The Initial Impact of Chicago’s Airbnb Ordinance

A few years ago, Airbnb came into the market and quickly became popular as an online source connecting anyone with a space to rent with those looking for a temporary place to sleep. But with the new “sharing economy” which has also given rise to the likes of Uber and Lyft –local government is finding that more local oversight is becoming necessary. On June 22, 2016, the Chicago City Council passed a new ordinance imposing tighter regulations on the house-sharing industry. While some are claiming the restrictions aren’t enough, others are complaining it takes away a legitimate source of income for those struggling to make ends meet.

First, the new ordinance requires all hosts to obtain a shared housing unit operator license which in turn subjects hosts to heightened regulatory standards. The ordinance also imposes a 4% tax on short-term rentals which is on top of Chicago’s existing 17.4% hotel tax (which is already one of the highest in the country).

Under the ordinance, Airbnb (or any other housing platform) is also required to submit a list of the addresses of the hosts in a particular ward, and there is a $60 charge imposed on each address listed on Airbnb, which is intended to subsidize the cost of enforcing the new rules. By way of the ordinance, Chicago is charging Airbnb a $10,000 license fee – seems a pittance for the size of the market here and their value!

Further, the ordinance puts limits on the number of allowable units in buildings: in single family homes: only primary residences can be rented; in buildings with 2 to 4 units total, only primary residences can be rented and only one unit per building can be rented; buildings with more than five units will be limited to the lesser of one quarter of the total number of dwelling units or six units. So if the building has 100 units, the cap on home rentals will still be six units.

The ordinance also increases protections for condominium and homeowner’s associations such as allowing them to entirely restrict house-sharing. Part of the registration process requires that a host provide an attestation from their association that their housing rental has been approved by the Association.

Finally, unless the host obtains a vacation rental or bed and breakfast license, then the unit may not be rented more than 90 nights in one year.

Violations, if discovered, can result in fines of no less than $1,500 and no more than $3,000 for each offense, or incarceration for a period not to exceed 6 months or both.

With all of the aforementioned restrictions, the ordinance is quite complex. However, it also incorporates some ways around those restrictions. For instance, people who want to go over the one-unit rental cap in buildings will be allowed to demonstrate by way of a hearing in front of the Department of Business Affairs and Consumer Protection that they are suffering an “extraordinary burden” because of such caps.

Another provision provides that in areas with single family homes, residents can gather signatures on petitions to either outlaw new home-sharing listings in their precinct altogether OR allow them only in primary residences of the people listing the property. If a petition gets signatures from 25% of the registered voters in the precinct, the alderman will be able to introduce a City Council ordinance enacting the language for 4 years. However, the ordinance also allows a counter-petition to be signed and submitted to overturn it.

Going forward – this new law could create repercussions for buyers of property and their counsel. When buying property, Sellers are required to disclose certain things to buyers. But whether their unit can be used for house-sharing is currently not one of them. So until the residential disclosure laws are amended to require such a thing (if ever), Buyers and their counsel may want to check with the Commissioner of Business Affairs who will be required under the ordinance to maintain a list of all short-term residential rentals that are ineligible to be listed as a short-term rental.

If you are a homeowner considering home-sharing, or a buyer who wants to be able to buy a property and list it on Airbnb or something similar, do your due diligence first and contact an attorney at Lavelle Law to make sure sharing your home is a real option for you.