William-Douglas

Short Term Rentals & The HOA

Short term rentals, be it overnight stays or weeklong rentals, seem to be becoming more prevalent in homeowner and condominium associations as of late.  Some blame the advent of online services that help facilitate these activities, or it could seem more prevalent because of the ease of finding out a neighbor is advertising their home online under one of these services. Some of the most popular online short term or vacation rentals services are Airbnb, Craigslist and Vacation Rental by Owner (VRBO).

Association members and, in some instances, tenants of members are renting out rooms or entire homes by posting home descriptions and photographs on these online services. Users book these homes online, many times, without ever meeting the owner. If they do meet the homeowner it is upon arrival at their home.  After the stay, the owner and the short term tenant can publically evaluate their experiences on the site.

The definition of short term rentals can vary from just an overnight lodging up to any length of stay less than 12 months.  However, the most common definition of a short term rental is any stay less than 30 days in length.  Additionally, many municipalities have established definitions and conditions of what is considered a short term rental.

While some municipalities regulate or prohibit short term rentals in residential homes, many association governing documents limit or prohibit short term rentals as well. Recently, municipalities are regulating short term rentals more aggressively due to lost tax revenue (The Hospitality Tax that hotels collect) and lobbying from the hospitality industry concerning this online competition. Municipalities are using zoning and other accommodation regulations as their basis for fines and additional regulations.

Despite the hospitality industry’s lobbying efforts, municipalities are becoming more open to short term leases and vacation rentals. Until recently, Mount Pleasant, SC did not allow residential short term rentals. Now individuals in Mount Pleasant can purchase a one-time $50 retail license, pay the 12.5% hospitality tax and rent out individual rooms in their home.  The City of San Francisco up until last year strictly prohibited residential short term leases and now has eliminated these restrictions and has implemented regulations allowing the practice. For now, New York City appears to be one of the few large municipalities that continues to prohibits rentals of residences for less than 30 days.

In recent news stories, associations have been front and center in addressing some of the issues arising from short term rentals.  There is a well known California court case involving an association member who was fined $106,000 for offering short term rentals at his home. A San Diego Superior Court judge ruled that the member had knowingly violated the association’s covenants of no leases of less than 90 days in length and upheld the fine.

Another well publicized Airbnb incident involved a Los Angeles interior designer who was liable for over $10,000 worth of damages after an Airbnb guest clogged her condominium unit’s toilet. The Airbnb guest reportedly caused the toilet to overflow and failed to address the problem and thus allowed water to pour into the condominium hallways and other nearby units in the early hours of the morning.  Unfortunately, this water leak was not the first incident that this homeowner had had with a short term rental guest.  An earlier guest had driven their car into a neighbor’s garage causing damage.

Who paid for the damages of these short term rental guests? Airbnb has a program called Host Guarantee that offers up to one million dollars  in coverage.  Unfortunately, Airbnb Host Guarantee only provides coverage for the actual short term rental domicile.  The coverage does not extend to outside the actual unit. In this case the coverage only paid for the plumber who unclogged the toilet.

While there are a multitude of arguments pro and con for short term rentals in an association, one of the most common arguments against is the transient atmosphere that is created.  This type of atmosphere could be disruptive, but the common pro argument for short term leases revolves around individual homeowner rights and their property.

Putting individual property rights aside, even if a municipality permits short term rentals, associations may prevent association members from this activity if the governing documents have certain previsions.  If the association’s covenants specifically deny short term rentals and define what is a short term rental, enforcement can generally be straightforward. If the language on short term rentals is vague, the association’s attorney may need to be involved for clarification on how the matter can be enforced.

If the covenants are void of any language specifically prohibiting short term rentals, most governing documents have previsions limiting business activities or operating a business from a member’s home.  These are areas that many times require the association’s attorney to expand on and clarify for enforcement viability.  If there are no covenant restrictions in place or any other previsions that can be used to address the short term rental issue, amending the association’s governing documents may be the only avenue available.   

Of course if an association wishes to allow, or has no ability to prevent, short term rentals, some considerations should be taken into account.  First, if the association is going to sanction, the governing documents must not have a prevision preventing short term rentals.  Obviously, the covenants cannot be ignored.  The second point to consider is that the association member who is going to be renting their home out must obtain the proper insurance to address any issues that may arise.  The association’s insurance agent should be consulted on these additional insurance requirements as it relates to the association’s insurance coverage.  Thirdly, establishing rules and guidelines for both the association member who is renting and the guest who will be staying under the short term lease.

Some association boards are routinely checking these online sites for any short term rental activity within their association.  This virtual internet world keeps everyone honest and also mitigates the pretext that “I just have a lot of friends coming over and staying with me.”  WDPM

 

 Copyright – William Douglas Management  2016