Lexington, Kentucky, passes ordinance to limit short-term rental numbers

Lexington, Kentucky, has tightened its rules for short-term rentals (STRs), limiting their density in residential neighborhoods and reducing the number of guests who can stay at one time. The Lexington-Fayette Urban County Council approved the change December 5 and it went into effect December 12.

Under the new rules, the city can deny conditional use permits for unhosted STRs in residential neighborhoods if 2% of the homes within 1,000 feet are STRs or if there’s an existing STR within 600 feet. However, the law includes a few exceptions that allow STR hosts to obtain a permit in those circumstances if:

• There’s a significant environmental feature or road that separates the property from other unhosted STRs
• The property is next to nonresidential zones that allow short-term rentals as a principal or accessory use

The amendment also limits occupancy to 10 people per STR. Previously, the maximum number of people was 12.

The council last updated its STR law in July 2023 and it went into effect in January 2024. Lexington defines a short-term rental as the “commercial use of a dwelling unit rented in whole or part for temporary occupancy by transient guests for a tenancy of less than 30 consecutive days, where no meals are served.”

The definition doesn’t include hotel or motel rooms, extended stay hotels, bed-and-breakfast facilities, boarding or lodging facilities, or farm dwelling units. Transient guests are described as individuals who have an established primary residence elsewhere.

Hosted STRs are defined as properties that are primary residences in which the primary resident occupies the property while it’s being rented to guests. Unhosted STRs aren’t occupied by the primary resident during guest stays.

All STR operators are required to obtain a business license, a Special Fees License through the Division of Revenue, and a zoning compliance permit. Unhosted STRs in residential zones must receive a conditional use permit requiring a hearing with the Board of Adjustment. STR hosts must also:

• Show proof of valid general liability insurance of at least $1 million per occurrence
• Follow safety requirements such as having smoke and carbon monoxide detectors on-site
• Include a Local Registration Number in all advertisements and listings
• Provide an annual report to the Division of Revenue

STRs aren’t allowed to host events that exceed general occupation limits. STR conditional use permits aren’t transferable to new owners; they must apply for their own permit.

The latest rules are a response to clusters of STRs being established in residential neighborhoods after the law took effect. The Board of Adjustment has been flooded with STR applications and capped the number of applications per meeting at 10.

Lexington STRs are subject to Lexington-Fayette County transient taxes, which are paid by guests. Airbnb and Vrbo collect these local taxes on behalf of hosts, but hosts are responsible for collecting them if a marketplace isn’t doing it on their behalf. STR operators are also required to register with the Kentucky Department of Revenue and collect state lodging taxes. However, hosts who book STRs exclusively through a marketplace that collects and pays lodging taxes on their behalf do not need to register with the state.

Avalara MyLodgeTax can help short-term rental hosts automate and simplify state and local lodging tax compliance, from registration to tax return filing. If you have tax questions related to Kentucky vacation rental properties, drop us a line and we’ll get back to you with answers. See our Kentucky vacation rental tax guide for more on short-term rental taxes in the state.