Lewes preps new regulations on rental homes

Lewes city officials are have passed an ordinance defining long-term and short-term rentals, and a regulation system. | PHOTO COURTESY OF WIKIPEDIA COMMONS

LEWES — After four months of discussion and research, Lewes city officials have passed an ordinance that adds more regulations on the 529 active rentals within city limits.

The Lewes City Council passed the ordinance on Oct. 10 after amending it to include technical word changes, as well as a key occupancy limit of two persons per bedroom plus an additional two people. As amended, children under the age of 12 are not counted toward occupancy.

“We have been working tirelessly to get this to council for the 2023 rental season, and what we have here is what we believe to be the best steps to take and protect this portion of our economy and our town,” Lewes Council Treasurer Carolyn Jones said during the council meeting of Oct. 10.

With the rise of online booking sites that ease the process for property owners to rent out second homes, Lewes has been caught between its residents and tourists who may stretch the historic beach resort to its limits. In a city of just a few square miles, residents already contend with traffic jams, parking scarcity, and other quality of life issues.

The 2020 census reports that about 45% of homes in Lewes are not occupied full-time, according to city officials. 

“We have those who maybe rent out a few weeks a year and others who own several properties and renting is all they do,” Lewes City Manager Ann Marie Townshend told the Delaware Business Times. “We’ve worked and tried our best to answer the question of balance between quality of life and those who rent out properties and their rights,”

Back in May, city officials formed an ad-hoc committee back in May to study how to balance tourism, business and residential life in Lewes. The end result was a comprehensive ordinance that codifies that all rentals must apply for a $200 rental license each year. The ordinance also maintains a local contact must be identified for each rental, and if an issue arises, they must respond within two hours.

Violations include renting without a license, failing to pay the associated taxes, violating occupancy rules, and whether the guests follow city laws when it comes to trash collection and noise. To make occupants aware of the regulations, renters are required to post occupancy limits, off-street parking if available and the local contact number inside the residence. 

Proposed fines start at a written warning and can graduate up to $500 and a revoked rental license for a year from the date of the violation. But the Lewes City Council had reservations about adopting the fine schedule, and delayed voting on that measure.

Lewes is not the only Delaware beach community that has regulations in place for rentals; however, it is the first that delineated between short-term (30 days or less) and long-term (more than 30 days) rentals.

The tourism economy brings in significant revenue for the state, including the 8% tax it has levied on hotels and motels since the 1970s. In Fiscal Year 2021, Delaware collected $11.7 million in its accommodations tax. In the last couple of years, counties and municipalities have also started to tax hotels, including Sussex County which collects 3% on top of the state’s tax.

Short-term rental homes posted on popular websites like Airbnb or Vrbo are not subject to the state’s accommodation tax — but Delaware’s coastal communities have imposed their own fees.

Lewes charges a 5% gross receipts tax, and under the new ordinance, property owners are required to maintain proof that the tax is paid for license renewal. Lewes also contracts with Host Compliance, a software company that identifies unlisted short-term rentals and notifies city officials, beginning in 2020 to ensure all rentals are in compliance and paying taxes.

“When we get those rentals, we contact the owners and work to get them into compliance. It’s not an exact perfect system, but I’d say most of the people we reach out to are compliant,” Townshend said.

Meanwhile, Fenwick Island charges a 8% gross rental tax for residential rentals. Rehoboth Beach’s code states that “tourist homes” must pay that city’s 3% accommodation tax — but private homes and apartments pay the 6% gross receipts rental tax. Bethany Beach has a residential tax rate of 7% of gross receipts.

Officials in Rehoboth Beach and Fenwick Island said there were no plans to change regulations for residential rentals at this time.

Airbnb officials state that Delaware hosts collectively earned $45 million in 2021. A survey showed that 38% hosts in the First State said the money earned from renting the space helps them stay in their home.

“Short-term rentals have been a staple of Lewes’ local economy for decades, both for families who rely on supplemental income and small businesses that benefit from visitors to the city. Airbnb will continue to work with leaders across Delaware on balanced rules that bolster the broader tourism economy, provide certainty and clarity for Hosts, and address community concerns,” Airbnb Regional Public Policy Associate Manny Capellan said in an email.