Several online businesses (e.g., Airbnb, Vacation Rentals by Owner) now allow people to offer their homes, apartments and other living spaces for short-term rentals, aka, the sharing economy. The growth of these businesses has been nothing short of amazing, because they meet an important need for both parties—inexpensive short-term housing for the visitors, and new, potentially under-the-table sources of income for the “hosts.” But before taking advantage of this supposed windfall, be aware that there may be restrictions on this activity; more troubling, there is no consistency in these limitations.
Avoiding problems depends on where your space is located, what kind of space it is (house, condominium, rental unit), and, in some cases, complying with local laws and regulations. For example, officials of the City of Los Angeles recently suggested that short-term rentals may not be legal in residential zones, but rather only in mixed commercial-residential zones. By contrast, the City of San Francisco recently took legislative action to permit short-term residential rentals, but created a number of requirements that would limit and regulate the activity. And the City of Palo Alto, along with a number of other municipalities, have chosen to take no to take no position on the practice.
If the space is a rental, the rental agreement should be carefully reviewed, as it may limit or even bar short-term rentals or sublets, and a violation could be cause for eviction. If the space is a condominium, cooperative, or planned development, the use of the space is likely governed by recorded restrictions generally called covenants, conditions and restrictions (“CC&Rs”), as well as bylaws. CC&Rs and bylaws may bar short-term rentals entirely, or subject them to severe limits. And unlike local zoning laws or other ordinances, CC&Rs and bylaws are enforced by the homeowners’ association or cooperative board, which can impose significant impose fines on violators and place liens on the property to collect those finds. Recently, a San Diego man was fined a substantial sum by his condominium association for a short-term rental.
As such, the most important precaution for people contemplating becoming short-term rental “hosts” to take is to research their specific situations carefully and take steps to ensure that they have complied with all local ordinances (including business licenses), taxes, private restrictions, and other regulations imposed on short-term rentals for their particular spaces. As there are no uniform standards currently in place for this newly-popular activity, one should err on the side of caution in this regard.
If you decide you want to “host,” you should keep the following in mind:
- Review your local zoning restrictions.
- If you rent, review your lease carefully.
- If your space is subject to CC&Rs or bylaws, review those restrictions carefully.
- Pay any appropriate occupancy taxes if required by your city.
- Obtain a business license, if required by your city.
- Check with your insurer to make sure you’re covered for the additional risks of short-term rentals.
The “sharing” economy that these online businesses are facilitating can offer significant potential benefits where it had previously been difficult or costly to enter into these markets due to a variety of factors. Great care should be taken, however, to avoid potentially costly mistakes.