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Monday, September 18, 2017

Short-term Rentals Create Ongoing: Concerns for Condo Associations


The short-term rental of residential property is producing long-term concerns.  Those concerns, which were just emerging when I wrote about this issue three years ago, have grown exponentially as short-term vacation rentals have ballooned, creating what is now a $34 billion business and triggering an
avalanche of conflicts and complaints to which the governing boards of condominiums, municipal officials, and lawmakers are all beginning to respond.

At the federal level, a group of senators concerned about the issue have asked the Federal Trade Commission to investigate the impact short-term rental companies are having on local housing markets.

Closer to home, the Cambridge City Council recently approved an ordinance requiring condominium owners and tenants who rent their units on line to register the property with the city, and to obtain permission from their condominium association or landlord before doing so.  The ordinance also requires “hosts” to live in the same building or a building adjacent to the one in which they are offering a short-term rental unit. 

Other communities have also been eyeing regulations to deal with the business.  The Massachusetts Department of Health and Human Services has suggested that short-term rentals should be regulated like bed and breakfasts; Boston officials have been studying that idea for some time, but haven’t yet acted on it. 

Legislative Action
The state Legislature also hasn’t addressed the issue yet, but is being urged to do so.  Gov. Charlie Baker has proposed legislation that would impose a tax on short-term rentals.  A measure introduced by Rep. Aaron Michlewitz, who chairs the Committee on Financial Services, would also tax rental income and would, in addition, require owners to  obtain a state license and comply with a number of health, safety, and insurance requirements.
 
While hotels are concerned about the impact on their business, condominium owners are concerned about the impact on their communities when residences become hotel rooms and their neighbors become an ever-changing parade of hotel guests. 

Security, wear and tear on common area spaces and amenities, rowdy behavior, and the vacation atmosphere created by transient residents are the major complaints.  Not surprisingly, these complaints have ended up in the courts, which, also not surprisingly, have differed in their responses. 


Commercial or Residential Use?
The key legal question in most of these disputes has been whether short-term rentals represent residential or commercial use of residential property.

The Massachusetts Land Court concluded in a recent decision (Robert S. Lytle vs. Alana Swiec, et. al.) that the short-term rental of a summer cottage in Hull violated zoning regulations barring commercial uses in neighborhoods zoned for single-family properties.  The court upheld the Zoning Board’s ruling that the rental did not constitute an authorized “accessory use” of a residential property.

A Kentucky appeals court concluded similarly (in Vonderhair v. Lakeside Place HOA) that short-term rentals of units in the condominium community violated residential use restrictions in the HOA’s covenants.

But the Washington State Supreme Court reached the opposite conclusion, ruling (in Wilkinson v. Chiwawa Communities Association) that the determining factor was not how long a property was rented to tenants, but how the tenants used it.  According to the court, the tenants were using the property for eating, sleeping and other purposes, consistent with its residential use.

A Florida Appeals Court used similar reasoning in a decision earlier this year (Santa Monica Beach Property Owners Association, Inc. v. Acord) rejecting a condo association’s effort to prohibit short-term rentals. The association argued that language in the covenants mandating residential use precluded the rentals.  But the court 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.”

Significantly, the Florida court also noted the absence of language in the covenants specifically barring short-term rentals.  “The need for explicit language in the covenants is particularly important,” the court said, “where the use in question is common and predictable, as is the case with short-term rentals of houses near the beach to vacationers.”

Words Matter
The court’s admonition underscores the advice we offer our condominium association clients:  If you want to prohibit short-term rentals in your community, do so specifically and explicitly through language in your governing documents.  If your documents don’t contain that language, persuade owners to amend the master deed or the bylaws to add it.

As the court decisions quoted earlier indicate, restricting the property to residential uses may not be sufficient; the restrictive language should specify a minimum acceptable rental period. We suggest no less than 30 days.  We also recommend requiring owners to rent the entire unit – not just a portion of it.  This would preclude an owner with a three-bedroom unit from renting the two extra rooms to paying guests. 


Regulating Rentals
It is also possible that many owners – and possibly a sizable number of them – are already renting their units to vacationers or want to preserve the option to do so.  Before taking or recommending any action, condominium boards should assess owners’ preferences.  If owners don’t want to prohibit short-term rentals, the board should establish policies and/or amend the condominium documents to adopt provisions which ease some of the negative impacts involved. We suggest, among others:

*  Require owners (or an owner’s agent) to meet renters personally at the property for each rental.

*  Require owners to explain association rules to tenants and to verify that they have done so.

*  Require owners to have insurance that will cover their guests.  Check with the master insurance             carrier to make sure the use does not constitute a commercial use.

*  Have written policies describing the obligations of owners who rent their units.  
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(Mark S. Einhorn is a Partner with Marcus Errico Emmer & Brooks which specializes in condominium law, representing clients in Massachusetts, Rhode Island and New Hampshire.)


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