Short-term rentals are popular but can create a lot of issues for Condos, Coops, and HOAs (referred to collectively as “CA(s).” Successful online web-based services like Airbnb, VRBO, HomeAway, and similar rental models have spotlighted these issues that resulted in several unintended consequences.
In Miami, Florida, a recent case came to a head with a condo association suing Airbnb and accusing two tenants of ignoring demands to stop offering rental units via Airbnb. In this case, the condo association claims that the building has a certificate of occupancy for multifamily use but not for lodging.
The city of Miami had sent the condo association a cease and desist letter stating they were under investigation for allowing lodging without the proper permits. It resulted in the condo being subject to fines and legal proceedings (fines, penalties, and the cost of remedial procedures are not insurable).
Additionally, its janitorial, security, and insurance costs increased by $853,000 annually over the past two years. A portion of these costs, for example, has gone towards hiring off-duty police officers during peak short-term rental periods to assist and respond to complaints and issues.
This story’s moral is that CAs can be held liable for the unintended consequences of permitting or failing to comply with the CAs governing documents and governmental restrictions and regulations, as was found in the Miami case. CAs and their boards cannot ignore short-term rental issues.
On the one hand, there are many social benefits for Short-term rentals because it is a method for individuals to supplement their revenue. However, the CA boards must investigate and evaluate exposures to liability arising from short-term rentals’ unintended consequences. The boards must do this to carry out their obligation to protect the CA’s assets.
There are some geographic areas where short-term rentals are, in fact, the norm, and people more often than not purchase units in those associations expecting short-term rentals and welcome the web-based rental programs.
Short-term rental concerns for condos, coops, and HOAs
Vetting short-term renters
Many associations and their unit owners are concerned that renters are not sufficiently vetted, if vetted at all. They are worried that allowing unvetted individuals into the community can give rise to criminal activity, safety issues, noise complaints, and increased trash and traffic. Their concerns are validated, as the example above in Miami demonstrates.
Another concern manifesting is when an individual rents a house on a one-day lease to hold a party, often requiring attendees to pay, and a party where the host does not know the attendees. This could also be a parent or adult renting this for a teenager or early twenty-something to hold a party. They may rent under the guise that it will be a week or a two-week rental and will only use it for one night.
The problem comes down to clear guidelines and communication between the CA Board and unit owners.
- Many association governing documents do not address the issue of short-term rentals.
- Unit owners often join and use rental services without notifying their associations.
- Many unit owners refrain from checking with their associations about limitations or requirements for short-term renting, sometimes intentionally and sometimes out of claimed ignorance.
- Unit owners do not check to determine municipal requirements or if business licenses are necessary.
- Some CAs that would like to take a stance on the issue don’t know how to amend their governing documents.
What to know before renting out a property
Before owners make their homes available for rent, they should first check their association’s rules and local laws. Some communities and municipalities expressly prohibit rentals or may regulate them. They should also contact their homeowner’s insurance carrier to ensure their policy covers any incidents related to rentals.
Many of the web-based rental programs have insurance available or make it mandatory for the renter.
If everything checks out and they can rent, they need to do their part to ensure that renters clearly understand what is expected within the community. Owners should:
- Provide renters with copies of association rules.
- Ensure renters comply with association rules.
- Advise renters on the proper use of association facilities.
- Use a written lease agreement, and make sure it requires renters to comply with all association governing documents.
- Require that the individual(s) who enter into the lease agreement are the ones who will be using the rental and not a third party.
- Provide an association with renters’ contact information.
Managing short-term rentals for condos, coops, and HOAs
If you’re dealing with short-term rentals or expect to, you have to address it with a plan. Start by forming a committee that includes both board members and residents to discuss short-term rentals’ pros and cons. After everyone is on board to move forward, the next step is drafting a short-term rental policy and a corresponding standard lease for the association prepared or approved by association counsel.
Association counsel should be consulted to determine if any of the Governing documents need to be amended or should also be updated.
Short-term rental insurance is also highly recommended to help CAs and unit owners transfer risk to the renters, reducing their exposure to liability and protecting the CA and the Unit Owner’s assets.
Another issue that will be addressed in another blog will be how unit owners handle unit owners who have violated restrictions in place, but the CA has let it go on for a long period of time without enforcing the rules.
McGowan is a leading provider of Community Association Insurance.
