The short-term rental sector continues to gain momentum among investors as it disrupts traditional real estate investments thanks to
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Whether you’re leasing a
spare room or an entire property, this lucrative industry is not without its
challenges, and protecting your investment can be the difference between a
successful business opportunity and an expensive mistake. With the summer
tourist season at hand, now is the time to evaluate your short-term rental
strategy and ensure that you are in compliance with all relevant regulations
while taking necessary precautions to safeguard against potential risks.
Property owners should consider general liability, the warranty of
habitability, and required insurance.
When operating their
homes as businesses, short-term rental owners have a legal duty to ensure their
premises are reasonably safe, and they must actively inspect their premises for
potential safety hazards. In Massachusetts, if a homeowner fails to address any
safety hazards of which they may be aware (or even of which they should be
aware) they can be held fully liable for injuries incurred on the property. As
part of their terms and conditions, most online short-term rental services
provide a disclaimer against all liability; this means that the responsibility
for safety is wholly on the property owner. By offering their properties for
rent, hosts also represent that their properties are fit for occupation and
will remain so throughout the duration of the rental period. Therefore, a host
can be held liable due to negligence and also under the implied warranty of
habitability.
As a sad example,
recently, a family sued Airbnb, the property owner, and the prior renter after
their toddler died of fentanyl poisoning while staying at a Florida property.
They allege that Airbnb and the property owner failed to ensure the safety of
the property and claim the prior renter was negligent in allowing drugs to be
used at the property and leaving behind drugs or drug residue. The case is
still pending.
As of July 2019,
Massachusetts requires that operators of short-term rentals (defined as less
than 31 days) maintain liability insurance of not less than $1,000,000 to cover
each short-term rental unless the rental is offered through a hosting platform
such as Airbnb, that maintains equal or greater coverage. See M.G.L. c. 175 §
4F. The coverage is required to defend and indemnify the owner or operator and
any tenants in the building for bodily injury and property damage. For those
with coastal properties, note that the Massachusetts Fair Plan insurance, which
covers many coastal properties when other insurance companies refuse coverage,
will only provide up to $500,000 of liability insurance for short-term rentals,
and therefore supplemental insurance will be required.
Short-term rental real
estate is an area of law that continues to evolve. Property owners should
invest some time into evaluating the risks associated with a short-term rental
before jumping in.
Jocelyn J. Campbell, a
partner at Rudolph Friedmann LLP, represents clients in a variety of real
estate, business matters and charter school law. She is a title agent for two
national title companies and counts major lenders, buyers, and sellers among
her clients. She also represents public charter schools in areas of real
estate, procurement, financing, employment law and special education. Jocelyn can be contacted at jcampbell@frlawyers.com.
