New Sioux Falls Ordinance Impacts Rental Properties

On November 21, the Sioux Falls City Council voted to enact a new ordinance updating the process by which a landlord obtains a permit from the City to operate his or her residential rental unit.  For the most part, the new ordinance applies with equal force to traditional, long-term rental units and to short-term rental options like those offered through Airbnb or Vrbo.  This ordinance institutes several changes to the existing regulatory scheme, some of which will be of particular concern to current and prospective landlords:

First, the ordinance institutes a $50 fee for obtaining a residential rental permit.  The City has agreed to waive this fee for newly constructed buildings that obtain a permit prior to tenants occupying the building.  The fee also does not apply when one landlord transfers his or her permit for a unit to another landlord.  To take advantage of the latter exception, the transferring landlord must provide written notice to the City within 30 days of the transfer.  Importantly, the imposition of the permitting fee is delayed until July 1, 2024.  Prospective landlords who have yet to obtain a permit are thus incentivized to apply for a permit as soon as possible.

Second, under the ordinance, an applicant who applies for a permit must now attend two hours of training approved by the director of planning and residential services.  However, an applicant need not satisfy this requirement if his or her property will be managed by a licensed third party, such as a broker, property manager, or residential rental agent.

Third, the ordinance has adjusted the process for enforcing and remedying violations.  Under the existing code, the City can revoke or suspend a permit for repeated health, nuisance, or other code violations or “for serious and continuing substantial noncompliance with any applicable city ordinance.”  It also has the power to prevent an unpermitted unit from operating as a rental.  To have a revoked permit restored, the unit owner must prove that he has remedied the underlying problem, submit to an inspection by the City, and pay any outstanding fines.

The City retains these powers under the new ordinance.  But starting on July 1, 2024, a person who advertises, solicits for, or permits the occupation of a long-term or short-term rental unit without first receiving a permit also may face a fine of up to $500 and a stay of up to 30 days in the county jail.  The ordinance now also provides a process for lifting a suspension:  An existing suspension will be undone once the landlord has submitted a corrective plan to the director of planning and development services and the director concludes the plan is “satisfactory.”

Finally, the ordinance imposes some new obligations specific to short-term rentals.  To start, the ordinance alters the definition of “short-term rental unit” to change which of these units are subject to the City’s regulations.  Before this ordinance, a short-term rental unit constituted any residential rental unit that was rented out for 28 or fewer consecutive days.  Under that definition, a person who rented out his or her home for one week during the summer arguably would have had to obtain a permit from the City before doing so.  The new definition now encompasses any “home, cabin, or similar building” that is rented out to the public for more than 14 days in a calendar year and is not occupied by the owner or manager while rented out.  In other words, if a property owner rents out his or her property for two weeks or fewer during a calendar year, he or she need not apply for a residential rental permit from the City.

As before, if a property qualifies as a short-term rental, the owner must obtain a rental permit.  In addition, the owner of the short-term rental must now provide proof of a state sales tax license and state lodging license before he or she will be awarded a permit.  Notably, this requirement differs from the rule for long-term rentals (i.e., rentals of more than 28 consecutive days to the same tenant):  Long-term rentals are not subject to the state sales tax and thus units that are used exclusively for long-term rental do not require this showing prior to being awarded a permit.  Beyond requiring proof of sales tax and lodging licenses, the ordinance now also requires short-term rental owners to provide their guests with a document that lists (1) an emergency contact number, (2) the emergency and nonemergency numbers for the City, (3) the unit’s address, and (4) a statement that “Guests are expected to be courteous to all neighbors and to respect property boundaries.”  This information must be posted “in a conspicuous location” within the unit.  The ordinance also permits the director of planning and development to require additional information, so guidance requiring additional disclosures may be published in the future.

Except for the handful of provisions that do not take effect until July, the changes will be in effect as of January 1, 2024.  Should you have any questions about the changes, please do not hesitate to contact the team at Woods Fuller.

The City of Sioux Falls permit application can be found on its website.