The vacation rental/B&B issue is one that is on both residents and potential buyers/seller's minds and tongues lately as the Kauai County has started to crackdown on those operating illegally in either category. The county was originally targeting transient vacation rentals or TVRs when the issue of B&B's became a larger issue due to the fact that residents can no longer apply for TVR permits.
TVR Permits - Ordinance 864
Here on Kauai, a TVR permit is required to legally run a vacation rental on island. Ordinance 864 was passed by the County Council on February 21, 2008 and was signed into law on March 7, 2008. This requires a TVR permit to operate a short-term rental less than 180 days. In other words, if you don't have a permit, you can't get one.
To get around the law, some of those TVR’s became B&B’s because there was less regulation. That's when the county stepped it up, and now, Kauai’s B&B’s are paying for it. “Once we crack down on some of these illegal ones, they’ll have to decide whether to sell it back, and our hope on the council is that some of our local families may be able to repurchase some of these properties and get it back into the hands of some locals,” said Ross Kagawa, Kauai County Councilmember (Source: KITV). Many of these B&B operations have been shut down since March during the time when Kauai County changed the rules that regulate them.
B&B or Homestay - Bill #2578
Here on Kauai, a "homestay" or B&B is defined as "an owner-occupied dwelling unit in which overnight accommodations are provided to transient guests for compensation, for 180 days or less, within the same dwelling unit in which the owner or lessee resides, or in a guest house." This has been a way for residents to operate a short-term rental without a TVR permit. Bill #2578 defines this even further, defining a "homestay" as one that requires the guest accommodation to be within the property owner's primary residence, and that the owner currently qualifies for a homeowner's exemption.
Kauai Visitor Destination Areas
If you are considering buying a property on Kauai that you intend to rent out short term (as a vacation rental), you'll want to familiarize yourself with Kauai's VDA zones. If your property falls within a VDA zone you are not required to have a TVR permit to run a short-term/vacation rental. There are only a few areas on Kauai that are designated as VDA. Princeville is the only town that is entirely within the VDA. Some, but not all of Poipu is within the VDA, as is a small area of Wailua/Waipouli, and Nawiliwili/Niumalu.
Recent Council Meeting
The Council held a public hearing on May 19, 2015 to allow the public to voice their thoughts and opinions regarding proposed Bill #2578. Owners have been receiving cease and desist letters, requiring that they shut down all operations within 14 days and cancel all upcoming reservations. It's been very inconvenient for those B&B's who are scrambling to get permits so they can get back up and running.
“A lot of the public that have operated B&B’s has said that as far as they’ve known for all of these years, when they’ve called the planning department, they didn’t need any permit. They could just operate as is and that was a mistake,” said Kagawa. Alexis Bollini, who owns Marjorie's Kauai Inn Bed & Breakfast, said she was glad to be able to meet with councilmembers to discuss this issue. "I think our concerns were heard, we met one-on-one with a lot of them which we haven't done before today," Bollini said. "I think they want to do something fair."
The Future of B&B/Homestays
For those homeowners that have yet to apply for a usage permit, they are now in a tough spot since the county currently approves only 10 additional permits per year. It’s a process that many B&B’s are telling the county will not only kill their business, it will also hurt Kauai’s economy. There have been hundreds of Kauai residents who have submitted their case to the county to justify the need for a larger amount of permits accepted each year. June 19, 2015 was the deadline for submitting the applications and the county is now in review of these applications. These regulations will continue to affect the real estate market as they drastically limit the inventory of vacation rental properties outside of VDA zones.