Airbnb and Short-Term Rentals: Practical

Considerations for Landlords, Tenants, HOAs,

and Other Stakeholders

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TUESDAY, APRIL 16, 2019

Presenting a live 90-minute webinar with interactive Q&A

Mark S. Einhorn, Partner, Marcus Errico Emmer Brooks, Braintree, Mass.

Laura Lee Garrett, Partner, Hirschler, Richmond, Va.

Jonathan L. Geballe, Attorney, Jonathan L. Geballe, Esq., New York

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Airbnb and Short-Term Rentals: Practical Considerations for

Landlords, Tenants, HOAs, and Other Stakeholders

Laura Lee Garrett

lgarrett@hirschlerlaw.com

AIRBNB AND SHORT-TERM RENTALSPRACTICAL CONSIDERATIONS FOR LANDLORDS,

TENANTS, HOAS AND OTHER STAKEHOLDERS

OVERVIEW, HISTORY AND TRENDS

• Internet provides a platform for property to owners to easily rent out their homes and properties for via Airbnb,

Vacation Rentals by Owners (VRBO), HomeAway, etc. directly to the consumer

• Part of the Shared Economy

• VRBO

• VRBO first website of its kind, started in 1996 by a couple to help rent their ski condo

• In 2006, VRBO was bought by HomeAway. It was then bought by Expedia in 2015

• VRBO’s website boasts “over 2 million house rentals in 190 cities worldwide”

• AIRBNB

• Airbnb was started in 2007 by Joe Gebbia and Brian Chesky. It started out as a website called airbedandbreakfast.com and then was shortened to its current name

• DIRECT BOOKING (WEBSITE)

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LEGAL DISTINCTION BETWEEN SHORT-TERM RENTALS AND LONG-TERM RENTALS

• Vary in profitability, management, time commitment, location and legality

• Short-term rentals are the rental of a furnished property that offers nightly or weekly rentals

• Long-term rentals receive rent for an agreed length of time, usually a year or longer, but can be less

• Both types of rentals have their advantages and disadvantages

• Short-term rentals can achieve up to 30% higher rates and yields than long term rentals. They also offer more

privacy and space for less cost than hotels.

• They have great flexibility for real estate investing

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CONSIDERATIONS OF LANDLORDS AND TENANTS WHEN ENTERING INTO SHORT TERM RENTALS

REMEDIES AVAILABLE FOR DAMAGES TO THE RENTAL UNIT

• The Airbnb “Host Guarantee”

•By posting a listing or otherwise using the Airbnb platform as a host, you agree to comply with and be bound

by the Host Guarantee Terms.

•Airbnb agrees to pay you to repair or replace your Covered Property damaged or destroyed as a result of a

Covered Loss, subject to the limitations, exclusions and conditions in the Host Guarantee Terms.

• Host must communicate with the responsible guest as soon as possible after discovery of any physical loss or damage to your Covered Property and notify Airbnb; within the earlier of (i) 14 days of the check-out date; or (ii) before the next guest checks in. Host may satisfy this requirement by submitting a claim with the Airbnb Resolution Center.

• “Covered Property”

• “Excluded Property”

• “Excluded Losses”

• “Covered Loss”

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VRBO PROPERTY DAMAGE PROTECTION

• Host can include Property Damage Protection in the quote which will protect the rental from accidental

damage.

• Property Damage Protection provides up to $5,000 in coverage for accidental damage to the vacation rental.

• Plans are $59 (for $1,500 in coverage) $79 (for $3,000 in coverage) and $99 (for $5,000 in coverage) and with

no deductible and a quick online claims process

• Protects against accidental damages including broken lamps and windows, damaged doors, walls and

furniture, stained bedding, towels, or linens, and lost or stolen keys including re-keying costs.

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THE HOMEOWNER’S INSURANCE POLICY

• Most traditional homeowner’s policies do not cover STRs

• Will cancel coverage upon becoming aware of STRs

• Different risk than residential living

• Shop insurance companies that will cover STRs

• Losses that are likely NOT covered by homeowners insurance:

• A paying guest’s belongings

• If a paying guest steals host property during their stay

• If a guest injures somebody or causes damage to a neighbor’s property

• If a guest damages host property

SECURITY DEPOSITS

• VRBO will collect a refundable damage deposit in an amount set by the host

• VRBO manages the collection and return of the refundable damage deposit with communication to the host

• System for management with Direct Rentals

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SHORT TERM RENTAL AGREEMENT BASICS

• Airbnb and VRBO

• Terms, conditions and policies on website

• Section to add separate written agreement

• Direct booking

• Written agreement governs

• Hosts must disclose the actual contract terms to them prior to booking. Mention the contract in the listing’s description and include the terms in the message thread with the guest.

• Airbnb/VRBO will not help enforce any special policies in your contract

• Rental agreement should address

• Any extra fees

• Cleanliness

• Specify the expectations the guest may have for your rental’s cleanliness and your expectations for how the guest should leave the rental upon departure.

• Maintenance

• Host Access

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REGULATION OF SHORT-TERM RENTALS

• Short term rental market booming but laws pertaining to it have had little time to catch up with the growth

• No overarching federal law that regulates the market

• Individual states and local counties, cities and towns must pass laws reflective of their communities and prevailing views on and capacity to accommodate short term rentals

• Regulations vary from complete prohibition to limited requirements

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TYPICAL ELEMENTS OF REGULATIONS

• Regulations should address:

• Registration/permitting

• Zoning control

• Where can an STR operate

• Who can operate an STR

• Number of nights of operation

• Number of Renters; Hosted vs. Non-Hosted stays

• Parking requirements

• Events

• Collection and Remittance of Local Taxes

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Airbnb and Short-Term Rentals: Practical Considerations for Landlords, Tenants, HOAs, and Other StakeholdersMark S. Einhornmeinhorn@meeb.com

CONDOMINIUM CONCERNS FOR SHORT-TERM RENTALS

I. Quality of Life

Intense Use/Nuisance:

Short-term rentals are a more intense use of property and the use is outside of typical life cycles of resident/family unit.

(i) Multiple groups; Move-in/Move-out; Safety (physical and mental)

(ii) Airbnb Mentality – the world (and temporary home) is your oyster

(iii) On average renters do not care for the property to the same degree as resident owners

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II. What Type of Use is it?

Short-term use is neither strictly a home use nor a hotel use as those terms have historically been defined.

Courts are grappling with this issue especially in the HOA/Condominium context. Courts are trying to determine if the use constitutes a commercial/business use OR whether the use is merely a residential use, albeit more intensive.

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Commercial vs. Residential Use – The Debate Rages:

(i) In the Louisiana Court of Appeals case of Edwards v. Landry Chalet Rentals, LLC, No. 51,883-CA (La.Ct.App.Feb.28, 2018), a resident in a homeowners association was using and advertising the use of his home/lot as a vacation rental with a two-night minimum. The applicable restrictive covenant prohibited any “commercial enterprise” from being carried out on any lot. Appeals Court characterized the tenants as transient in nature, rather than residential, concluding the use was a commercial use in violation of the restriction.

(ii) Conversely, in the same month, the Supreme Court of Arkansas reached a very different conclusion in Vera Lee Angel Revocable Trust v. O’Bryant, No. CV-16-1041, 2018 Ark. Feb. 8, 2018. The Owner listed on VRBO.COM (“Vacation Rentals By Owner”). Black’s Law Dictionary defined “residence” as a place where someone actually lives and short duration did not change nature of use. Court held the use was not a commercial use.

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(iii) A Florida Appeals Court in Santa Monica Beach Property Owners Association, Inc. v. Acord April 28, 2017 219 So.3d 111, used similar reasoning in a decision rejecting an effort to prohibit short-term rentals in a homeowner’s association. The Court held use was not commercial, and said: “The critical inquiry is not the duration of the tenancy, but the character of the actual use of the property by those residing thereon.”

(iv) In the case Hensley v. Gadd, Nov 15, 2018, the Supreme Court of Kentucky upheld deed restrictions which restricted the lots in question to single family residential use – and prohibited commercial use such as use as a hotel. The owners of the two lots in question were sued by the original developer for nuisance issues and short-term use of the lots as they were being listed on Homeway.com for nightly rentals. Putting an emphasis on the meaning of the words residential and reside, the Court held that the use was prohibited and constituted a hotel use of the property as the structures were kept, used, maintained and advertised to the public as places to stay.

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Takeaways/Practice Tips:

▪ Associations should be proactive about restricting short-term use as many courts are finding the use is still residential use. As the Florida case illustrated – having a clear restriction is the best practice to limit or prohibit short-term use in associations.

▪ In terms of lending -- need to carefully respond to questions concerning business or commercial use – yes or no answers on a form may not be enough. Under FHA Condominium Approval Guidelines – short term rentals of Units which is defined as less than 30 days, is prohibited, and the guidelines also prohibit hotel or motel like uses.

▪ The distinction of residential vs. commercial use may also have Insurance implications concerning what type of insurance should or needs to be placed –and this will depend on the individual facts involved. Homeowner Policies. Master Insurance Policies.

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III. Restricting Short-Term Rentals in Condominiums

A. Condominium documents may include minimum leasing terms or state that all of the Unit must be rented.

B. If there is not a restriction – Master Deed or By-Laws should be amended to add a restriction. Usually requires consent of Unit Owners 51%-75% in interest.

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Condominium Documents.

i. Minimum Lease Terms - ideal for condominiums and serves to promote long term residency.

ii. Might need to amend documents. Because Airbnb can invite “swapping” or non-monetary exchange, care shall be taken to draft a broad enough restriction to cover all of the various scenarios of use.

The following is an example of such a restriction:Short term use of a Unit and/or any room or rooms in a Unit for any consideration, including non-monetary consideration, for living or sleeping purposes for a period of less than six (6) months is strictly prohibited without the prior written consent of the Trustees. Short term use of a Unit and/or any room(s) in a Unit, shall be defined as offering and/or using, renting, leasing, licensing, letting, swapping or exchanging or a Unit or room(s) of the Unit, for one or more persons for living or sleeping purposes, for any consideration, including non-monetary consideration, for a period of less than six (6) months. Prohibited useshall include any use of a Unit, or room(s) in a Unit, as a bed and breakfast, regardless of whether or not the owner/operator resides in the Unit, and/or any use of transient, hotel, motel, lodging, vacation rental, nightly rental, tourist home, tourist house or other similar usage.

iii. Some Condominium documents do not have any specific prohibition on short term leasing, but state that the units shall be used solely for residential purposes or otherwise restrict commercial or business use of the Unit.

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IV. There are Positives For Short-Term Rentals.

To Be Fair and Balanced: It is not all bad...some condominiums actually want to allow Airbnb, VRBO and Short-Term Rentals.

There are owners – and possibly a sizable number of them – that are already renting their units to vacationers or want to preserve the option to do so. Condominiums should decide what works for their Association before taking or recommending any action. The Board should assess owners’ preferences. If owners don’t want to prohibit short term rentals, the Board can and should establish policies and adopt restrictions to regulate them.

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Some Suggested policies:

(a) Require owners (or an owner’s agent) to meet renters personally. 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.

(b) Require owners to explain association rules to tenants and to verify that they have done so.

(c) Require owners to have insurance that will cover their guests. Also make sure the association’s master policy will cover any issues related to short term rentals. If the insurer classifies the activity as commercial rather than residential use, the policy may not provide coverage for a renter who is injured or who injures someone else. Even if the owner has insurance, the association will almost certainly be targeted in any litigation.

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(d) Have written policies describing the obligation of owners who rent their units. You will want to specify, for example, that owners will be responsible for any problems created by their “guests” or any damage they cause.

(e) You might also want to consider adopting a policy similar to some of the municipal ordinances being adopted – requiring owners to occupy a unit in the same building or in a building adjacent to the one in which they own a short term rental unit. Proximity won’t prevent problems, but it will make it easier for owners to deal with any problems their tenants create, and will make those problems a lot harder for owners to ignore. Makes it harder to say “I didn’t know”.

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Airbnb and Short-Term Rentals: Practical Considerations for

Landlords, Tenants, HOAs, and Other Stakeholders

Jonathan L. Geballe

jg@jonathangeballe.com

Short-term Rentals: Regulation, Litigation and Enforcement

I. The Affordable Housing Crisis and Short-Term Rentals

• There is a constant call for more affordable housing, and preserving affordable housing.

• Cite studies how AirBnB and others have taken units away from long-term rental use – “Impact of Airbnb on NYC Rents” New York City Controller Scott M. Stringer, April 2018. (AirBnB contests these studies.)

• This has been the driving force toward restricting and regulating short-term rentals

• Short-term rentals decrease the available housing needed for middle class families

• Altogether, this is a policy driver in cities which want to reduce the number of units pulled off the market for transient rentals.

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The effect of the wave of short term rental activity: the concern “that residential rental housing remains available to long-term tenants, and because short-term rentals have undesirable impacts that threaten the stability and character of the City’s neighborhoods and result in increased rents.”-- City of Santa Monica

Between 1981 and 2014, San Francisco effectively banned "tourist or transient" rentals out of concerns over losing affordable permanent housing stock.-- Airbnb, Inc. v. City & Cnty. of S.F.217 F. Supp. 3d 1066, 1070 (N.D. Cal. 2016)

“Our residents do not want to live in a defacto hotel for spring break partiers, vacationers and other unvetted strangers who disturb the peace at all hors, who have caused significant property damage and who pose a safety risk to our residents.-- Aimco representative

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II. Cities seek a happy medium – or accommodation

• Santa Monica’s zoning had essentially prohibited legal short-term stays (but was routinely ignored). In 2015 it enacted its home-sharing ordinance; the deal was: home-sharing for up to 30 days – provided the resident was present, i.e., renting a portion of the home to vacationers. Santa Monica requires the host obtain a city business license, collect and pay the transient occupancy tax, etc.

• Fines and penalties were intended to encourage compliance: $500 for failure to obtain a license, reimbursing the city full investigative costs and remitting all illegally obtained rental revenue, and unpaid tax.

• San Francisco took a similar step, and instituted a complex in-person City Hall registration, allowing only 1 unit/host, owner occupancy required 275 days/year.

• Seattle regulations limit operators to a maximum of 2 units, require a rental regulatory license (the number must appear on all listings) and business license, building safety code compliance, payment of sales and hotel taxes, with penalties from $500 to $1,000/occurrence.

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Other city regulations/fines

• New York City as the center of the burgeoning short-term market

• New York City’s Multiple Dwelling Law prohibits sublets for less than 30 days in regulated apartments, a flat effort to maintain units for long-term residencies (prime tenant co-occupying does not waive the restriction), and MDL §121 (enacted 2016) makes it illegal to advertise short-term rentals for apartments intended for long-term tenancies, with fines increasing from $1,000 to $7,500.

• Miami Beach limits permitted zoning districts, requires building/housing compliance, collects tourist taxes and can charge fines up to $20,000 –the highest in the country.

• Boston restricts 28-days-or-less home sharing to owner occupied property (9 of 12 months/year), renters not authorized, requires registration which must appear on listings, and applies hotel and local taxes.

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Kinds of regulation

• Special government regulation that governs short-term rentals –state or local ordinance – in flux

• Whether the owner must live in the house or unit that is hosting.• Maximum number of units allowed• Number of days of owner occupancy/year• Special restrictions for rent control or rent regulation • Licensing and registration• Hotel tax/Transient Occupancy/business license – whether the

platform collects and remits tax• Advertising/marketing • Fire safety• Notifying neighbors• Zoning restrictions• Building plans

Go to your housing agency or regulatory body to find a summary of rules and requirements (and costs). There is usually an easily available help page

example: Seattle, Los Angeles, Miami Beach, Chicago

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Despite regulation, unlicensed, illegal short-term rental operators continue to proliferate

• New York City recently filed an 89-page, 314 paragraph complaint against 5 individuals, 20 operators and five buildings and 130 apartments alleged to be short-term rental hotels. The City of New York v. Operator Defendants: Metropolitan Property Group, Inc., et al., Index No. 450040/2019 (Sup. Ct, New York County).

• NYC’s Metropolitan Property case alleges that from 2015-2018 these defendants promulgated 13,600 illegal short-term reservations over 55,000 nights, serving 76,000 guests. The revenue stream alleged for each defendant: $4.2 million, $1.5 million, $2.3 million, $2.1 million, and so on.

• In Santa Monica, the numbers are fewer but the proportions eye-catching.

• February 2018 – 187 legal home shares being advertised but 502 listings for unlawful short-term rentals, according to the city.

• Hosts will remove ads during the day and temporarily put them up at night to avoid detection, or advertise they are in a neighboring city, not Santa Monica, to hide from investigation.

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Prosecution and enforcement

• The prosecution and enforcement looks impressive but it is overwhelmed by the scale

• NYC has an estimated 55,000 short-term listings. Going after 130 hosts is barely a dent.

• NYC prosecution against individual hosts risks negative publicity: $32,000 in fines for zoning and safety violations against a lifetime Brooklyn resident who hosts guests in a couple of bedrooms looks oppressive – and does it address the affordable housing shortage?

• Miami Beach cuts off a homeowner’s water to force collection of $200,000 in short-term rental fines. Court orders water service be restored.

• Santa Monica the 3-person Short-term Rental Team does not have sufficient resources for the scale of short term rental activity.

• City has investigated 530 alleged unlawful vacation rentals, but estimates there are 502 illegal listings, up to 950 in peak months.

• Enforcement (investigation to prosecution) is extremely time intensive. Santa Monica: average time a rental case is open is 5 months.

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III. Can local governments hold Airbnb liable, and make it a partner in registering hosts?

Airbnb fights back but loses: the CDA cases.

• Florida, San Francisco, New York, Massachusetts, etc.

• Communications Decency Act of 1996, 47 U.S.C. 230 (c)(1) and (e)(1) –protecting internet services from being treated as publishers and pre-empting inconsistent state laws.

• First Amendment claims.

• Home Away v City of Santa Monica, 918 F.3d 676 (9th Cir. 2019) Held:

• CDA not violated by requirement that listing service monitor and remove third party content (illegal hosts)

• 1st Amendment not implicated by an ordinance that is “plainly a housing and rental regulation” and not expressive activity.

• Similar to holding in other Airbnb CDA cases

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Airbnb fights back – and wins a significant victory

New York City, having introduced an ever stricter set of controls and fines, sought to further empower its Office of Special Enforcement by requiring providers like Airbnb and HomeAway to open their books on who is hosting, how often, what revenue is generated and so on. However, the District Court enjoined the City from putting this in effect, finding it a violation of Airbnb’s 4th Amendment rights. Airbnb, Inc. v. City of New York, 2019 U.S. Dist. LEXIS 48245, 2019 WL 1306107. In denying the injunction, District Judge Engelmeyer invited New Yok City to use other discovery means; NYC promptly subpoenaed 20,000 listings.

Airbnb files new CDA suit the day of the NY District Court decision: Airbnb, Inc. v. City of Miami Beach, S.D. Fla., No 1:19-cv-20045 (1/4/19).

Airbnb’s settlement with San Francisco

Airbnb agreed to facilitate pass-through city registration for all new, unregistered hosts, and to remove those unregistered from listings. Reportedly 6,000 unregistered and purportedly illegal listings dropped off platfoms the day Airbnb’s settlement went into effect.

Does this anticipate future agreements and regulation?34

Where do we go from here?

• There remains a wild west atmosphere, with a huge percentage of alleged illegal listings, an overstretched local enforcement, and fines at a level they are considered just the cost of doing business.

• Expect increasing regulation; tightening the grip on short-term rentals.

• Even if NYC was enjoined from conscripting Airbnb from monitoring and becoming partner in registration, expect cities will continue to go after the listing platforms to monitor there users and remove illegal listings.

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IV. Issues for landlords and hostsCases are very fact intensive, both for government enforcement and private action.

• Listings

• Videos

• Inspections – key lockboxes, unlicensed construction

• Neighbor testimony

• Anything that cannot be easily explained otherwise

What to do if your client homeowner is the subject of government enforcement for illegal hosting?

Your client is a homeowner or condo owner. Did not properly register. There is little you will find that can avoid the penalties/fines where the factual evidence – ads on platforms, interviews with guests, reports from neighbors, videos, and so on.The forum will likely be an administrative hearing.The mere advertisement or listing constitutes an admission that in itself is hard to overcome. You may be able to invoke grandfathering or claim unfair enforcement, or a host in need of financial help coming from short-term rentals.

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Landlords who find their tenant is absent and profiteering from short-term rentals:

A tenant profiteering on a rent-reduced apartment is a huge tenant liability. But a tenant seeking to make ends meet by short-term rental help may be persuasive (or sympathetic) in a court case. Knowing your rent regulation rules (in NYC, a violation of the Rent Stabilization Law if sublet not permitted by landlord, also violation of MDL). Also, liability to tenant for landlord’s attorney fees.Tenant can defend if there is a roommate permitted in lease or in statute, but not “short-term” roommates.If the landlords explicitly prohibited hosting and advertising on any listing sites, if proved that will be a lease violation.Rent regulation rules are strictly enforced; courts will not allow abuse/profiteering in violation of public policy.

Listings as admissions equally true in private actions:

Proceedings against tenants: 42nd & 10th Assoc. LLC v Ikezi, 46 Misc. 3d 1219(A), 9 N.Y.S.3d 593, 2015 N.Y. Misc. LEXIS 388, 2015 NY Slip Op 50124(U); Bpark, L.L.C., Petitioner vs. Alex Durena & Marie Durena, Respondents, 2015 N.Y. Misc. LEXIS 5126 (tenant had no credible explanation for Airbnb listing showing her name/telephone or 59 user reviews of her listing)

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Other issues

• Does the tenant have a right to cure? Generally, if the tenant has been profiteering, there is no right to cure. Goldstein v. Lipetz, 150 AD3d 562, 53 N.Y.S.3d 296, 150 A.D.3d 562, 53 NYS3d 296 (1st Dept 2017), where the tenant used Airbnb to sublet her apartment to 93 different customers for 338 days for a period of 18 months far in excess of the rent stabilized rent. The foregoing warranted eviction.

• If there is an enforcement action from the tenant secretly facilitating short-term rentals, the owner/landlord is liable for the violations.

• Know your L-T requirements and court protocols• Correct parties

• Exact address

• Terms of the agreement and exact/precise violations

• Proper service of correct papers

• Proof of ownership and similar requirements

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For the individual homeowner – precautions the attorney should provide.

• The plan is to avoid disputes and litigation.

• Be careful of leasing longer than 30 days, as this may give additional notice and tenancy rights to the guest.

• Have clear language in your lease or guest agreement: no Airbnb or other short-term leasing/hosting

• Lease does not permit advertising on listing sites/platforms

• Do not be an absentee homeowner, too far away to know what goes on at your property. If you are absentee, consider subscribing to a listing watch service.

• Limit allowable guests to only those who are listed as guests. No parties, no stayovers. Monitor (visit) your property often.

• Homeowner may want to install cameras at the entrance (or make it look that way). Inform your guest you are videoing access in the listing to avoid surprise and bad reviews. Do not video interiors – a liability for invasion of privacy.

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Negotiating a resolution is favored – factors to keep in mind

• A guest stays over and won’t leave – your client wants representation.

• Airbnb will be of little help. But you can cancel the reservation to avoid a bad review.

• Force out/lock out is tempting but very risky and usually illegal.

• You have leverage if the tenant wants to avoid a “litigation” listing that may make future renting difficult. Make sure the guest knows that after the 3-day predicate notice is served.

• However, legal costs can be prohibitive.

• Tenants can file motions, or obtain adjournments.

• Any court can be backed up and set a trial date weeks away. No certainty you will collect on a judgment.

• In one case, a tenant who would not leave filed for bankruptcy. The judge required the owner to file a separate motion in bankruptcy court to allow action on the lease.

• Airbnb resolution can take months, and require a lot of effort.

• It may be hard to swallow to pay a bad guest to leave, but the best cost-benefit.

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V. Takeaways

• There is more local regulation coming; cities do not feel they have control of short-term rentals and a key and popular interest, adequate long-term housing, is at stake. Courts respect that public policy interest and will uphold it.

• There is still plenty of “wild west” illegal short term rental activity.

• Expect stricter enforcement, but do not anticipate quick government help from overstrapped agencies if you are a complaining neighbor.

• Airbnb will probably become more transparent in its listings and a partner of government regulation.

• If you are hosting, know the regulations in your city, village, county, state.

• Summary proceedings to evict a scofflaw guest or a tenant operating a personal hotel is expensive, so an out of court resolution should be considered.

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