Federal Court In Illinois Holds First Amendment Not Implicated By Chicago’s Short-Term Rental Ordinance

Last month, the federal District Court for the Northern District of Illinois denied a request for a preliminary injunction against the City of Chicago’s new short-term rental ordinance.  The Court determined that the ordinance, which regulates how individuals list units for rent on Internet-based, “home sharing” services such as Airbnb, VRBO, or HomeAway, did not affect the plaintiffs’ First Amendment rights to free speech.  As municipalities across the country continue to grapple with how to regulate such companies and the disruptive effect they have on the short-term rental and housing markets, this decision marks an interesting step forward in developing the legal basis for allowing such regulations.

The case centers on the so-called “shared housing ordinance” (the “SHO”) enacted by the City of Chicago (“City”) on June 22, 2016 and amended February 22, 2017.  The SHO requires hosts making housing units available for short-term rent to register the units with the City before listing the units on online services, and also requires services such as Airbnb, VRBO, HomeAway to register with the City.  As applied to individuals, the SHO imposes requirements on the services provided, such as requiring that hosts provide soap and clean linens and notify police of any illegal activity. It also requires individuals to maintain guest registries, and post their licensing information at the unit.

The plaintiffs, including a pro-short-term rental advocacy group and individuals that rent units using Airbnb, VRBO, HomeAway, and/or other platforms, challenged the SHO as an unconstitutional prior restraint on speech, and alleged that the regulations constituted compelled speech and was a content-based restriction on speech in violation of the First Amendment.  The plaintiffs moved for a preliminary injunction blocking the law from taking effect, and the challenged provisions were stayed pending a decision on the motion.

The Court ultimately denied the application for a preliminary injunction and rejected the plaintiffs’ First Amendment claims, noting the difference between First Amendment-protected speech and commercial activity.  Relying upon the Supreme Court’s decision in Sorrell v. IMS Health, the Court noted that:

restrictions on protected expression are distinct from restrictions on economic activity or, more generally, on nonexpressive conduct.  The First Amendment does not prevent restrictions directed at commerce or conduct from imposing incidental burdens on speech.

Here, the Court found plaintiffs had not established that their activities non-commercial activity or that the short-term rental business had an expressive component.  Rejecting the plaintiffs’ argument that their activities constituted speech, or a mix of commercial activity and speech, because online platforms created opportunities to “meet new friends, learn about different cultures, and show off” their home city, the Court found that a short-term rental arrangement is a commercial transaction, writing that the fact “some hosts or licensees also derive a social benefit from home sharing makes no difference to the dispositive question of whether the SHO regulates economic activity.”  It went on to state that if such a transaction was First Amendment-protected speech, than any other commercial transaction that involves interpersonal interaction would have to similarly be protected.

It should be noted that as this was a motion for a preliminary injunction, the Court’s finding was merely that the plaintiffs were unlikely to succeed on the merits, and not a final determination on their claims. Even so, it suggests that the First Amendment argument is unlikely to find much success as the case proceeds, and that the City’s ordinance will likely be upheld as constitutional, at least insofar as First Amendment concerns are implicated.

The case was Keep Chicago Livable v. City of Chicago, No. 16 C 10371, 2017 WL 955421 (N.D. Ill. Mar. 13, 2017).

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