THE BUSINESS OF SHORT-TERM RENTALS AND ITS TOLL ON CONDOMINIUM COMMUNITIES

Published on: March 5, 2018

INTRODUCTION

Every day it seems as though an ever increasing number of property owners are seeking to earn extra income by offering their properties for short-term/transient purposes, and the increased popularity of platforms such as AirBnB, VRBO, and HomeAway have made it easier than ever for an property owner to connect with anyone who seeks a place to stay for a night or for several. While this commercial enterprise may seem like a quick and easy way to earn money for the property owner, it is not without issue, particularly when the property that is being used for short-term/transient purposes is a unit located within a condominium building.

While short-term leasing is not an entirely new concept faced by condominium communities, the increased frequency in nightly turn-over is an issue which condominium communities are now attempting to grapple with, especially as condominiums that were established more than ten (10) years ago, likely do not have any express provisions dealing with short-term/transient rentals because the concept of using a condominium unit in the same way that one would expect to use a hotel, likely was not even contemplated at such time.

RESTRICTING SHORT-TERM/TRANSIENT USE THROUGH EXPRESS PROVISIONS IN THE CONDOMINIUM’S GOVERNING DOCUMENTS

There are a number of options available to condominium communities to address the ongoing issues surrounding short-term/transient documents. The first of course is to look at the condominium’s governing documents to determine whether there is any restriction prohibiting short-term/transient rentals (i.e., for periods of less than a month or more). If there is not already a restriction in the governing documents prohibiting the use of a unit for short-term/transient purposes, then the condominium should consider amending their documents to do so. If the association is able to successfully amend their documents to restrict short-term/transient rentals (by obtaining all requisite unit owner and first mortgagee consent (to the extent required)), than the association may ban short-term/transient rentals for all units (including those units which were purchased prior to the adoption of the rental restriction). While the affected unit owners may not agree with the rental restriction, they are nonetheless bound by it, as it is well established that a condominium’s master deed prescribes “the rules of the game” and each unit owner’s rights and interests are subject to the terms and conditions set forth in that condominium’s governing documents. See Strauss v. Oyster River Condominium Trust, 417 Mass. 442, 452 (1994); CBK Brook House I Ltd. Partnership v. Berlin, 64 Mass. App. Ct. 913 (2005).

Further, in the case of Woodside Village Condominium Association, Inc. v. Jahren, 806 So. 2d 452 (2002), the court considered the validity of an amendment that restricted the leasing of condominium units. The court concluded that “[c]ondominium owners were bound by amendment to declaration that restricted leasing a condominium to nine months in a 12-month period, where owners were on notice when they purchased their units that the leasing provisions in the declaration could be changed by amendment, amendment was properly enacted under the amendment provisions of the declaration, and leasing restrictions did not violate any public policy or owners’ constitutional rights.”

SHORT-TERM/TRANSIENT RENTALS AS A COMMERCIAL USE OF THE UNIT

If there is no express provision in the condominium’s governing documents prohibiting short-term/transient rentals and/or the association is not able to adopt an amendment to prohibit such use, the association should also consider whether there are any provisions within the condominium’s governing documents which prohibit commercial use of units. While there has not been a clear consensus across all jurisdictions (and in at least Florida and Wisconsin, there is precedent that the nature of a property’s use is not transformed from residential to business because the owner earns income from rentals) there is precedent (within Michigan and the Commonwealth of Massachusetts) to reasonably argue that the use of a property for short-term/transient purposes constitutes a commercial enterprise.

Black’s Law Dictionary (10th ed. 2014) defines the term “resident” as “1. [s]omeone who lives in a particular place. 2. Someone who has a home in a particular place.” Black’s Law Dictionary (10th ed. 2014) further defines the term “commercial use” as “[a] use that is connected with or furthers an ongoing profit-making activity.”

Accordingly, an association should first consider whether the owner whom is offering their unit for short-term/transient purposes even lives at the unit, or whether it is used exclusively for short-term/transient purposes in furtherance of an ongoing profit making activity.

In the case of Robert S. Lytle, et al. v. Alana Swiec, et al., 13 Misc. 480974 (KFS), the Land Court (Scheier, J.), upheld a determination by the Zoning Board of Appeals of the Town of Hull that the plaintiff in that action was “essentially operating a commercial enterprise in a single-family residential zone” and further determined that the plaintiff’s “weekly rental use is inconsistent with the purpose of a single-family residence district…” While zoning regulations will vary across cities and towns, in Lytle¸ the Court (Scheier, J), the court considered the characteristics of the plaintiff’s actual use of their property in reaching her conclusion (as opposed to the language of the specific By-Laws).

Additionally, in the case of Tarr v. Timberwood Park Owners Association, Inc., 510 S.W.3d 725 (Tex. App. 2016), the Court concluded that short term rentals violated a deed restriction which required that homes should be used “solely for residential purposes.” In reaching its conclusion, the court in that case, reasoned that “the term ‘residence’ generally requires both physical presence and an intention to remain. Thus, if a person comes to a place temporarily, without any intention of making that place his or her home, that place is not considered the person’s residence…One leasing his home to be used for transient purposes is not complying with the restrictive covenant that it be used solely for residential purposes.”

Further, in the case of Loeb v. Kehoe, 17 MISC. 00521 (currently pending before the Land Court), the Court (Piper, J.) considered a request for preliminary injunction to enjoin the enforcement of a master deed restriction which prohibited short-term/transient rentals. In denying the request for injunctive relief, the Court (Piper, J.) reasoned that:

“Here, plaintiffs do not convince the court that the short-term, frequent, repetitive rentals in which they engage (using sites such as Airbnb) amount to a residential, as opposed to a commercial use of the units; the master deed, even prior to the challenged amendment always has forbidden non-residential use. Plaintiffs argue that the lack of hotel-like amenities and the fact that zoning may not prohibit their use support plaintiffs’ characterization of their use as residential, but the court disagrees. With or without expensive amenities, the Airbnb use is much like a hotel or an inn use, not a private residential use. The nature and effect of plaintiffs’ use on other unit owners and the building itself is intrusive and unwelcome in a manner similar to a commercial use. Although the court acts on a limited record, at the very least, the record establishes frequent turn-over of short-term renters using the units in a manner more similar to a hotel or lodging house, with negative impacts including increased noise and wear and tear. The plaintiffs’ admitted business plan–the fact that plaintiffs purchased these units with the intention to profit from the short-term rental market (and with no intention that these units be primary residences or regularly owner-occupied)–suggest commercial use. The court is not persuaded by plaintiffs’ contention that use of a unit as a dwelling or place to sleep automatically constitutes residential use. A hotel, or inn, where paying guests sleep, is not a residential (as opposed to commercial) use in the ordinary sense of those terms. …”

Moreover, Section 12A of G.L. c. 140 (which statute governs licenses), states that “the word ‘hotel’ shall mean a hotel, motel, resort, boarding house, or inn, which is kept, used or advertised as, or held out to the public to be, a place where sleeping or housekeeping accommodations are supplied for pay to guests for transient occupancy.” Frequent short-term/transient rentals of a unit may meet this definition of “hotel,” particularly where the unit is advertised to the public on AirBnB, VRBO or HomeAway or another home-sharing platform, where sleeping accommodations are supplied for pay, to guests for transient occupancy.

Furthermore, the short-term transient use of a unit may be argued to be tantamount to a license to occupy as one would expect at a hotel. See G.L. c. 140, §12A. If the transient occupants of units are traditional tenants, the unit owner is obligated to comply with G.L. c. 183A §4(6), which provides that “[e]ach unit owner shall provide in writing to the organization of unit owners the name or names of any tenants or occupants of the unit, other than visitors for less than thirty days.” Accordingly, if an owner does not provide the association with the names of the tenants/occupant in accordance with G.L. c. 183A§4(6), an argument could be made that the transient occupants of the unit are not tenants, but rather patrons of the owner’s commercial enterprise.

In the case of Gould v. Falmouth Planning Board, 14 MISC 485074 (KCL), the Land Court (Long, J.) confirmed that hotels constitute commercial uses. Accordingly, an association could reasonably argue that the use of a unit for transient accommodation is akin to hotel use and therefore, such use constitutes commercial activity.

Moreover, within the City of Boston, the City Council is considering a proposed citywide ordinance that will if adopted, require that all short-term-rental properties be registered with the City and all owners would be required to pay an annual fee based on a tiered rental classification system (with consideration of whether the unit is owner occupied or an investment). The classification system additionally dictates how many days per year various properties may be rented and the maximum number of guests per night. The ordinance also imposes a room occupancy excise tax on all short-term rentals, thereby further supporting the argument that the use of properties for short-term/transient purposes is more akin to commercial use as opposed to residential use.

SHORT-TERM/TRANSIENT RENTALS AS NUISANCE ACTIVITY

Finally, in the event that there are frequent visitors to a unit which interfere with the other residents’ use and enjoyment of the condominium, and an association’s governing documents are silent on rentals and such documents do not expressly restrict commercial use of a unit, an association may also rely upon the provisions within its constitution documents which prohibit any unit owner from creating and/or allowing a nuisance within their unit and/or the common areas.

REMEDIES AVAILABLE TO CONDOMINIUM COMMUNITIES

Associations may levy fines against those owners found to be renting or offering their units for short-term/transient occupancy based upon a violation of the condominium’s governing documents. Further, associations may pursue declaratory and injunctive relief in a court of competent jurisdiction to enjoin the ongoing use of the unit for short-term/transient purposes and/or to enjoin further commercial activity (dependent upon the jurisdiction) and/or to enjoin a nuisance (depending upon the language within the condominium’s governing documents). In the event that an association is forced to pursue judicial action or take any other action necessary to enforce the condominium’s governing documents and/or to abate the misconduct, then the expenses incurred by the association with respect to the same may be assessed against the unit, and such assessment will constitute a lien upon the unit, until paid in full (although it will be a non-priority lien).

While many associations scour AirBnB, VRBO or HomeAway for listings within their community, there are other professional companies whom for a fee, will also research the various property-sharing platforms to assist associations in their efforts to curb the use of the condominium buildings for short-term/transient occupancy.

While short-term/transient rentals may be very profitable for a unit owner, such profit should not come at the expense of the other residents of the association whom have the right to enjoy the condominium as their homes and to peacefully enjoy the same, without being subjected to a revolving door of strangers walking the halls.

For any questions regarding this article, please contact Jennifer Barnett at jbarnett@meeb.com.