I recently spoke with a friend about my family’s plans for taking a vacation. I lamented the difficulty of traveling with small children. It can be so daunting, sometimes we end up not going anywhere. So she suggested I search online for a condo or a house to rent where we could have a kitchen and separate bedrooms. Great idea.
Of course, being a real estate lawyer, searching for a vacation rental got me thinking – how many people who have posted their homes for rent have done their due diligence? What if renting their home for the weekend is against the law?
Websites such as airbnb.com and vrbo.com are increasingly popular. The idea that you can travel anywhere and be at (a) home is appealing, as is the potential rental income if you own a home that can be leased at a nightly or weekly rate. However, aspiring landlords should proceed with caution.
VRBO and Airbnb are the dominant vacation rental sites today.
Before listing your property for short-term rental, you should consider the following:
Zoning: Is your home zoned for short-term rentals? You should review your property’s zoning designation and confirm that short-term or vacation rentals are permitted uses. In addition, some uses, if not prohibited, may be allowed after you obtain consent from the governing municipality, but you have to follow the necessary procedures for obtaining this approval.
Covenants: Is your property part of a homeowners association or subject to any restrictive covenants? If so, you should review any applicable covenants, conditions and restrictions governing the use of your home. It is very common for condominium community covenants to include requirements and restrictions for rental arrangements.
Taxes: Call your certified public accountant! Engaging in the property rental business will likely have tax implications. In addition to income tax, you could also become subject to sales, hotel, lodging or other taxes depending upon the municipality in which the property is located.
Mortgage Terms: If you have a mortgage (or deed of trust) on your property, confirm that your lender allows short-term rentals and that doing so does not cause you to be in default under your mortgage. Also consider that if you use your property in violation of applicable zoning laws or covenants (as discussed above), this probably constitutes a breach of your mortgage.
Insurance: Confirm you have sufficient property and liability insurance policies to cover potential liability and damages. For example, what if your renter slips and falls on the property and sues you for damages? Or sets the house on fire? Are these situations covered?
Rental Agreement: Do you have a good form? It is critical to have a written agreement with each renter setting out all the terms, conditions, restrictions and obligations. You should also consider whether a “lease” is the proper form. In many jurisdictions, a lease is a real property interest, entitling the tenant to certain rights in the property. Instead, it may be preferable to have a “use” agreement, which is a license or right to use the property which does not carry a real property interest.
The above is by no means an exhaustive list. There may be other considerations specific to your vacation rental situation. It is advisable to obtain competent counsel in determining whether short-term rentals are appropriate for you and to assist you in having the right agreements, insurance and other protections in place.