State’s high court holds that farm dwellings in ag district cannot be short-term rentals

Hawaiʻi Supreme Court justices on Tuesday unanimously held in Rosehill v. State of Hawaiʻi, Land Use Commission that farm dwellings in an agricultural district cannot be used as short-term vacation rentals.

“Using agricultural lands for genuine agricultural purposes and ensuring that housing is allocated for our residents are two of the most crucial issues facing our state today,” said Hawaiʻi Gov. Josh Green. “I commend the Hawaiʻi Supreme Court for making the right decision for the people of Hawaiʻi.”

The state’s high court in making its decision also ruled that courts must generally defer to agencies when interpreting ambiguous laws, expressly disagreeing with a controversial 2024 U.S. Supreme Court case that overruled the 40-year-old Chevron U.S.A. v. Natural Resources Defense Council case.

Hawaiʻi County has banned short-term vacation rentals in an agricultural district since 2019 after the approval of an amendment to its zoning code.

The change was made in an attempt to further regulate short-term rentals by requiring owners to register and obtain noncoforming use certificates from the Hawaiʻi County Planning Department. Under the ordinance, nonconforming use certificates for rentals in ag districts are only issued where a lot existed before June 4, 1976.

The amendment also laid out punishments, including criminal prosecution and administrative penalties, for anyone operating a short-term vacation rental without a nonconforming use certificate.

The county and several Big Island land owners, who became the Rosehill petitioners, in 2020 asked the state Land Use Commission for an opinion about the ban’s legality under state law.

The Rosehill petitioners, all of whom own lots created after the June 4, 1976, cutoff, sought nonconforming use certificates after the code change went into effect and were denied.

They agreed to stay appeals of the denials to the Hawaiʻi County Board of Appeals while the Land Use Commission took up the matter.

The commission granted the county’s petition, finding that farm dwelling use and short-term vacation rental use are not compatible; farm dwellings cannot be used as short-term vacation rentals.

Therefore, a short-term vacation rental is not a permitted use of a farm dwelling in an agricultural district.

It also said the Rosehill petition was “speculative and hypothetical.”

Rosehill petitioners, not satisfied with the answer, appealead to Circuit Court, where the commission’s decision was reversed. The court ruled that farm dwelling use and short-term vacation rental use are “not incompatible.”

The Land Use Commission then appealed the Circuit Court’s ruling to the Intermediate Court of Appeals.

While the case was pending there, the state high court ruled in another case that declaratory orders made by the Land Use Commission have the same status for judicial review as orders in contested cases.

That meant the Rosehill petitioners should have appealed directly to the Hawaiʻi Supreme Court instead of the lower court after the commission’s decision.

The petitioners then applied for the case to be transferred up to the high court, which was granted.

In the end, Hawaiʻi Supreme Court justices vacated the Circuit Court’s 2022 judgement because the lower court lacked jurisdiction.

They also overturned the lower court’s order reversing the Land Use Commission’s 2021 declaratory order.

“The Rosehill petitioners have failed to show that the [Land Use Commission] acted arbitrarily or capriciously in granting the county’s petition while denying the Rosehill petition,” wrote Chief Justice Mark Recktenwald in the high court’s opinion.

Justices agreed with the commission that a farm dwelling cannot be used as a short-term vacation rental because “short-term vacation rentals undermine” agricultural purposes and also affirmed the commission’s declaratory order on its merits.

“This was a win for preserving agricultural lands in Hawaiʻi. Short-term vacation rentals are transient accommodations effectively for vacation or tourist use and do not belong in the agricultural district,” said Special Deputy Attorney General Doug Chin, a former Hawaiʻi attorney general and current partner at Starn O’Toole Marcus & Fisher who argued the case before the Hawaiʻi Supreme Court. “That was the [Land Use Commission’s] finding when a dozen Hawaiʻi island landowners applied to rent out their farm dwellings as short-term vacation rentals. The Hawaiʻi Supreme Court unanimously upheld the [Land Use Commission’s] thoughtful and well-reasoned decision.”

In making its decision, the Hawaiʻi Supreme Court also expressly deferred to the commission’s interpretation of ambiguous Hawaiʻi law, stating: “In Hawaiʻi, we defer to those agencies with the naʻauao [knowledge/wisdom] on particular subject matters to get complex issues right.”

Justices in their decision disagreed as well with reasoning behind the U.S. Supreme Court’s 2024 ruling in Loper Bright Enterprises v. Raimondo, which overruled longstanding principles of federal judicial deference to agency interpretation of statutes.

“[Tuesday’s] decision makes clear that deference to administrative agencies is a principle with continued vitality in Hawaiʻi,” said Hawaiʻi Attorney General Anne Lopez. “This decision reaffirms the importance of agency expertise under Hawaiʻi law.”

Big Island Now news reporter Nathan Christophel contributed to this story.