Short Term Rentals
In the previous episode, Monica and her guest discussed short-term rentals as one of the main forms of income growth in real estate. In today’s episode, Brian Blaesser joins Monica to talk about different aspects of short term rentals. Short term rentals have become a mainstay of the tourism industry in many resort towns, and with the rise of Airbnb and VRBO.com, there has been a rise of short term rentals in all parts of the country, in all kinds of neighborhood settings. Many people are buying real estate and using it for a short term rental. Brian shares tips to know, information about what regulations you might encounter, and how agents can help their clients who are hoping to acquire short term rentals.
Brian talks about six points for people to understand when it comes to the law and the legal rights to use property. These points can help guide anyone who is interested in doing short term rentals in the way they think about their environment in the government jurisdiction they’re in.
The first point: The right to rent is a core property right. There are three things you can do with your single family residence: you can live it in, you can rent it, or you can sell it.
The second point: Renting is a residential use. With things like Airbnb where investors own multiple properties, it is starting to edge into the territory of being a business. Even if it may be, it doesn’t defeat the residential status of the property.
The third point: You have the right to use your property for productive purposes, but it can’t interfere with your neighbor’s use and enjoyment of their property, or injure the community at large. Provided the behavior on your property does not cause a private or a public nuisance, you have the right to rent.
The fourth point: Because it is a core property right, it can’t be turned into a privilege.
The fifth point: While a vacation rental may be considered a business that could be subject to a business or occupational tax, renting is still a residential use, and remains that core property ownership right.
The sixth point: There are registration and licensing schemes that some communities are proposing to inspect and monitor what people are doing with their rental properties.
One of the ways agents can help their clients who want to acquire short term rentals is to know the local, state, and federal regulations that may apply in this situation. In terms of local regulation, it is important to know what approach the community takes — usually under the land use zoning codes or non-zoning regulations. A community may only allow rentals in certain zones, or have regulations about how many rentals can be in one community. Zoning only regulates the use, not the user, so this is something to keep in mind when knowing your rights. An example of non-land use or zoning restrictions would be a licensing or registration requirement or quantitative/operation restrictions.
There are some concerns about how short term rental “businesses” are structured. If you purchase a property in a community that you are unfamiliar with, it’s important to learn the neighbor character of the area to see if it’s a viable possibility for a short term rental. You need to be aware of how much your short term rental may have an impact on the quality of life of a neighborhood.
Many Home Owners Association have covenants that were set in place before short term rentals rose in popularity. Some may have points that try to challenge having short term rentals in the neighborhoods. You should find out if there is a restriction in the documents from the start, but even if there’s not, you may be subject to them later. Despite what state law says, these documents function as a private contract and you could still fall under those restrictions.
As it stands right now, many insurance companies don’t offer homeowners insurance policies that include coverage for business-related risks or properties that are renting out regularly. There are some other types of insurance, like host protection insurance, that provides hosts with commercial liability coverage.
What happens when a rental home becomes a nuisance? There are requirements where the property owner can address third-party or tenant complaints that come in. It may be a good idea to have a local contact person (if you are off-site), but there could be situations where community members take it to some type of municipal court. This can be prevented by ensuring you understand what is acceptable in that neighborhood. Landlords can also mitigate the risk of liability by following an extensive application process.
Brian has some tools to help Realtors® who want to be involved in this facet of the industry. Realtors® should get involved right at the beginning in any kind of meetings or workshops that a local official establishes. As a Realtor®, it’s important to know the ordinances of a community, and try to help shape the dialogue. The National Association of Realtors® has a program called the Land Use Initiative Program that allows Realtors® to be involved in the shaping/responding to legislation at the local and state level that may affect real estate interest. Brian’s team at Robinson & Cole analyzes the ordinances, and can help provide talking points and other support. They provide questions that can be asked to local attorneys to help work some of these issues out. The program is provided free of charge to members of the association.
Brian is involved in another program that focuses on being proactive in regards to regulations short term rentals, that proposes their own legislation to improve regulations on the real estate industry. The program is called Customize State Legislation. Through this program, they have been able to pass legislation that has been very helpful to the industry.
Brian encourages agents to remember that your ability to operate efficiently and effectively in your communities does depend upon the set of regulations that are in place, or may become operative if you don’t pay attention to what’s going on. Always be aware of what’s going on while you’re still doing your transactional work.
About Brian Blaesser
Brian Blaesser is a partner with Robinson & Cole LLP, and heads the real estate development practice in the firm’s Boston office. His practice includes commercial real estate development, leasing, single-family and multi-family development, environmental and renewable energy law, and land use litigation. He is in charge of Robinson & Cole’s consulting work for the National Association of Realtors®. Along with his team, they have prepared over 1000 analyses for NAR of state and local land use plans and regulations in the U.S. and Virgin Islands. He has also written various books and articles on real estate development issues, including Discretionary Land Use Controls.