Redefining Short-Term-Rentals

By Ted Papadopoulos

The carbon-copy industry must have cursed Xerox in the mid-1900s when it introduced photocopying, resulting in a significant dent in their industry’s

bottom-line. Dubbed as the “founder” of photocopying for the masses, the term “Xerox” became synonymous with photocopying; so much so, that the company spent significant marketing capital to preserve its mark and stressed that “…you cannot 'xerox' a document, but you can copy it on a Xerox Brand copying machine". Similarly, “Airbnb” has become synonymous with short-term rental (STR), and the hotel industry is understandably upset with its popularity. Since its founding just a decade ago, Airbnb has facilitated over three hundred million check-ins worldwide; however, this feat has not come without a hefty price, via lawsuits and lobbying efforts. Nonetheless, despite significant opposition from hotel companies, municipalities, and rental housing providers (to name a few…), STR platforms continue to flaunt billions in revenue, and the STR industry only seems to be gaining momentum. Accordingly, governments and critics (primarily the hotel industry) throughout the country are negotiating with STR proponents to enact laws that address the concerns of each side.

From a user’s prospective there is a huge benefit in: a guest being able to rent another’s residence on a short term basis while visiting a particular area/city; and a host’s ability to offset their overhead/expenses by renting their home when they are not using same. However, who is responsible when there is a disturbance or damage caused by one of the guest’s (or by the guest’s guest); and are the users thoroughly screened (i.e. identity, criminal history, etc.) by the STR company (Airbnb, Homeaway, VRBO, FlipKey, etc.)? Also, who should the guest contact or complain to if/when there is a problem with the dwelling, and it is located in an apartment building or condominium association? Finally, is the rent collected by the host considered income/taxable? These are just a few of the questions for hosts, guests, neighbors, politicians, and enforcement officers to consider.

In Massachusetts, it is imperative for landlords and HOAs to be cognizant of their tenants’/unit owners’ expectations. Often times, transients are not what tenants or unit owners expect to have as their neighbors in their residential developments. Furthermore, most tenants expect a higher level of security in large(r) apartment communities whereby their landlord (or its managing agent) is reviewing and monitoring everyone that comes onto the property grounds (i.e. common area pool, fitness gym, community rooms, etc.). Tenants also typically assume that their neighbors will remain as such for at least one year. As all practitioners in the landlord/tenant realm know, nearly every lease contains rules and regulations that are meant to limit a tenant’s (and their guest(s)’s) conduct that could interfere with other residents’ rights to quiet enjoyment. In the HOA setting, constituent documents often restrict and regulate an owner’s ability to rent out their unit; and FHA financing for condominiums requires a percentage of the units to be owner-occupied. Accordingly, practitioners must consider the effects of STRs when advising their clients about permitting/prohibiting same.

Last July,  after several months of conferencing, a joint committee of state legislators came to a compromise between the Senate’s and House’s proposed bills for the regulation of STRs; however, the compromise (House, No. 4841) was short lived when, on August 1, 2018, Governor Baker refused to sign off, and returned the bill with various proposed amendments.

Some of the governor’s noteworthy changes include: an outright exemption for homeowners that rent out their units for fewer than fourteen (14) days in a year; the definition of a short term rental (specifically, the minimum number of days in a year that would classify/warrant designation as a “short term rental”); as well as a limitation on the amount of information to be made available in the legislature’s proposed public registry. Currently, the status of the state’s STR bill remains in limbo as we enter the informal session.

Regardless of the state’s present inability to pass a bill dealing with the taxation, regulation, and insuring of STRs, most municipalities have enacted ordinances to limit STRs in some fashion. For example, the City of Boston’s Ordinance Allowing Short-Term Residential Rentals defines a STR as the rental of a residential unit for a period fewer than 28 consecutive calendar days, limits the definition of an operator to a “natural person who is the owner of the Residential Unit” (a tenant cannot engage in the short term rental of their apartment), and requires the operator to certify that offering their dwelling for STR does not violate applicable condominium documents, bylaws, or other governing documents. Owners are also required to (this is not a complete list of requirements): register their units; ensure compliance with building, sanitary, zoning, fire code(s), as well as any other requirements, laws, or regulations; provide notice to abutters of their residential unit being registered as a STR; pay an annual registration fee (varies by type of STR); and retain records for three (3) years, evidencing the number of month’s the operator has resided or will reside in the unit, as well as the number of days the unit was offered as a STR. In Cambridge, STRs are defined as the rental of a residential unit for a period up to thirty (30) days but, contrastingly to Boston, allows a tenant/leaseholder to offer their units for STR. Registration is required, as well as compliance with building sanitary, zoning, fire code(s), as well as any other requirements, laws, or regulations – and constituent documents (if applicable). In Lynnfield, following a murder at a mansion that was rented on a short term basis for a large party, the town passed an ordinance prohibiting STRs altogether.

As practitioners and counselors, we need to be aware of local ordinances (and updates in the state’s efforts) when advising our clients about the risks and rewards of STRs. While change is certainly in the air…landlords and HOAs should carefully consider allowing, prohibiting, and/or monitoring “airbnbs”.

Ted Papadopoulos is a partner at Ashton Law, P.C and focuses his practice in the representation of management companies and property owners in various landlord-tenant, as well as general real estate related matters. Ted can be contacted by email at esp@ashton-law.com.

Condominium Issues in the 21st Century

By Saul J. Feldman & Angel K. Mozina

In this article, we are going to discuss current condominium issues:

Marijuana:

Although legal in Massachusetts, marijuana remains illegal under federal law. Some condominium associations have asked for us to

draft language making marijuana illegal except for medical purposes. Other associations have asked us to draft language making marijuana legal for recreational and medical uses. This issue of marijuana can be covered as part of a “no smoking” prohibition. For example, a prohibition against smoking except in an outdoor gazebo may encompass marijuana. These regulations can apply to both common areas as well as within individual units.

On-line Home-Sharing Sites:

The huge increase in Airbnb, HomeAway, and other on-line home-sharing sites has led associations and developers to wonder about whether to modify documents regarding short-term rentals of condominium units. The short-term rental may be for an entire condominium unit or just for a single room within the condominium unit. This practice may violate a town’s zoning by-laws, because a property may not be used for a commercial enterprise in a single-family zoning district. Notwithstanding such a zoning prohibition, in our opinion, the condominium documents should also address this issue as it affects insurance coverage, and taxation of these properties, similar to the taxation of hotels and motels.

Mixed-Use Condominiums:

The common belief is that tensions between unit owners in a mixed-use condominium often lead to total dysfunction in the condominium. We want to demonstrate that it is often possible to resolve the differences between differing uses. We will do this by exploring a common fact pattern.

The tensions are between:

(1)     the condominium association in a mixed-use building with residential units in most of the building, and

(2)     the owner of the restaurant unit.

In this example, there is a restaurant operating on the first floor of the building with the next several floors occupied by residential units.

 

The restaurant wants to obtain a liquor license and convert the restaurant to a sports bar which will, of course, generate even more noise. Under the condominium documents, a restaurant is allowed, but a sports bar is not allowed.  The zoning allows for both a restaurant and a sports bar.

On the surface, this may seem like an impossible problem between the owner of the restaurant unit and the Condominium Trustees. The Trustees could hold firm and not allow the sports bar. If the restaurant goes ahead and converts the use to a sports bar, the parties will end up in years of litigation. Eventually, the Trustees may win and the restaurant may lose. However, in reality neither party will win.  The costs of litigation in this case could be in excess of $200,000.00. This just happens to be the cost of proper sound-proofing.

The solution is for the two parties to come to an agreement on proper sound-proofing of the ceiling of the restaurant unit. The cost should, of course, be borne solely by the restaurant.

The agreement will also be signed by as many of the Unit Owners as possible. The Condominium Trust must indemnify the Owner of the Restaurant Unit against claims by any of the Unit Owners who fail to sign the settlement agreement. 

This fact pattern is quite common in Boston and other urban areas throughout the United States. Our point is that most tensions in a mixed-use condominium can be settled and need not lead to dysfunction and litigation.

Small Condominiums:

A small condominium (2-4 units) is really a joint venture – a general partnership limited to one project. The “project” is the operation of the condominium.

The condominium documents should be made as simple as possible.

There should also be a mechanism to settle disputes. I would recommend mediation and arbitration. REBA is set up to do both.

Each Unit Owner should be a Trustee. Decisions should require a 100% vote of the Trustees/Unit Owners. Sometimes this can present a challenge.

Regarding collections in a two (2) unit condominium, the documents should give one Trustee the ability to sue the delinquent Unit Owner who fails to pay after sixty (60) days’ notice from the Trustee of the other Unit.

Ideally, the Units should be kept as separate as possible. For example, yard areas could be exclusive-use areas if that is what the Unit Owners want.

The rules and regulations which are on exhibit in the condominium trust should be as simple as possible.

The Master Insurance Policy should be an “all in” policy that covers the units as well as the common areas. Each Owner should get his own insurance as well, just for the contents of the unit and for liability within the unit.

Problems such as budgets, tenants, noise, smoking, collections, and pets must be carefully addressed in the Master Deed or Condominium Bylaws.

There are some people who do not belong in a condominium. With a little luck, these people will not be in the condominium. If they are Unit Owners, you should expect trouble and we are not convinced that even the best drafted documents will be of any help.

Short-term Rentals Create Ongoing: Concerns for Condo Associations

By Mark Einhorn

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.)

Challenges of Short-Term Rentals for Condominium Associations

By Christopher S. Malloy

If you resemble the modern-day traveler you will likely at least consider the idea of staying at an Airbnb-like rental on your next vacation or work trip.  If you own your home in or around a city or

other another attractive destination, you may have given consideration to renting your house or condominium unit on a short-term basis, either while out of town yourself or during a peak travel season. Often times Airbnb offers a cost-effective alternative to a typical hotel and provides income to the homeowner to offset property costs.  But for all the convenience Airbnb offers, both to the guest as well as the owner, many of us have heard at least one horror story where an Airbnb renter caused substantial damage to the property, held wild parties, or engaged in some form of criminal activity.  While the incidences of such behavior are without question the exception rather than the rule, many Airbnb guests engage, often times unknowingly, in conduct which is either bothersome to neighbors or in violation of a condominium’s rules and regulations.

When a guest rolls into town for one or two nights it is safe to assume that he or she is not taking the time to review the association’s bylaws and rules and regulations, even on the rare occasion where those materials are provided to the guest in the first instance.  As a result, the guest is likely to be unaware that smoking is prohibited in the courtyard, what the proper trash policies are, and where he or she may legally park in the common area parking lot.  If this occurs only once or twice a year it may be viewed by some as a minor inconvenience to the other unit owners, however if there is frequent turnover and new guests are arriving on a daily or weekly basis, that inconvenience quickly evolves into a substantial interference with the ability of unit owners to peacefully enjoy their homes and common areas.

Associations are rightly concerned about a transient guest’s lack of ties to the community, especially given that in most instances the guest is granted unfettered access to all the common areas of the condominium which may include hallways, elevators, basements, roof decks and recreational facilities without supervision from the actual owner from whom the guest is renting.  This presents a legitimate safety concern for other unit owners, especially when a unit is rented by many different people each week or month.  The constant presence of unfamiliar faces just outside the door of your home is likely to unnerve most people, however a condominium association is not, and cannot be in the business of evaluating and monitoring each and every guest of a unit owner.  

While state and local governments wrestle with regulatory, zoning, safety and taxation issues which short-term rentals present, condominium associations are struggling with their own set of issues related to the disruption and safety concerns transient guests present to unit owners.  While many condominium governing documents contain restrictions on a unit owner’s ability to lease or otherwise rent his or her unit, the majority of these restrictions are boilerplate and do not contemplate the rapidly developing market for short-term transient rentals with the proliferation of Airbnb and similar type services.   Standard leasing restrictions in condominium documents may prohibit rentals for less than a prescribed period of time (six months to one-year is common), prohibit rentals of anything less than the entire unit, and may require that a copy of the lease be provided to the Board.  However, even when an association’s governing documents adequately restrict transient rentals there is still a concern as to whether the fine structure within an association’s documents provides a sufficient deterrent to unit owners considering renting their unit in violation of the condominium documents.  For instance, many condominium documents establish a graduated fine structure per offense (e.g. $25 fine for the first offense; $50 for the second; $100 for the third, etc.).  Unit owners considering short-term rentals of their unit, especially in Greater Boston, can expect nightly rental prices in the hundreds of dollars which, when weighed against a potential fine amounting to a fraction of their anticipated profit, do not provide much incentive to adhere to the requirements of the governing documents.

If a condominium association’s governing documents are silent on leasing guidelines and restrictions, the association must take steps to amend its documents to specifically address this activity or it will likely be without authority to regulate or enforce short-term rentals. Because such a provision operates to restrict what one may do with his her or her unit, an amendment to the master deed and/or bylaws will be required which requires a minimum percentage of unit owners (typically at least two-thirds) to vote in favor of such a restriction. Depending on the location and demographics of the ownership, this may prove to be a difficult endeavor if multiple unit owners favor the ability to rent their unit on a short term basis.

Associations must also be cognizant of the implications unauthorized rentals have on Federal Housing Administration (“FHA”) guidelines.  In addition to explicitly restricting transient rentals, defined by FHA as initial terms of less than 30 days, FHA regulations require that at least 50% of the units be owner- occupied (in limited instances this percentage may be lowered to 35% provided the project meets certain additional conditions established by FHA).  If the total number of leased or rented units exceeds this threshold FHA may suspend or revoke the project’s eligibility which could have a drastic impact on the ability of prospective new owners to obtain financing through FHA as well as unit owners seeking to refinance using an FHA product.  If an association does not have a handle on how many of its units are leased or rented at any one time, as they likely would not where multiple transient rentals are occurring without oversight or approval, the association may find it difficult to bring the project back into compliance with FHA guidelines.

If a unit owner’s use of Airbnb violates state or local laws, codes or ordinances such a violation could result in increased insurance premiums for the association as well as difficultly recovering on a claim under an existing policy.  Condominium unit owners who occasionally rent their unit on a short-term basis may also be unknowingly violating their homeowner’s insurance policies by effectively converting their occupied unit into a rental property, which could result in a disclaimer of coverage by the insurance carrier if they become aware of the prohibited nature of the use.  If a transient renter is injured on the common areas of the condominium, the Association could face trouble on a claim with its master insurance policy if it is discovered that the unit was being used as a for-profit rental.

While the policymakers work to catch up to the everchanging issues created by short-term rentals one thing is clear: Airbnb-type services are for the most part here to stay.  Condominium associations have the tools to regulate such activity, often times to a greater degree than state or local law, however associations should be proactive about addressing Airbnb-related concerns because retroactive efforts to address the short-term rental by unit owners may fall short if the existing condominium documents do not properly prohibit such rentals.  Condominium unit owners would also be wise to consult with their association prior to listing their unit on Airbnb or else they run the risk of significant fines and exposure their association’s legal fees incurred in connection with the enforcement of the association’s bylaws and restrictions.

Chris is a founding member of Moriarty Troyer & Malloy LLC and brings nearly fifteen years of litigation and trial experience in the areas of community association, real estate and complex construction law. Chris’s practice also focuses on condominium construction defect and transitional litigation at the trial and appellate level of the state and federal courts as well as in various alternative dispute resolution forums.

In his condominium and real estate practice Chris represents residential and mixed-use condominiums, homeowner associations and property management companies in a broad range of matters and provides advice on operational and governance issues, interpretation and amendment of governing documents, rules and bylaw enforcement, developer transition issues and common area disputes. Chris also manages the firm’s common area lien enforcement practice.

Chris represents a wide variety of clients including condominium and homeowner associations, building owners, developers, general contractors, construction managers, subcontractors and suppliers in all aspects of construction transactions, disputes and litigation including defective work claims, breach of contract, and violations of M.G.L. c. 93A. Chris has expertise with disputes involving both public and private construction projects and has extensive experience with complex multi-party construction defect litigation.