Published on: August 24, 2017
By Mark Einhorn
The short-term rental of residential property is producing long-term concerns. Those concerns, which were just emerging when I wrote about this issue three years ago, have grown exponentially as short-term vacation rentals have ballooned, creating what is now a $34 billion business and triggering an avalanche of conflicts and complaints to which the governing boards of condominiums, municipal officials, and lawmakers are all beginning to respond.
At the federal level, a group of senators concerned about the issue have asked the Federal Trade Commission to investigate the impact short-term rental companies are having on local housing markets.
Closer to home, the Cambridge City Council recently approved an ordinance requiring condominium owners and tenants who rent their units on line to register the property with the city, and to obtain permission from their condominium association or landlord before doing so. The ordinance also requires “hosts” to live in the same building or a building adjacent to the one in which they are offering a short-term rental unit.
Other communities have also been eyeing regulations to deal with the business. The Massachusetts Department of Health and Human Services has suggested that short-term rentals should be regulated like bed and breakfasts. Boston officials have been studying that idea for some time, but haven’t yet acted on it.
The state Legislature also hasn’t addressed the issue yet, but is being urged to do so. Gov. Charlie Baker has proposed legislation that would impose a tax on short-term rentals. A measure introduced by Rep. Aaron Michlewitz, who chairs the Committee on Financial Services, would also tax rental income and would, in addition, require owners to obtain a state license and comply with a number of health, safety, and insurance requirements.
When he introduced a similar measure three years ago, Rep. Michelwitz said it aimed to address both safety and health concerns and the “unfair competition” between hotels and bed and breakfasts, which pay taxes on their revenue, and homeowners, who aren’t taxed on the income from short-term rentals.
While hotels are concerned about the impact on their business, condominium owners are concerned about the impact on their communities when residences become hotel rooms and their neighbors become an ever-changing parade of hotel guests.
Security, wear and tear on common area spaces and amenities, rowdy behavior, and the vacation atmosphere created by transient residents are the major complaints. Not surprisingly, these complaints have ended up in the courts, which, also not surprisingly, have differed in their responses.
Commercial or Residential Use?
The key legal question in most of these disputes has been whether short-term rentals represent residential or commercial use of residential property.
The Massachusetts Land Court concluded in a recent decision (Robert S. Lytle vs. Alana Swiec, et. al.) that the short-term rental of a summer cottage in Hull violated zoning regulations barring commercial uses in neighborhoods zoned for single-family properties. The court upheld the Zoning Board’s ruling that the rental did not constitute an authorized “accessory use” of a residential property.
A Kentucky appeals court concluded similarly (in Vonderhair v. Lakeside Place HOA) that short-term rentals of units in the condominium community violated residential use restrictions in the HOA’s covenants.
But the Washington State Supreme Court reached the opposite conclusion, ruling (in Wilkinson v. Chiwawa Communities Association) that the determining factor was not how long a property was rented to tenants, but how the tenants used it. According to the court, the tenants were using the property for eating, sleeping and other purposes, consistent with its residential use.
A Florida Appeals Court used similar reasoning in a decision earlier this year (Santa Monica Beach Property Owners Association, Inc. v. Acord) rejecting a condo association’s effort to prohibit short-term rentals. The association argued that language in the covenants mandating residential use precluded the rentals. But the court said: “The critical inquiry is not the duration of the tenancy, but the character of the actual use of the property by those residing thereon.”
Significantly, the Florida court also noted the absence of language in the covenants specifically barring short-term rentals. “The need for explicit language in the covenants is particularly important,” the court said, “where the use in question is common and predictable, as is the case with short-term rentals of houses near the beach to vacationers.”
The court’s admonition underscores the advice we offer our condominium association clients: If you want to prohibit short-term rentals in your community, do so specifically and explicitly through language in your governing documents. If your documents don’t contain that language, persuade owners to amend the master deed or the bylaws to add it.
As the court decisions quoted earlier indicate, restricting the property to residential uses may not be sufficient; the restrictive language should specify a minimum acceptable rental period. We suggest no less than 30 days; many of our clients go further and prohibit renting for less than six- or twelve-month periods. We also recommend requiring owners to rent the entire unit – not just a portion of it ─ to avoid the “rooming house” effect. This would preclude an owner with a three-bedroom unit from renting the two extra rooms to paying guests.
Well-drafted restrictions and hefty fines to enforce them may not be enough to curb the appetite for short-term rentals, however. Short-term rentals can be extremely lucrative, and some owners may view the fines as a cost of doing business that they are willing to accept. Boards that want to enforce rental restrictions may have to go to court in order to do so.
It is also possible that some owners – and possibly a sizable number of them – are already renting their units to vacationers or want to preserve the option to do so. Before taking or recommending any action, the board should assess owners’ preferences. If owners don’t want an outright ban on all short-term rentals, you might consider amending the governing documents to impose restrictions that minimize the negative effects communities often experience. We suggest, among others:
- Require owners (or an owner’s agent) to meet renters personally onsite for each rental. Among other benefits, this will allow owners to make sure the party of two that rented their unit hasn’t grown to a party of 22. It will also prevent renters from wandering around the property, not knowing how to get access to the building or other amenities.
- Require owners to explain association rules to tenants and to verify that they have done so.
- Require owners to have insurance that will cover their guests. Also make sure the association’s master policy will cover any issues related to short-term rentals. If the insurer classifies the activity as commercial rather than residential use, the policy may not provide coverage for a renter who is injured or who injures someone else. Even if the owner has insurance, the association will almost certainly be targeted in any litigation.
- Have written policies describing the obligations of owners who rent their units. You will want to specify, for example, that owners will be responsible for any problems created by their “guests” or any damage they cause.
- You might also want to consider adopting a policy similar to that in the Cambridge ordinance described earlier – requiring owners to occupy a unit in the same building or in a building adjacent to the one in which they own a short-term rental unit. Proximity won’t prevent problems, but it will make it easier for owners to deal with any problems their tenants create, and will make those problems a lot harder for owners to ignore.