliminate short-term rentals and it had to be rented more than 30 days. I had a friend who had three homes, Forest Highlands who sold them because they were using them primarily as Airbnb rentals.
We've seen that in Paradise Valley, where some people are amending their CC&R's, but typical ones that say you can't have a business or It has to be for residential use only, typically in some of the lawsuits we've seen reported nationally, those kind of CC&R provisions don't prohibit the short term rentals because most people are renting them for family vacation purposes.
They're renting it for a residential purpose just happens to be for a short period of time, but limiting it to more than, no more than, less than 30 days, those have been successful.
Michael Gossie
OK, Andrew, we have a million questions we want to ask you about but before we get to them I have to say the attorneys at Burch & Cracchiolo have been proving for more than 50 years that a successful business or legal case of any kind starts when you hire the right lawyer.Let them prove it to you. Learn more at bcattorneys.com that's bcattorneys.com.
So, how big a business is the short-term rental in Arizona right now?
Andrew Miller
I think it's huge. I mean in Scottsdale they did a survey. They found that there were about 4,300 homes available for rent and I mean, I remember looking about 15 years ago.You could find condominium complexes that were along golf courses where like every other unit was there for rent in Scottsdale and you can go to VRBO.
Or maybe you can take a map. I wanna look in a certain area I wanna be near Old Town, or I wanna be near Fashion Square, and you can find again condominium complexes where maybe half to 1/3 of the units are available as short-term rentals.
Amy Lindsey
So, what are the requirements for listing a house on an Airbnb or VRBO?Andrew Miller
For the platforms, it's fairly easy. Airbnb you can even do it on your cell phone. You know you just start the process of giving them the address and filling in certain information and it's very, very simple. VRBO which has been around for a very long time, is similar, but I think you've got to talk to somebody who lists on multiple platforms the other day. They said, well, Airbnb is about the easiest and they make it simple. Some are a little bit harder.You got to take a lot of the pictures yourself and figure out how to how to be like an engineer when you're setting up your website and some of them just sort of lead you through it easily and there's a number of management companies a company called Evolve.
I've rented a lot. I've got eight kids, so I have been using VRBO for you know 25 years. I’ve rented places in Europe, you know all around the United States, it's convenient, you know when you have a large family but at the same time, there's things to be wary of. You know, you know, and I found out.
Amy Lindsey
So, what are some of the risks?Andrew Miller
The landlord, some of the risks, are that you could get your property damaged and sometimes fairly significantly.in Paradise Valley about 2 1/2 years ago we had a doctor who lived in town, bought another house as an investment property, decided well, we'll get a realtor to list it and to manage it and the manager did a rental to a couple of people locally who just wanted to rent it for two nights.
Well, turns out they wanted to host a rave and they had about 450 people there. It was close to the Franciscan Renewal Center, the Casa, and so they just directed people to park at the Casa, Walk a block and 1/2 over and that's the party location and the police ended up breaking it up.
The owner later complained that the tenants did about $410,000 in damages.
Michael Gossie
Oh my gosh, wow.Andrew Miller
Yeah, they took all the crystal glasses and broke them and danced on the wooden floors.They actually pulled the toilet off its mountings. They just went crazy.
Maybe when the police decided to break it up, somebody said, let's just do a lot of damage because you know we're leaving and he had a hard time getting his money back from those people.
Michael Gossie
So, what are the legal recourses in a situation like that?Andrew Miller
Well, If you have the ability to sue, you can sue. Some of the platforms provide insurance so I know that Airbnb, for example, for the landlords will have insurance so that if people do certain things that damage the property, you can put in a claim to have that reimbursed through Airbnb and a lot of the platforms will require even the tenants to pay an extra 100 and something dollars to buy a liability insurance policy.Amy Lindsey
But I can't imagine it covers the excess of $450,000 in damages I mean that's pretty, yeah.Andrew Miller
You know that that one didn't, and that owner was like can you criminally prosecute these people?And the hard part was just finding out who actually did the damage, because the renters were like, oh, we didn't do it. It was some guy who went crazy or some person so a little hard to document in that case.
Michael Gossie
Right. So, what are the things that people should really keep in mind if they're getting on either side of the short-term rental business? Renting a home? You know, for their family or they own a home that they're trying to rent out?What are some of the legal things that they should know about?
Andrew Miller
Well, it is a short-term rental contract. It's like a lease and it's I think how the law would characterize it.So, all the things that come with the lease as a landlord, you may have a tenant who decides to hold over somebody who says, Oh yeah, I know I rented it for a week but I decided to stay longer and you'd have to go through an eviction process which is going to be time-consuming and you know you might be able to get your money out of that person, but they may not.
I know an owner who says they always look to see how many reviews the tenant has received. You know the renters have received it.
Amy Lindsey
Then switch it around.Andrew Miller
And yeah, I’ve seen this person's rented three times and they all got four or five-star reviews. So, I know this is probably a good tenant, and if they have no history at all they won't rent. So, that's on the landlord side, just watch out for landlords that, because I've rented a lot, when you see a lot of nitpicky things, I've had people that you know, oh, you damaged this. It was damaged when we got there.So as a tenant, I go in just like you might If you're renting a new property and you see the damage when you take your tenancy, document it, take pictures, send emails. I just rented a place this summer up in Brianhead, had a five-bedroom house and I found that the BBQ had grease and stuff that was spilling over onto the floor and through the floorboards and under the concrete below in the driveway. I'm like yuck. So took pictures, send it to the landlord, document it, and just make sure you do that. It's kind of good legal protection for.
Michael Gossie
But what interested you in terms of this particular legal practice?Andrew Miller
Just because I've had so much experience with it both as a tenant over the years, but also, as you know, in regulating this for the municipalities and spent a lot of time lobbying.You know, the legislature and various bills in the past to be able to get some more authority, you know Arizona's got a lot of preemptions of municipalities in many areas of law and short-term rentals, we got the most aggressive statute in the nation in terms of how much preemption exists.
Michael Gossie
How do you see this industry going in the future? Do you think it's got room to grow or do you think that the regulators are going to start coming in more?Andrew Miller
Well, in Arizona there's not going to be a limit because I don't think are going to be a change in the legislature that would allow for greater regulation by municipalities. I mean basically, SB1350 says the cities and towns shall not prohibit short term rentals, so as much as the market can absorb, I guess would be the answer.I think you'll see a blip in the Super Bowl where some people who maybe normally wouldn't rent would say hey honey, let's go. You know, let's go to San Diego for three days and, and, rent out our house for $2,000 a night.
Amy Lindsey
Right?Andrew Miller
And you know some of the apartments that are just south of here. That would rent for $150.00 a night. Typically, I noticed that for the Super Bowl weekend, they're like $1,200 to $1,500.Michael Gossie
Oh, my gosh!Andrew Miller
Yeah, they're multiplying it by 6 to 10 times their typical rental rate. Just because of the demand for the Super Bowl.Amy Lindsey
Wow!Michael Gossie
Well great, this is fascinating. Andrew Miller of Counsel at Burch & Cracchiolo. It's been so nice having you here. Respect so much, you have had such a big impact on our community. We really appreciate everything that you've done.Thank you for listening to the AZ Big Podcast with Michael and Amy. Once again thank you to our sponsors Burch and Cracchiolo and be sure to get all the latest business, legal and real estate news at azbigmedia.com. Andrew Miller, thank you again.
Amy Lindsey
Thank you for joining us, Andrew.