SHORT-TERM RENTALS NO LONGER GENERATING HEADLINES BUT STILL CAUSING CONCERNS FOR CONDOMINIUM COMMUNITIES
By: Mark Einhorn
Five years ago, the explosive growth of vacation-rental platforms like Airbnb had become a major concern for condominium communities, as an increasing number of owners discovered that renting their units to guests for short periods could produce significant income with minimal administrative headaches for them.
Owners who were renting their units asserted their right to do so, while owners who objected to the rentals complained about the security threats they created, the wear and tear on common areas and amenities, the rowdy behavior of guests, and the vacation atmosphere created by an endless parade of transient residents who treated the units like the hotel rooms for which they were using them, rather than the residences that owners intended them to be.
The hotel industry, meanwhile, complained about unfair competition from owners who were not subject to the health and safety rules with which hotels had to comply or the taxes they were required to pay. Lawmakers eventually responded to those concerns.
Legislative Remedies
A Massachusetts law that took effect in January, 2019 applies the 5.7 percent room occupancy tax imposed on hotels to short-term rentals, which the law defines as rentals for periods of 31 days or less. The law also:
Allows cities and towns to impose an additional 6 percent local occupancy tax on the rentals.
Requires owners of short-term rental properties to register with the state and certify compliance with zoning ordinances and base line health and safety requirements.
Requires owners of short-term rental properties to maintain a minimum of $1 million in liability insurance.
The state law also allows cities and towns to enact their own ordinances regulating short-term rentals, and many communities have done so. Boston and Cambridge were among the first, both adopting ordinances that took effect before the state law was enacted. These ordinances:
Require owners of short-term rental units to register with the community;
Specify that the rentals can’t be restricted by lease terms or affordability covenants; and
Require compliance with local housing codes.
The Boston ordinance specifies that a rental unit must be the owner’s primary residence or a unit adjacent to the owner's primary residence. The Cambridge ordinance similarly requires that rental units be the primary residence of the ‘operator’ or located in an adjacent residential building with four units or less that is owned by the operator, who must occupy one of the units as a primary residence. The Cambridge ordinance also allows rentals by tenants, with the permission of their landlord; and it specifically requires condominium owners renting their units to obtain permission from their condominium association.
In Massachusetts, the state law and local ordinances adopted by many communities haven’t eliminated the problems that can accompany short-term rentals in condominium communities. But they have appropriately targeted large corporations, preventing them from buying multiple units in condominium communities and using them for short-term rentals – either for vacationers or for company employees. Equally important, these measures have provided an avenue through which association boards can deal with problem owners who fail to comply with applicable state and local requirements.
Letting Owners Decide
But even with this regulatory framework in place, condominium associations must still answer two fundamental questions: Do you want to allow short-term rentals in your community, and if so, how can you minimize the potential problems they can create? The challenge here is balancing the competing interests of owners who favor short-term rentals and owners who object to them. The Community Associations Institute (CAI) suggests that communities should assess the preferences of their residents and act accordingly, and I agree. If most owners want to prohibit rentals, boards should secure the supermajority vote of owners required to amend their documents, adding language that clearly reflects that aim.
Clarity is essential. Many communities in the past have relied on language in their governing documents requiring that units be used only for “residential” purposes. But the courts in many jurisdictions have differed on whether short-term rentals are commercial enterprises that violate the ‘residential only’ restriction or residential uses consistent with it. The argument in favor of residential use holds that while condo owners are clearly using their units for commercial purposes, the guests renting them are engaged in residential activities.
In Massachusetts, the state law and local ordinances subjecting short term rentals to the hotel occupancy tax have strengthened the commercial-use argument. Even so, we suggest that amendments prohibiting short term rentals should specifically prohibit rentals for less than six months, eliminating any debate over whether they violate the residential use requirement.
Regulating the Rentals
Amending the governing documents is the best option for most communities that want to prohibit short-term rentals.
Associations that are going to allow short-term rentals should enact clear regulations governing them. Toward that end, local ordinances, like those in Boston and Cambridge, provide a framework boards might use in developing their restrictions.
For example, provisions requiring owners to occupy the unit they are renting or an adjacent unit in the building, and limiting the number of units an individual owner can rent for short periods, will help prevent communities from being flooded with vacation rentals. While the proximity requirement won’t prevent problems caused by guests, it will make it easier for owners to deal with the problems and harder the subject owner to ignore them when raised.
Essential Requirements
Short-term rental restrictions should also define short-term rentals (periods of 30 days or less is a good marker) and require owners renting their units for short periods to:
Notify the board that they are doing so.
Notify their insurer that they are offering short-term rentals.
Maintain adequate insurance to cover their guests and any damage they cause.
Provide proof of adequate insurance to the board. (Boards should also make sure the association’s master policy will cover any issues related to short-term rentals.)
Meet renters personally (or have a managing agent meet them) when they check in. 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.
Explain association rules and regulations to their guests, respond promptly to any complaints about their behavior, and assume responsibility for any damage they cause.
Short-term rentals aren’t producing as many headlines or generating as many complaints as they did a few years ago. But they remain a source of friction in many communities, triggering problems and concerns that association boards should address, either by prohibiting the rentals entirely or regulating them effectively.
For more information regarding short-term rentals and what your association can do to restrict them please contact Mark Einhorn.