(BIVN) – The Hawaiʻi Supreme Court this week ruled that farm dwellings in an agricultural district on Hawaiʻi island may not be used as short-term vacation rentals. 

The ruling was made following a legal challenge to Hawaiʻi County zoning code amendments made in 2019, regulating short-term vacation rentals on the Big Island. The case is known as Rosehill v. State of Hawaiʻi, Land Use Commission.

The County made it a policy to only issue a nonconforming use certificate for land in the agricultural district where the lot existed before June 4, 1976. 

From the Hawaiʻi Supreme Court opinion:

After the ordinance was enacted, the Rosehill Petitioners, who all own lots created after June 4, 1976, sought nonconforming use certificates. The County denied the certificates, and the Rosehill Petitioners appealed to the County Board of Appeals. The County and the Rosehill Petitioners agreed to stay the appeal and each file a petition with the Land Use Commission (LUC), seeking to establish whether the County’s denial was proper under state law. The LUC ruled on the County’s petition and found that farm dwelling use and short-term vacation rental use are not compatible uses — i.e., that farm dwellings cannot be used as short-term vacation rentals. The LUC also concluded that the Rosehill Petition was speculative and hypothetical.

The Rosehill Petitioners appealed to the circuit court, which reversed the LUC. The circuit court held that farm dwelling use and short-term vacation rental use are “not incompatible.” It compared the County ordinance to HRS § 205-4.5(a) and held that a dwelling can simultaneously meet the definition of a farm dwelling and a short-term vacation rental.

The LUC appealed to the Intermediate Court of Appeals (ICA), where the case was extensively briefed. While the case was pending before the ICA, this court issued In re Kanahele, which held that declaratory orders entered by the LUC have the “same status” for judicial review as orders in contested cases. 152 Hawai‘i 501, 512, 526 P.3d 478, 489 (2023). Here, that would mean that the Rosehill Petitioners should have appealed directly to this court from the LUC order (rather than, as they did to the circuit court). The Rosehill Petitioners then applied for transfer, which we granted.

This case raises several questions. Preliminarily, there are two procedural issues raised by Kanahele: (1) Can this case be transferred from the ICA to this court, nunc pro tunc to June 18, 2021, the date this appeal was initially filed in the circuit court; and (2) if the case can be transferred nunc pro tunc, what record may the Court consider, and which party should have the burden of showing error? There are also two substantive issues: (3) Could the LUC grant the declaratory order to the County while denying the Rosehill Petition, and (4) can a farm dwelling in the state agricultural district be used as a short-term vacation rental?

We hold as follows: (1) yes, we may transfer the case nunc pro tunc because it is within the statutory and inherent power of this court to do so and would accord with our longstanding policy to hear cases on the merits; (2) this court can use the entirety of the record (though the circuit court’s findings of fact and conclusions of law have no weight), and the Rosehill Petitioners have the burden of showing that the LUC order was arbitrary and capricious; (3) yes, the LUC properly granted the declaratory order for the County while denying the Rosehill Petition because the two parties were not similarly situated; and (4) no, a farm dwelling in the agricultural district may not be used as a short-term vacation rental because that use does not accord with the agricultural district’s purpose.

We therefore vacate the circuit court’s judgment and affirm the LUC’s declaratory order.

In a news release from the Hawaiʻi Department of the Attorney General, state leaders praised the Hawaiʻi Supreme Court’s decision.

“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 Governor Josh Green, M.D. “I commend that Hawaiʻi Supreme Court for making the right decision for the people of Hawaiʻi.”

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

“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. That was the LUC’s finding when a dozen Hawaiʻi island landowners applied to rent out their farm dwellings as short-term vacation rentals,” said Special Deputy Attorney General Doug Chin, a former Attorney General of Hawaiʻi and current partner at Starn O’Toole Marcus & Fisher who argued the case before the Hawaiʻi Supreme Court. “The Hawaiʻi Supreme Court unanimously upheld the LUC’s thoughtful and well-reasoned decision.”