NEW ORLEANS, La. – The U.S. Court of Appeals for the Fifth Circuit today delivered a significant setback to the City of New Orleans’s regulatory scheme for short-term rentals (STRs), ruling that several key provisions violate constitutional rights.
In the case of Hignell-Stark v. City of New Orleans, the court reversed in part the district court’s ruling, finding that the City’s regulations violated the Equal Protection Clause and the First Amendment. However, the Court affirmed in part the City’s broad authority to regulate STRs and upheld the operator-residency requirement based on a narrow interpretation.
The Fifth Circuit, with a panel consisting of Chief Judge Elrod and Circuit Judges Jones and Stewart, held three major parts of the City’s STR Code to be unconstitutional:
1. Ban on Business Entities as Owners and Operators
The court ruled that the City’s prohibition on business entities—such as LLCs or corporations—from obtaining STR owner or operator permits is irrational and violates the Equal Protection Clause.
- The court found that natural persons and business entities are similarly situated for the purpose of the Equal Protection Clause.
- The City’s stated goal of preserving neighborhood livability and quality of life was deemed too attenuated from the distinction between a natural person owner and an owner who uses a business entity. The court noted that a juridical entity is simply a form of organization used by human beings, and the legal identity of the owner has no rational connection to the behavior of guests.
- This ban on business ownership, the court concluded, was “arbitrary or irrational.”
2. Advertising Restriction on Multiple Units
The court struck down the advertising requirement in Section 26-618(a)(3) that each listing advertise “only one dwelling unit,” finding it violates the First Amendment. The City failed to provide a compelling argument on how the one-unit-per-advertisement restriction “directly advances” any substantial government interest, such as protecting guests or ensuring proper licensing.
The court upheld, however, other advertising requirements for factual disclosures, such as including permit numbers and accessibility information, as these are related to the legitimate state interest of preventing consumer deception.
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While rejecting the business entity ban and the advertising limit, the Fifth Circuit affirmed other aspects of the City’s regulatory power:
Authority to Regulate
The court reiterated that the City has the authority under Louisiana state law to regulate STRs, including the ability to zone property based on the duration of an individual’s stay. Short-term rentals are reasonably viewed by state courts as a commercial use of property, distinct from a traditional residential lease.
Operator-Residency Requirement Narrowly Interpreted
The court addressed the requirement that an STR operator must “reside on the premises” while operating an STR. To avoid ruling the provision unconstitutional under the dormant Commerce Clause, the court adopted the City’s narrowing construction of the language.
- The City’s judicial admission clarified that the rule does not require permanent residency in the City or year-round residency at the property.
- Instead, the court accepted the interpretation that an operator must only be present at the property while guests are actively occupying the STR—similar to an employee being present at a hotel front desk.
- By accepting this interpretation, the court found no discrimination against out-of-state operators, thus defeating the dormant Commerce Clause challenge.
The Fifth Circuit’s decision sends the case back to the District Court for further proceedings consistent with its opinion.
The ruling means the City will have to amend its STR Code to allow business entities to own and operate rentals and lift the restriction on advertising multiple dwelling units. This latest legal development continues a years-long legal battle between New Orleans homeowners and the City over regulating the booming STR market.
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