City’s Cap on Short-Term Rentals Survives Federal Court Review in Arkansas

Lawsuit Dismissed Over City’s Ordinance

FAYETTEVILLE — A federal judge has dismissed a lawsuit filed by a Texas couple challenging Fayetteville’s regulations on short-term rentals.

U.S. District Judge Timothy Brooks issued the ruling Monday in a case brought by Stephen and Shelley Hause of Round Rock, Texas. The couple owns a home northwest of Old Farmington and One Mile roads. Their request to use the property as a short-term rental was denied last October by the city’s Planning Commission.

The commission said the neighborhood already had too many rentals, which city code allows as a reason for denial. The couple could have appealed if at least three City Council members had sponsored the case, but none did.

Background on the Case

The Hauses filed suit in federal court, arguing that the city’s rules violated their rights. They said they needed rental income to help cover costs of a second home in Fayetteville, where their daughter attends the University of Arkansas and requires ongoing care.

The couple also filed a separate lawsuit in Washington County Circuit Court, which has advanced to the Arkansas Supreme Court. Arguments were heard in Little Rock last week, but the justices have not yet ruled.

City’s Rental Limits

Fayetteville first adopted rules for short-term rentals in 2021. Rentals are defined as homes leased to guests for fewer than 30 days.

The city allows two types of rentals. Type I rentals are homes with a full-time occupant, often renting out one room. Type II rentals are properties used primarily as guest housing without an on-site resident.

Owners must obtain a business license, pass a safety inspection, and pay hospitality taxes. Type II owners must also secure a conditional use permit from the Planning Commission.

The city capped the number of allowed short-term rentals at 475. That limit has now been reached.

Court’s Findings

Judge Brooks reviewed three claims made by the couple: that the city’s ordinance violated the Dormant Commerce Clause, was too vague, and amounted to an unconstitutional taking of property.

On the commerce claim, Brooks said the couple failed to show the ordinance placed a heavier burden on interstate commerce than the benefits it provided locally.

On vagueness, he found the ordinance gave clear guidance to both the plaintiffs and the commission.

On the takings claim, he said the couple was never guaranteed a permit, even though the city had not yet reached its rental cap when they bought their home. Restrictions on use, Brooks said, do not amount to a taking.

“The facts of this case are not disputed: the City of Fayetteville passed an Ordinance restricting short-term rentals which adversely affected Plaintiffs who hoped to operate a short-term rental,” Brooks wrote. “The City has shown that the Ordinance is constitutional, so the City is entitled to judgment as a matter of law on each of Plaintiffs’ claims.”

State Case Still Pending

While the federal case has ended, the couple’s state-level challenge remains active. The Arkansas Supreme Court is expected to issue a ruling in the coming months.