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In June of this year, the Chicago City Council passed Ordinance No. 02016-5111 (Ordinance). Aimed at the increasingly popular home-sharing phenomenon, pursuant to which Airbnb and Homeaway are major players, the Ordinance amended Chicago’s Municipal Code with respect to the regulation and licensing of shared housing units and vacation rentals. Among other things, it imposed a 4 percent leasing tax “at any vacation rental or shared housing unit” in Chicago; the revenue would be used to fund services for the homeless. This was intended to be in addition to the pre-existing 4.5 percent tax on the rental and leasing of hotel accommodations in Chicago.

There is also a provision allowing the Housing Department to inspect any vacation rental at any time and in any manner. 

An inevitable result of the Ordinance, most of which took effect in July, is the lawsuit that four plaintiffs filed against the City of Chicago on November 15, 2016. Three are Chicago residents who own homes and other property there, and the fourth is an Arizona resident, also with property in Chicago. 

The plaintiffs described their suit as one to “vindicate the constitutional rights of homeowners who wish to offer their private homes to overnight guests but have been arbitrarily and irrationally deprived of the right to do so by…the draconian and unintelligible” Ordinance. They want the court to find the Ordinance to be unlawful and unenforceable, on the grounds that it is vague, unintelligible, and unconstitutional. 

Provisions under attack

The nine-count lawsuit alleges the Ordinance to be unlawful in numerous ways, including the following:
  1. It authorizes unreasonable searches and seizures of residential property by empowering the building commissioner to conduct unrestricted, warrantless administrative searches, and similarly, allowing seizure of personal information without warrant, and without a pre-compliance review process; 
  2. Its “Primary Residence” restrictions on who can rent out certain properties that fall within its definitions, and how such properties can be used, violate the plaintiffs’ due process rights; 
  3. The fact that the building commissioner has “unbounded and unbridled discretion to make exceptions to the Primary Residence Rule under vague, unintelligible and undefined criteria” is also a due process violation; 
  4. The Primary Residence Rule violates the plaintiffs’ rights to equal protection because it does not apply to owners of homes located in buildings with five or more dwelling units, who may offer their properties as vacation rentals. Such discrimination bears no rational relationship to any legitimate governmental interest; 
  5. The Primary Residence Rule further violates the Constitution’s Commerce Clause when it benefits Chicago residents by allowing them to offer their homes as vacation rentals, but forbids “similarly situated non-residents who own property in Chicago” from doing the same, thereby treating in-state people differently from out-of-state persons; and 
  6. The imposition of higher taxes on vacation rentals, but not other kinds of hotel accommodations, violates the Uniformity Clause of the Illinois Constitution. 

Other matters the lawsuit challenges are the rental cap provision; the limitation on the number of units in a building that can be used as vacation rentals; and the Ordinance’s authorization to revoke valid licensing and/or registrations for excessively loud noise. 

Liberty Justice Center and The Goldwater Institute are the two entities representing the plaintiffs. The latter issued a press release on the day it filed the suit. Noting that “[h]ome-sharing has become increasing popular in recent years, thanks to innovations in smart-phone and social-media technology,” the think tank asserted the following: 

More than 4,800 people in Chicago rent out their homes on Airbnb, earning an average of $5,300 per year. Many of them count on that money to pay their mortgages and their property-tax bills. But now the city is taking that opportunity away from many of them – and forcing the rest to submit to serious violations of their constitutional rights just to be allowed to continue hosting guests in their homes. If the Chicago City Council won’t reconsider and repeal this ill-advised, unconstitutional ordinance, then the Cook County Circuit Court should strike it down.

Second lawsuit

Crain’s Chicago Business reminded its readers that this is the second complaint filed in November over the new regulations. Keep Chicago Livable, and a Chicago resident representing others similarly situated, filed theirs on November 4, 2016, as a class action lawsuit, seeking injunctive and declaratory relief on first amendment/free speech grounds. Other claims allege violations of search and seizure protections, violations of the Stored Communications Act, which protects electronic communications and records from unlawful searches and seizures, and violations of the Takings Clause, which prevents the government from unlawfully seizing private property without just compensation.
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