The Impact of Short-Term Rentals on Condominium and Homeowner Associations: To Airbnb or Not to Airbnb?
Many condominium bylaws restrict or otherwise regulate a co-owner’s ability to lease the co-owner’s condominium unit. These restrictions are sometimes imposed as part of an effort to maintain property values, and sometimes to comply with the Federal Housing Administration’s Condominium Project Approval and Processing Guide which requires that at least fifty-one (51) percent of units be owned by owner-occupants. At the time they were drafted, most, if not the vast majority, of these restrictions contemplated a tenancy of six months or more. However, recent technological advancements have resulted in an increase in short-term occupancies typically associated with hotels, inns, and bed and breakfasts as opposed to the typical landlord/tenant relationship.
The Internet has changed the way a co-owner may rent out his or her unit. Today, a co-owner who wishes to rent out his or her unit for one, two, or three nights now has several options available to market their property for rental. The most popular option is Airbnb. The use of Airbnb by unit co-owners to temporarily rent out units, however, poses significant risks to the association and condominium. An association’s ability to reduce these risks could be adversely affected if the association’s bylaws do not address the short-term rentals associated with a company such as Airbnb. With respect to this issue, an association should first determine whether it intends to restrict unit rentals. If an association seeks to restrict rentals within its condominium, then an association should determine whether its bylaws apply to short-term rentals, such as those arranged by Airbnb, and determine whether any of its co-owners are using Airbnb in violation of the condominium bylaws.
The Airbnb Concept
According to its terms of service, Airbnb is a company which provides an online platform that connects hosts who have accommodations to rent with guests seeking to rent such accommodations. Airbnb disclaims being a party to any contract between “host” and “guest,” and Airbnb’s “services” appear to be limited to maintaining a website which connects Airbnb “members” and serving as a collection agent for accepting payments from guests on behalf of the host. Once registered as an Airbnb member, an individual can list property as a potential “host” property, setting their own terms under which the property can be rented, including a minimal or maximum duration, the price, and the maximum number of guests. In many instances the member simply rents out the property for a weekend, and sometimes the property owner remains in the property while the guest is present.
An Airbnb member can upload glossy photographs, utilize guest reviews, and otherwise use the Airbnb website to portray their property as attractively as possible. The member can rent out the entire property, a portion of the property, a single room, a single bed, or even just a couch or floor space. In fact, the term “Airbnb” is a combination of “airbed” and “bed and breakfast.” The Airbnb concept is founded upon the premise that one can rent just enough space in someone’s home to use an airbed– i.e., you could make your own living room into a bed and breakfast. Airbnb initially catered to individuals unable to book hotel rooms in saturated markets, but has grown significantly.
Airbnb’s terms of service contain a large quantity of small print, and by using the Airbnb website each member makes a number of representations. For example, Airbnb’s terms of service, which all Airbnb members agree to be bound by through their usage of the website, states the following:
You acknowledge and agree that you alone are responsible for any and all Listings and Member Content you post. Accordingly, you represent and warrant that any Listing you post and the booking of, or Guest’s stay at, an Accommodation in a Listing you post: (i) will not breach any agreements you have entered into with any third parties, such as homeowner association, condominium, lease or rental agreements, and (ii) will (a) be in compliance with all applicable laws (such as zoning laws and laws governing rentals of residential and other properties), Tax requirements, and rules and regulations that may apply to any Accommodation including in a Listing you post (including having all required permits, licenses and registrations), and (b) not conflict with the rights of third parties. Please note that Airbnb assumes no responsibility for a Host’s compliance with any agreements with or duties to third parties, applicable laws, rules and regulations.
A separate portion of Airbnb’s website recommends to hosts that they discuss their use of the property as an Airbnb listing with their landlord, neighbors, or homeowner association. With respect to each guest’s responsibilities, Airbnb’s terms of service require each guest to make the following representations:
As a Guest, you are responsible for leaving the Accommodation in the condition it was in when you arrived. You acknowledge and agree that, as a Guest, you are responsible for your own acts and omissions and are also responsible for the acts and omissions of any individuals whom you invite to, or otherwise provide access to, the Accommodation.
. . .
Guests agree that a confirmed reservation is merely a license granted by the Host to the Guest to enter and use the Listing for the limited duration of the confirmed reservation and in accordance with the Guest’s agreement with the Host. Guests further agree to leave the accommodation no later than the checkout time that the Host specifies in the Listing or such other time as mutually agreed upon between the Host and Guest.
These representations and warranties appear to provide a certain amount of protection to condominium associations, but, in all practically, these representations are primarily used to limit the liability of Airbnb in the event property is improperly listed by a host or damaged by a guest. Therefore, these representations provide almost no protection to a condominium association.
Airbnb Disputes and Issues
Airbnb disputes are not uncommon. Ultimately, the host does not know the guest, nor does the guest know the host or the property listed. Guests have been reported to have engaged in illicit drug use, loud parties, and even having created a temporary brothel. In one well-publicized case, Airbnb guests caused between $50,000 and $70,000 worth of damage in a single three-day weekend. The responding policeman indicated that he had “never seen anything like it.”
In addition, several municipalities prohibit the rental of properties for short periods of time, (e.g., under thirty (30) days), unless the owner is also living in the property. In some cities those renting out properties for short durations are expected to pay a hotel or tourism tax. In 2014, Airbnb was engaged in a prolonged dispute with the New York Attorney General, and authorities in San Francisco, Malibu, and New Orleans have cracked down on Airbnb. In October 2014 the New York Attorney General issued a report on Airbnb recognizing its tremendous growth (doubling each year and generating over $500 million in revenue in less than five years), but finding that the vast majority (72%) of Airbnb short-term rentals violated New York law.
Condominium and homeowner associations should be concerned about, or at least aware of, Airbnb. In part, Airbnb presents the following areas of concern for condominium and homeowner associations:
- Because of the short-term nature of their stay, Airbnb guests will be less familiar with association rules and regulations than an owner or long-term tenant, and, therefore, potentially more likely to unknowingly violate such rules and regulations.
- Airbnb appears to be based, in part, on a sense of community and good-will. Because of the short-term nature of their stay, however, Airbnb guests are potentially less incentivized to take into account the impact of their conduct on neighbors.
- For FHA insured condominium mortgages, Airbnb rentals could increase the percentage of rentals above that permitted by FHA guidelines.
- For FHA insured condominium mortgages, Airbnb rentals may not comply with the FHA’s restrictions on leasing (e.g., the FHA prohibits an initial lease term of less than 30 days).
- In instances where bylaws restrict rentals, not applying such restrictions to Airbnb rentals could be construed to constitute a waiver of such restrictions, or an association could be estopped to assert such restrictions at a later date if the restrictions are not enforced.
- Airbnb rentals could violate municipal codes and/or ordinances, or even state laws. The violation of such laws could lead to increased insurance premiums and potential liability for the association and other co-owners.
In some instances, condominium associations are responding to Airbnb rentals by preventing them outright, either by amending their bylaws to expressly prohibit such rentals or by enforcing existing bylaws against unit co-owners. For example, one Boston Airbnb member used Airbnb to help finance his wedding; however, his association did not agree with that approach and assessed him with a $9,700 fine. In that instance the association’s bylaws prohibited short-term rentals altogether and the association was able to use the prohibition on short-term rentals as the means to impose the assessment. Not all bylaws restrict rentals, however, and not all bylaws that restrict rentals apply to short-term rentals.
At the same time, proponents of Airbnb or other similar rental arrangements assert that such rentals boost the local economy, their guests are usually good neighbors, and hosts are required to represent that the use of the property complies with any applicable rule, regulation, law, or ordinance. Rather than prohibiting Airbnb or other short-term rentals, they argue, condominium and homeowner associations should update their condominium documents to allow such rentals on certain terms and conditions. For example, an association could limit short-term rentals by limiting the number of days each month that the property could be rented, or by requiring the unit co-owner to be present during the duration of the rental.
Regardless of whether members of an association are in favor of or opposed to Airbnb rentals, it is important that your association understand the potential impact of Airbnb rentals by its members on the association itself. This would include both an assessment of the association’s current position on short-term rentals, consideration of the impact of short-term rentals on the association, and a determination of whether any members are currently renting out their property for short-term rentals through websites such as Airbnb. An association and its members face significant repercussions if the issue is ignored. In addition, due to the tremendous growth experienced by short-term rental websites such as Airbnb, associations are expected to encounter Airbnb issues and disputes on an increasingly frequent basis. By taking a position on the issue sooner rather than later, an association can address short-term rental issues before they become a problem.
Matthew W. Heron is a Member of Hirzel Law, PLC where he focuses his practice on dispute avoidance, condominium law, commercial litigation, commercial real estate, land use, large contractual disputes and title litigation. He has extensive litigation and trial experience in state and federal courts involving commercial litigation issues and real estate matters. Mr. Heron concentrates his practice on drafting, revising, amending, restating and interpreting governing documents of condominium and homeowner’s associations in Michigan. He can be reached at (248) 478-1800 or [email protected]. You can also follow him on Twitter at @mwheron75.