Navigating Short-Term Rental Regulation: Key Lessons from Recent Court Rulings

Wisconsin Municipalities have increasingly struggled with how to manage the impacts of short-term rentals (STRs) while capitalizing on their benefits. Two recent decisions from the Wisconsin Court of Appeals have provided significant clarification regarding the authority of municipalities to regulate STRs. These cases, Wisconsin Realtors Association, Inc. v. City of Neenah and Wildwood Estate, LLC v. Village of Summit, clarify the limits imposed by state preemption and underscore the critical importance of following proper procedure when enacting land-use restrictions. Municipalities should review their existing and proposed STR ordinances in light of these rulings to ensure compliance and avoid potentially costly legal challenges.

This advisory summarizes the key takeaways from each case.

State Law Preempts “Primary Residence” Restrictions 

The central issue in Wisconsin Realtors Association, Inc. v. City of Neenah was whether a local ordinance could restrict STR permits to only those properties that are the owner’s “primary residence.” The City of Neenah, like many municipalities, had enacted a Tourist Housing Ordinance requiring that “the tourist housing property shall be the primary residence of the applicant.” The Wisconsin Realtors Association (WRA) challenged this provision, arguing it was preempted by state law.

The Court of Appeals sided with the WRA, holding that the ordinance “logically conflicts with state law” and is therefore void. The court’s reasoning focused on the plain text of Wis. Stat. § 66.1014.

A Land-Use Ban is a Zoning Ordinance, Regardless of Its Label

In Wildwood Estate, LLC v. Village of Summit, the court addressed a different but equally important issue: the procedural requirements for enacting STR restrictions. The Village of Summit passed an ordinance that flatly prohibited the “rental of a residential dwelling for six consecutive days or fewer”. The Village classified this as a business regulation under its general police powers and, on the advice of its attorney, did not follow the procedures required for a zoning ordinance, including holding a public hearing.

The court ruled that the ordinance was, in substance and function, a zoning ordinance. Because the Village failed to follow the mandatory procedural safeguards for enacting a zoning law, the ordinance violated the property owner’s due process rights and was declared void and unenforceable. The Village was also ordered to pay the plaintiff’s attorneys’ fees, totaling over $55,000.

The “Functional Approach” to Identifying a Zoning Ordinance

The court explained that whether an ordinance constitutes a zoning ordinance is not determined by its title or its placement in the municipal code. Instead, courts use a “functional approach,” looking at the ordinance’s characteristics and effects. The court found that Summit’s ordinance had several key hallmarks of a zoning law:

1. Prohibited Land Use: The ordinance did not just regulate how STRs could operate; it directly prohibited a specific use of land (rentals of six days or less) throughout the entire village.

2. Made a Legal Use Illegal: Before the ordinance, STRs were a permitted use of residential property in Summit. The ordinance took a “substantial stick out of Wildwood’s bundle” of property rights by making this previously legal activity illegal.

3. Fixed, Forward-Looking Determination: The ban applied to all properties and was not a case-by-case determination.

The court also noted evidence that the Village itself treated the issue as a land-use matter, modeling its ordinance on a zoning ordinance that had been adopted by a different village and assigning implementation duties to its village planner and zoning administrator.

Consequences of Procedural Failure

State law and constitutional due process require that zoning ordinances, because they significantly affect property rights, can only be enacted after following heightened procedural requirements, most notably providing public notice and holding a public hearing. By sidestepping these steps, Summit violated the property owner’s rights.

Guidance for Municipalities

The Neenah decision sends a clear message: ordinances that seek to regulate who can operate an STR based on the owner’s personal use of the property are likely preempted by state law.

• Avoid “Primary Residence” Rules: Municipalities must remove or refrain from enacting requirements that STR properties be the owner’s primary residence.
• Focus on Permissible Regulation: Local authority is limited. While Wis. Stat. § 66.1014 allows municipalities to require licenses and limit the total number of rental days per year (to no fewer than 180 days for certain rentals), it does not permit a ban on STRs in non-primary residences. Any regulation must not conflict with the state’s broad protection for the rental of “any” residential dwelling.

The Summit decision is a strong warning against attempting to circumvent zoning procedures by mislabeling an ordinance.

• Substance Over Form: If a proposed ordinance prohibits or fundamentally restricts a land use—such as banning STRs of a certain duration—it must be treated as a zoning ordinance.
• Follow Procedure: Municipalities must adhere strictly to the procedural requirements of Wis. Stat. § 62.23(7)(d) for any STR regulation that functions as a zoning amendment. This includes referral to the plan commission, providing Class 2 public notice, and holding a full public hearing.
• Risk of Non-Compliance is High: Failing to follow proper procedure will not only render the ordinance void but can also expose the municipality to liability for the challenger’s substantial attorney fees under 42 U.S.C. § 1983.

If you or your municipality have any questions or concerns about complying with these new standards, or if you are facing disputes with your municipality, please contact the legal professionals at West & Dunn online through our Contact Us page or by telephone at (608) 535-6420 for a Consultation.