Had Christopher Arai and his wife been made aware that short-term renting was not allowed at their beachfront house in South Kona, they wouldn’t have bought it, he wrote in a letter to the Board of Land and Natural Resources last month.
On March 13, the board voted to fine him and his wife, Tess Marie Lusher, $17,000 for illegally using their house as a vacation rental, in violation of state Conservation District rules, as well as the Conservation District Use Permit the board granted for the house in 1994.
The California-based couple likely earned a small fortune over the 14 years that they owned the beachfront home, which they named “‘Ili‘ili House,” since it overlooks Pebble Beach (‘Ili‘ili means pebble in Hawaiian).
They bought the home for $875,000 in early 2006, and began advertising it for rent that year. Although their general excise tax and transient accommodation tax licenses weren’t issued until 2013, guest reviews on the vacation rental website VRBO date as far back as June 2007, when a single stay cost at least $1,600 (five-night minimum at $285/night, plus a $175 cleaning fee).
Prices increased over the years. By 2012, a five-night stay cost $1,675, although the minimum stay was reduced to three days for $1,1,00 plus the cleaning fee. A week during Christmas or Easter that year cost $2,400 plus the cleaning fee.
In November 2018, Hawai‘i County adopted an ordinance restricting where transient vacation rentals could occur on the island. However, the new rule allowed for existing operators whose properties are outside designated areas to apply for a nonconforming use certificate.
According to state tax records Arai and Lusher submitted to the county as part of their application for a certificate for their property, ‘Ili‘ili House generated about $258,229 in income just between 2015 and the end of 2018.
Arai noted in his letter that when he initially attempted to submit his nonconforming use application to the county in person last August, he was told he needed to contact the Department of Land and Natural Resources’ Office of Conservation and Coastal Lands (OCCL). The county has referred applications for properties in the Conservation District to the OCCL, which has then been pursuing maximum fines for the illegal rentals.
By phone and in an email, OCCL staff informed Arai in late August that vacation rentals are prohibited on his property.
“This was extremely shocking news. It destroyed our vision for the property,” Arai wrote, adding that he has stopped doing rentals there and had only family and friends stay since September.
Even so, he submitted his nonconforming use certificate application to the county by the September 28 deadline, hoping to secure the certificate and figure out later how to “correct the situation with the DLNR.”
“At that time, I had no idea how difficult that would be and I was still under the hope that this could be rectified. I was not planning to continue renting with the [certificate] alone,” Arai wrote.
Arai’s explanation came in response to the OCCL’s recommendation at the Land Board’s March 13 meeting that the board impose not only the maximum $15,000 fine for the illegal vacation rental and $2,000 in administrative costs, but an additional $5,000 for filing for a county nonconforming use certificate after the OCCL informed Arai that rentals were prohibited.
“Our position was they were notified and they seem to have gone ahead anyway,” OCCL administrator Sam Lemmo told the board.
While Arai, in his letter, asked the board to reduce all of the fines, the couple’s attorney, Onaona Thoene, testified that they were willing to accept the fines for the vacation rental violation and administrative costs. However, she argued that DLNR rules don’t allow the board to impose a fine simply for submitting an application to the county.
She explained that Arai and Lusher had only submitted the application to preserve their rights while they researched the state’s district boundary amendment process, “which they thought would then allow them to continue the transient rental of the property.”
Thoene added that the couple is pursuing claims with their title company. Although the CDUP for the home was recorded in the Bureau of Conveyances, “title didn’t pick it up,” she said.
Land Board member Chris Yuen recommended approving the OCCL’s recommendations, except for the $5,000 fine for filing the county application. “It doesn’t sound like they were just trying to do an end-run,” he said.
While the rest of the board agreed with Yuen’s recommendation, board member Sam Gon said he was glad the OCCL had included the $5,000 fine recommendation. “Every case has to be considered independently,” he said.
— Teresa Dawson
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