Oahu Rules for Short-Term Vacation Rental Properties

Since Oahu is a popular destination for travelers, owning a Short-Term Rental on Oahu, as an investment property, can be a great idea. But are vacation rentals illegal on Oahu? No, however, not ALL properties can be legally rented on a short-term basis. There are some strict limitations of short-term rentals on Oahu. Homeowners and investors should be aware of the current Oahu rules for short term rentals, to ensure that their Oahu vacation rental properties are operated legally.

Honolulu recently ranked #5 in "The Top 15 Best Cities in the United States" by Travel + Leisure magazine.

WHAT IS A SHORT TERM RENTAL ON OAHU?

On Oahu, a short-term rental (STR), also known as a vacation rental, is a home or condominium that provides guest accommodations for less than 30 consecutive days. But not all short term vacation rentals on Oahu are legal.

A short-term rental provides guest accommodations for less than 30 consecutive days.

Which Short-Term Rentals on Oahu Are Legal?

There are THREE Types of LEGAL short-term rentals on Oahu.

1. Properties with a Non-Conforming Use Certificate (NUC).

In the City and County of Honolulu, there are two types of properties that have NUCs. The first is Bed and Breakfast Homes (B&Bs). To maintain a B&B certificate, the homeowner or permanent resident must live on the property and be present during a guest's stay. Only up to two specifically-designated bedrooms in the home may be rented.

The second type of NUC is a Transient Vacation Unit (TVU). A TVU may be an entire house or condo, and the owner need not be present on the premises during rental.

For both types, there is a maximum of two adults per room rented and additional off-street parking, one space per room rented, must be provided. Other requirements, such as insurance and payment of GET and TAT (taxes), and restrictions apply. Properties with a NUC must be renewed annually to continue operating as a STR. New NUCs are not being issued.

The current list of Oahu properties with a NUC can be found here. Most of these NUC properties are in Waikiki condominium buildings, but others are single-family homes in residential-zoned areas. These are usually in popular Oahu neighborhoods, near beautiful beaches, such as Diamond Head, Kailua Beachside, Kailua Lanikai, and Waimanalo, and on Oahu's North Shore.

There are THREE types of LEGAL short-term rental properties on Oahu.

2. Properties in a Resort-Zoned Area

The second group of Legal Short Term Rentals on Oahu are the resort-zoned properties. These are allowed because of the zoning of the area in which they are located. Areas which are resort-zoned, or which include pockets of resort zoning, include Waikiki, Turtle Bay, and Ko’olina. Ask your realtor to verify three things when you are purchasing a home as a vacation rental:

• that a property is truly within a resort-zoned area or whether it has been grandfathered in
• that it is not within a period where it has been "dedicated for residential use," and also,
• that the particular resort-zoned building's AOAO allows STRs.

There are some buildings in resort-zoned areas that are eligible to operate as STRs, but their AOAO has decided not to operate as such and they have imposed minimum rental periods different that those authorized by the City and County of Honolulu. Also, in some cases, individual owners may have filed with the City to dedicated their unit for residential use for a 5-year period to obtain tax savings. If an owner wishes to change from residential to non-residential use during the applicable 5-year period, back taxes at the resort rate may be owned. Resort-zoned properties are taxed at a significantly higher rate than residential-zoned properties. See Oahu Property Tax Rates Here.

3. Condotel Properties Specifically Grandfathered in as Legal STRs

The last group of legal Short Term Rentals on Oahu has been grandfathered into compliance. These are certain properties which are near resort-zoned areas and which have been traditionally operated as a Condotel property (with hotel front desk, etc.), though they do not have resort zoning. Examples are the Waikiki Banyan and Waikiki Sunset condominiums, which are both in Waikiki and have historically been operated as a hotel properties, with vacation rentals, but are in residential zoning districts. 

Bills 89 and 41 have changed the short-term vacation rental inventory on Oahu and legal STRs have become more valuable.

RELEVANT STR LAWS

When considering whether to purchase or operate a vacation rental home, it is helpful to be aware of the short term rental laws on Oahu (City and County of Honolulu) and the history of vacation rentals on Oahu. Read on for more information. As always, laws are subject to change.

Bill 89 Passed

Bill 89 was adopted June 25, 2019. Bill 89 was opposed by short-term rental owner associations and promoted by the hotel industry, among others. Bill 89 added stricter penalties and enforcement provisions against Oahu property owners who illegally advertised their vacation rental properties for rental terms of less than 30 days. Another important feature of Bill 89 was that it would allow up to 1,699 new B&B permits, with restrictions, on a first-come-first-served basis or by lottery, starting October 2020. 

Interestingly, people often refer to Bill 89 as the "law which made vacation rentals illegal on Oahu." In fact, short-term rentals not falling into one of the three categories stated above, have been illegal on Oahu for decades. Bill 89 just ramped up enforcement of the existing laws and increased penalties against these illegal rentals in operation. Also, those interested in STRs should note that the new B&B registrations by lottery proposed by Bill 89 never occurred. Of course, the pandemic changed a lot of things and this is probably one of them. No new NUCs were issued in October 2022, and, to my knowledge, there are no plans for this to change.

Bill 41 Passed & Enjoined

Even after Bill 89 was passed, local opposition to vacation rentals on Oahu persisted, with particular ongoing support from the very powerful hotel industry. The pandemic also helped to create a real estate landscape which made home ownership less affordable and decreased the availability of rentals. This created more momentum from affordable housing proponents and neighborhood groups, and pushed local politicians to pass even stricter vacation rental regulations on Oahu. This is Bill 41.

Bill 41 was signed into law on April 26, 2022, and the wide-reaching provisions therein were set to affect almost every homeowner on Oahu. The most impactful and also, unpopular provision of Bill 41 was that it would change the minimum rental period for all single-family homes and condos that do not fall within one of the three legal short term rental groups above, from 30 to 90 days. This would impact not just the vacation rental industry, but also short-term (30-90 day) rentals for military service members, traveling nurses, movie industry professionals, local homeowners doing construction, and other people needing short term accommodations that are not on Oahu for vacation.

Prior to its effective date of October 24, 2022, on October 13, 2022, a federal judge issued a preliminary injunction on the section of Bill 41 that concerned changing the minimum rental term from 30 to 90 days. This means that the 30 day minimum rental period is still in effect. In an interview with Hawai'i Public Radio, Honolulu Mayor Blangiardi stated that the City and County of Honolulu will not appeal the judge’s injunction.

Notwithstanding the injunction, other provisions of Bill 41 went into effect, as planned, in October 2022. Bill 41 also requires all legal Short-Term Rentals on Oahu to be registered with the City and requires a registration fee and annual renewal fee for all STRs. Currently (November 2022), it is $1,000 for the registration fee and $500 for the annual renewal fee.  To check if a particular property is eligible for registration a legal short term rental, you can check the STR Eligibility Map for the City and County of Honolulu.

Also, the fines for illegally operating a STR have been raised. There is now a $5,000 fine just for advertising an illegal STR, and additional fines of up to $10,000 per day for non-compliance. If fines are not paid, the City may place a lien on the property illegally advertised.

RESOURCES:

The City and County of Honolulu has a website with more information on legal short term rentals and registration of your short term rental on Oahu. You can view it here.

Please note that the information above is not legal advice and it's subject to change. Please feel free also to reach out to me if you have questions about a particular property or if you are looking for an Oahu rental property, or to purchase a legal short-term rental or vacation home on Oahu.
Yvonne Jaramillo Ahearn
RB-20262 COMPASS OAHU
cell: 808.721.8088

Legal Nightly Rentals on Oahu | Condotels, BnBs, and TVUs

By Yvonne Ahearn

September 12, 2018

I get many questions from buyers about purchasing legal nightly rentals on Oahu, aka “vacation rental” properties on Oahu. With the popularity of services such as AirBnB and similar vacation rental sites, more and more homeowners are looking for ways to help pay the mortgage. Other buyers live off-island and would like a pied-a-terre on Oahu that partially or fully pays for itself.

Whether or not nightly rentals are legal on Oahu mainly depends upon zoning, with a few twists in terms of non-conforming use certificates. Residential zoning typically requires rentals to have a 30-day minimum term of occupancy.

Legal nightly rental on Oahu: BnB vacation rental in Kailua.

Currently, there are 3 main types of properties that allow legal nightly rentals on Oahu(rentals under 30 days). These property types with legal nightly rentals on Oahu are:

1. Condotels

2. BnB Properties (or Bed and Breakfasts)

3. TVUs (or Transient Vacation Units)

1. The Condotels – Legal Nightly Rentals on Oahu

Condotels (Condo-hotel) are the first type of legal nightly rentals on Oahu. Condotels on Oahu are typically properties which are in Hotel and Resort (versus Residential) zoning districts of Oahu. Many of these are located in Honolulu, specifically, in Waikiki. There are also some Condotel properties in places like Ko’Olina with resort zoning. Some examples of Condotels on Oahu are the Ala Moana Hotel, the Ilikai, and the Ritz Carlton Residences.

On Oahu, you may also see some condominium properties listed in MLS as Condotel, but they are in Residential or Apartment zoning districts. These condominiums may not be true Condotels, but they may be condos subject to a TVU certificate (explained below). You may even find an entire (or close to entire) building or developments with TVU certificates (e.g., Waikiki Banyan, Waikiki Sunset, Kuilima, etc.)! Read on for the differences.

Management of Condotels

In many circumstances, owners may self-manage their Condotel, though some of the Condotels limit outside management options to one or more specified management companies. You can also manage your Condotel through the “hotel pool.” In this case, the condos are managed just like a hotel room. The management company is the hotel.

The management fees for being in a hotel pool are typically higher than for a property management company-managed unit. But hotel pools provide you some advantages. One is the power of bulk advertising and booking. Because hotels advertise and book the rooms through a main hotel website, you may end up with a higher occupancy rate. Another is with respect to consistency. The rooms may be kept more to a consistently high standard when in and maintained with a hotel pool.

Advantages and Disadvantages of Condotels

Oahu Condotels are purchased in Fee Simple, just like a regular condominium. Owning a Condotel can be nice because it allows an owner the option to come visit Oahu and stay in the unit for periods of the year and to rent it out for others. Condotels on Oahu also may have more hotel-like features. They often have resort amenities, including pools, gyms, and restaurants on the property. On the downside, the management fees can be higher, especially in a hotel pool. Also, you may not have much control over decor and the interior of the unit.

Condotels as an Investment?

On a per square foot basis, Condotels generally will be more expensive to purchase than regular condominiums because they offer legal nightly rentals on Oahu and have higher revenue than long-term rentals. But are Condotels a better investment than long-term condo rentals? In my experience, no; they seem to come out about equal, given the management fees and expenses. But you should analyze each property’s returns individually and make a decision based upon specifics. Also note that there can be a very high non-tangible value to have your own, partially paid for, second home on Oahu. Long term rental condos do not provide that advantage.

2. Bed and Breakfast Homes (BnBs) – Legal Nightly Rentals on Oahu

Bed and Breakfast homes (BnBs) on Oahu are typically single-family homes (versus condos) that are located in residential zoning areas. BnBs have been granted a special non-conforming use certificate (not a zoning variance) by the City and County of Honolulu. This certificate allows a non-residential, transient occupancy use while the certificate is valid. Homes which have a BnB certificate have special requirements to keep the certificate. The certificate does not “run with the land” and must be maintained, but may be transferred with a sale for the unexpired term of the 2-year certificate.

Legal nightly rentals on Oahu: Kailua beach home with BnB License previously listed by Yvonne Ahearn RB-20262.

Oahu BnB Certificate Requirements

Some of the requirements to maintain a BnB certificate are:

• The owner or a designated manager must live on the premises (in another room/rooms of the home) while the BnB rooms are rented out.

• Owners may rent only certain bedrooms in the home (up to a maximum total of 2, with a maximum of 4 total guests) for transient occupancy. These bedrooms must be designated. A floor plan of the residence must be provided to the Department of Planning and Permitting (DPP) showing the location of the BnB room(s).

• One off-street parking spot must be provided for each guest room on the certificate, in addition to those required for the main dwelling unit.

• Owners may not use exterior signs and must post the BnB certificate inside.

• Owners must renew the certificate every two years with proof that the BnB room(s) have been rented for periods of less than 30 days each, for at least 28 days of each period of 12 consecutive months. In addition, the owner must pay GET and TAT on the gross revenue received for the BnB rentals. If the owner does not meet these requirements, the certificate will be lost.

• Owners must have used the property as a bed and breakfast home, prior to December 28, 1989, and must have been already granted a non-conforming use certificate based upon that use. BnBs established after that date cannot get a BnB certificate and use as a nightly (under 30 day rental) BnB is illegal.

See Section 21-4.110-2 of the Land Use Ordinance.

Please Note…

You cannot legally rent out an entire home with a BnB certificate on a nightly basis. You must have an in-residence manager or owner. Also, you cannot deviate from the rooms identified. For example, you can’t later add a rental cottage to the property, in lieu of the designated room(s). Despite the restrictions, this type of non-conforming use certificate is still very valuable. An owner may live on premises and rent out a room or two for extra income. This is exactly what many Oahu buyers are looking for. Homes with non-conforming transient use certificates often sell for a premium.

3. Transient Vacation Units (TVUs) – Legal Nightly Rentals on Oahu

A Transient Vacation Unit (TVU) certificate also allows for rentals of less than 30 days in Residential zoning areas. A TVU certificate is an even more valuable than a BnB certificate because there is no owner-occupancy requirement. Like the BnB certificate, sellers may transfer the TVU certificate at sale, but new owners must maintain the certificate.

Oahu TVU Requirements:

The main requirements to maintain a TVU certificate are as follows:

• Owners may not use exterior signs and must post the TVU certificate inside.

• Owners must renew the certificate every two years and they must provide proof that the TVU has been rented for periods of less than 30 days, for at least 35 days of each period of 12 consecutive months. In addition, the owner must pay GET and TAT on the gross revenue received for the TVU rentals. The owner must meet these requirements or the property will lose the certificate.

• Owners must have used the property as a transient vacation unit prior to October 26, 1986, and owners must already have a non-conforming use certificate based upon that use. TVUs established after that date cannot get a TVU certificate and use as a nightly (under 30 day rental) TVU is illegal.

See Section 21-4.110-1 of the Land Use Ordinance.

As mentioned, there are several buildings and developments, especially in Waikiki, in which many units have TVU licenses. Don’t confuse these TVUs with Condotels. Requirements to maintain the TVU certificate do not apply to Condotels.

BnB vacation rental on Oahu.

Buying Vacation Homes for Legal Nightly Rentals on Oahu

Condotels are fairly easy to find and purchase. Vacation homes with TVU or BnB licenses are not as common. For example, there are currently only 60+/- homes in Kailua, Oahu with non-conforming transient occupancy certificates. There are even fewer non-condo single family homes in Honolulu with these certificates. The City and County of Honolulu keeps a list of homes with these certificates.

However, the number of vacation rental homes for sale on Oahu may all change significantly in the near future. The City and County of Honolulu is now considering a proposal to allow owners of ALL Oahu owner-occupied homes to obtain a legal BnB non-conforming use certificate. Further, under the proposed law, Honolulu County may allow a limited number of TVU licenses. If and when Honolulu County passes this legislation, I will post more information.

Please let me know if you need help in researching and/or purchasing these homes. And contact me with any other questions about legal nightly rental properties on Oahu.