As the short-term rental market has grown in recent years, state and local governments across the country have been challenged to develop legislation that reliably enforces standards of operations that maintain the character and safety of their cities, towns, and neighborhoods. These attempts at regulation vary from outright bans on short-term rentals in certain municipalities to special permitting and licensing requirements with specific rental standards and restrictions.

Courts across the country have heard cases where such legislation has been challenged as unconstitutional takings due to the restricted freedom of use of the owner’s property and the loss in economic value due to the lost or reduced rental income. The U.S. Court of Appeals for the Third Circuit has addressed some of these issues in a recent case involving a dispute over a zoning ordinance in Jersey City, New Jersey, placing certain restrictions on short-term rentals (allowed only for property owners and limited to 60 nights per year). See Nekrilov v. Jersey City, 45 F.4th 662 (3d Cir. 2022). In Nekrilov, the circuit court held that the loss in rental revenue was not such an extreme reduction in value as to characterize a taking because the property has many other productive and beneficial uses. Similarly, the argument for the owner’s freedom of use were dispelled by the circuit court’s holding that the ordinance was “a general zoning regulation restricting the permissible uses of residential housing with the goals of protecting the residential housing market.” The circuit court’s ruling reinforces many of the laws and regulations that have been implemented across Pennsylvania over the last several years, including recent legislative actions in the city of Philadelphia.

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