A property rights case making its way through the Yavapai County Superior Court and Arizona Court of Appeals over the last few years was recently decided and the result strengthens the property protections passed by voters in 2006 known as “The Property Right Protection Act” or Proposition 207.
Proposition 207 requires state and local government to compensate property owners when regulations diminish their rights and reduce their property values.
In 2008, the City of Sedona passed an ordinance banning short-term vacation rentals. In order to avoid compensating property owners for diminishing their property rights, the city said the ban was to protect health and safety — an exemption allowed under Prop. 207.
A local vacation rental company sued the city, saying the health and safety exemption was not justifiable. Yavapai County Superior Court Judge Jeffrey Paupore recently agreed, saying there was no connection between the ban on short-term vacation rentals and public health and safety.
This ruling confirms that Prop. 207 requires verifiable evidence when government officials want to use the public safety exemption; they can’t just use it as a blanket excuse to get around their obligations to respect private property rights.
Although short-term rentals were already prohibited by the city in 1995, the new ordinance was much broader, making short-term occupancy of residential property a crime punishable by up to six months in jail and a $2,500 fine.
The new ordinance defined “rent” so broadly that it would apply to purchasing a time-share, contracting for home improvements, even hiring a babysitter. Sedona Grand sued the city to recover just compensation, claiming that its property rights were reduced because the new ordinance prohibited it from using “option agreements”—contracts that allowed prospective buyers to try out the property before deciding whether or not to purchase it.
Because Prop. 207 does not require compensation for land-use rules that protect public safety and health, Sedona tried to avoid having to pay by shoehorning its regulation into this exemption, without any evidence that short term rentals threaten public health and safety.
In Sedona Grand v. Sedona, the Goldwater Institute argued that city records showed officials adopted the rental ban in order to protect the city’s “small-town character” and “scenic beauty.”
The complaints the city had received from residents were general grievances about increased roadside parking or traffic, or expressed a desire to live in a “small town” where “you know most everyone.” These complaints, the Institute argued, showed that the city banned short-term rentals in order to maintain “a quiet, friendly, family” neighborhood—not to protect public health or safety.
Judge Paupore ruled that Sedona Grand wasn’t entitled to compensation under Prop. 207 because the use of their “option agreement” was already prohibited by the 1995 ordinance. But the court did adopt the Goldwater Institute’s proposed health-and-safety standard and found that Sedona did not establish a proper health-and-safety nexus that would allow it to fall within that exemption to Prop. 207.
The court noted, “Other than unsolicited complaints, the record is void of statistics gathered by the Defendant on health or safety problems caused by short-term rentals….The Ordinance lacks the essential nexus between the regulation and community health concerns….There is no correlation in the record that short term rentals endanger the public health and safety.”
The City of Scottsdale and Town of Jerome have both recently banned short-term vacation rentals. This Institute is exploring taking legal action against other cities, and this court decision will impact those communities as well.
Read more about Sedona Grand v. Sedona here.
Editor’s note: Ms. Sandefur is the Goldwater Institute attorney representing the owners of Sedona Grand.