Airbnb property investors may sue Ann Arbor if council doesn’t lift pending ban

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ANN ARBOR, MI — Short-term rental property owners and investors in Ann Arbor may sue the city if a pending ban on their businesses isn’t lifted by City Council.

There’s a group of about 50 local residents who each own maybe one or two or three properties that, for a considerable time, they’ve legally operated as Airbnbs, said group member Heidi Poscher, co-owner of real estate development company Prentice Partners of Ann Arbor.

“And we are interested in continuing that legal operation,” said Poscher, who said she has four Airbnb properties in Ann Arbor ranging from a house to a small apartment building.

That’s not counting her company’s new 63-bed housing development in a residential area at 830 Henry St., with units marketed at $75-$85 per night.

City Council voted 7-4 in September to ban dedicated short-term rental properties such as Airbnb houses that aren’t owner-occupied in residential neighborhoods effective this March.

With the clock ticking on a potential lawsuit once that ban takes effect, Mayor Christopher Taylor and his allies, who regained majority control of council in November, are now exploring options for rewriting the rules.

Last month, they asked the city’s staff and Planning Commission to come up with regulations to allow existing short-term rentals in neighborhoods to continue, and the recommendations are expected to come back to council for consideration.

New Ann Arbor council looks for way to keep Airbnb houses in neighborhoods

Poscher hopes there’s a solution in place by March to avoid going to court.

“Some of these people in our group have put all of their savings into building up this little cottage business for themselves,” she said, arguing it would be a financial loss for them if they can’t continue to operate their properties as short-term rentals.

Council Member Elizabeth Nelson, D-4th Ward, said she’s still in favor of banning dedicated Airbnb properties in neighborhoods, even if it means bringing on a lawsuit.

“Fine, sue us,” she said. “It’s worth finding out if we can regulate in this way. This is the right thing to do.”

Nelson said her primary concern is dedicated short-term rentals take away housing that could be homes for residents, and between 100 and 200 housing units are at stake. Nuisance concerns are a secondary issue, she said.

Nelson said she doesn’t think there’s much financial risk for the city if property investors sue, because they’re not being deprived of their ability to turn a profit. They still could use their properties as longterm rentals or sell them, she said, arguing the extra profit from short-term rentals is marginal.

“I’m not really worried about making 50 people mad if it’s the right decision,” she said of the ban.

“We should want to regulate this kind of business. It’s worth standing up for this because I do think it matters.”

Dedicated short-term rentals are effectively a hotel-type business and not a residential use and don’t belong in residential neighborhoods, Nelson said.

“It’s not in compliance with residential zoning because you don’t create a resident,” she said.

Several short-term rental property owners spoke out at the Dec. 21 council meeting, saying they’re community members and neighbors, not big business.

“I am part of the group of homeowners that will be prohibited from legally renting our homes under the recently passed short-term rental ordinance,” said Carol Skala, a Ward 4 homeowner, who said she’s not “a super-wealthy, party-house host with only an ulterior motive to make money and with utter disregard for my neighbors.”

Skala spoke in favor of amending the ordinance to allow “those of us who legally bought homes and are renting them to continue to do so, regardless of their location.”

“We are trusting that common sense, wisdom, fairness and reason will trump the hardline, without-merit opposition to this handful of dedicated homeowners who have purchased and rented these homes legally,” she said. “We are committed to being good neighbors invested in our properties and neighborhoods and we are asking for the consideration that would allow us to continue our hard work.”

Katie Dortch, another Ward 4 homeowner who said she was part of the group of about 50 local short-term rental property owners, thanked the mayor for his proposal to revisit the ban.

She and other members of her group are local residents who have made significant investments in homes that were in some cases dilapidated and unlivable, Dortch said.

They purchased the homes when there was no restriction on short-term rentals, she said.

“We are devoted neighbors and we care about our community,” she said, adding they were called upon by local hospitals when the COVID-19 pandemic hit in March to help provide housing for hospital staff and families.

“And we answered that call,” she said. “We stepped up, providing housing to frontline workers who could not go home to families, international students who needed safe campus housing, families who were seeking life-saving medical care and could not use places like Ronald McDonald House that were closed at the time.”

Like many other business owners, they’ve taken significant losses during the pandemic, but they love what they do and they believe they add value to the community, she said.

Nelson wrote a blog post laying out her concerns after the Dec. 21 meeting, after which Poscher sent Nelson an email taking issue with the 4th Ward council representative.

“As we are potential parties to a future lawsuit, there is very little I should be saying to you, so I will keep my comments extremely brief,” Poscher wrote.

“The thing I find truly despicable by your words and actions is that you are pitting one group of residents against the other,” Poscher told Nelson.

“We are all small-sized operators in a city with a dynamic range of housing issues, housing opportunities and housing problems. Your attempts at ‘investment shaming’ us is ill-placed and, in my opinion, these and other things you have said warrants action by your peers…you have gone too far.”

Poscher told Nelson there’s a Michigan Supreme Court ruling that’s on her group’s side and the pending ban amounts to an illegal “disguised zoning ordinance.”

The mayor’s proposal appears to seek to keep the city in compliance with the law, Poscher said.

Under the regulations council OK’d in September, local residents still could occasionally rent out their own homes for supplemental income, Nelson has noted.

And short-term rentals of properties that are not owner-occupied would not be entirely prohibited — they’d just be restricted from being in residential neighborhoods.

In her blog post, Nelson said she was stunned last summer when a short-term rental investor, who she did not identify, tried influencing her vote on the issue.

“Elizabeth, I need your help on this. If you can help me with this, I will make it up to you. I don’t mean a bribe, but if you could just help me,” Nelson said the investor told her.

Nothing about that remark was normal or appropriate, Nelson said.

“I cannot know the experience of other council members, but this was the very first time that anyone offered to do anything for me, personally, in exchange for a policy decision,” Nelson wrote. “I hope that my new colleagues on council also understand: this is not normal or appropriate.”

In a recent Facebook post, Council Member Jen Eyer, D-4th Ward, who has supported the mayor’s proposal to revisit the ban, argued Nelson should have reported the offer of a personal favor to authorities.

“Attempted bribery of an elected official is a felony,” Eyer wrote, adding Nelson’s allegations have now been referred to the appropriate officials “and I expect that they will be looked into with all due diligence. If a bribery attempt happened, failure to report it would be a serious breach of duty. The public deserves to know what occurred.”

Nelson said she never reported the matter to authorities when it happened last July because it wasn’t an explicit bribe. It was an invitation during a phone call to have a more specific conversation about what kind of favors would be offered, she said, adding she was shocked and ended the call.

She didn’t record the call, so she has no evidence of it except that she told people about it and there were other related text messages, she said. The quote in her blog is “close to almost exactly” what she recalls the person saying, she said.

With the issue of how to regulate short-term rentals still pending, Eyer maintains the city needs to balance community needs and not put the city at unnecessary financial or legal risk.

“I think we’ve clearly been advised that looking at how to give these 100 to 200 properties legal non-conforming status is the most prudent step we can take as a city, and that’s the basis for my decision on this,” she said.

“I am fully sympathetic to concerns from residents about having properties become short-term rentals and no longer having neighbors they can build community with and have a sense of community with, and that is not my wish for what we want our neighborhoods to be,” she said.

“So, I’m glad that even if we are giving legal non-conforming status to the ones that have been operating in the city, that we’re not going to allow any more (in residential areas), and eventually even those will filter out of the market due to attrition because that status won’t be transferable.”

Balancing all the various issues and concerns, that compromise seems like the best path, Eyer said.

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