To Host or Not To Host: The Shared Housing Question

Practical Law Legal Update w-004-0665 (Approx. 5 pages)

To Host or Not To Host: The Shared Housing Question

by Practical Law Real Estate

Background

A short term rental generally describes a situation where an owner or tenant rents a housing unit, or a portion of a unit, to a guest for less than 30 days. Popular websites like Airbnb, VRBO, and HomeAway provide online platforms where hosts can advertise their listings and connect with potential guests.

In response to numerous concerns about the usage of short term rentals, legislation in many jurisdictions quickly evolved to either regulate or prohibit this budding industry. Complaints against short term rentals focus on loss of tax revenue, safety, disturbances, and diminishing affordable housing. Short term rental platforms responded to the law with litigation challenging the legislative efforts.

Most major metropolitan areas have some type of legislation regarding short term rentals, with many following the examples of Chicago, New York City, or San Francisco.

Key Points of Short Term Rental Regulation

Short term rental legislation focuses on many of the same issues. The following topics deserve careful consideration:

Definitions. Short term rental legislation typically has very precise definitions classifying what types of buildings or units are, or are not, exempt from the regulations. For example, the New York law only applies to "class A multiple dwellings" for periods under 30 days. Under the definition of "class A multiple dwelling," a short term rental where a permanent resident is present for the duration of the rental is permissible. Depending on the terminology used in a particular jurisdiction, close attention should be paid to the definitions of terms such as:
- use or residential use;
- accessory use;
- bed and breakfast;
- guest room or guest quarters;
- dwelling or dwelling unit;
- lodging house or lodging unit;
- boarding house;
- hotel;
- multifamily housing; and
- single family residence;
Zoning Laws. Many jurisdictions already prohibit short term rentals through their zoning laws. The zoning regulations typically contain definitions that allow or prohibit short term rentals based on the size, type, and location of the dwelling unit.
Business Licensing Requirements. Many jurisdictions require hosts to obtain a business license before confirming a reservation. In certain locations, hosts must provide their business license credentials in listings or within the short term rental unit.
Insurance Requirements. Short term rental regulations typically require hosts to carry liability insurance. In San Francisco, hosts must carry at least $500,000 in liability insurance, or they may rely on the insurance provided by the short term rental platform (Airbnb, for example, provides all hosts with $1 million in coverage).
Duration. Duration applies to short term rental regulation in two ways:
- the number of days per year a host is allowed to rent a particular unit. For instance, San Francisco allows a host to rent out its entire dwelling up to 90 days per year as long as the host lives in the dwelling as its primary residence for 275 days per year; or
- the length in number of days of a rental before the regulations apply. In New York City, the regulations only apply to rentals under 30 days in length.
Lease Agreements and Real Property Documents. Hosts should review their lease agreement, condominium or co-op rules, or homeowner association agreements and rules, as applicable, to determine if short term rentals or sublets are permitted. If prohibited, hosting a short term rental may be grounds for eviction or fines.
Safety Standards. Short term rental regulations typically require hosts to ensure that their unit complies with building, fire, and safety codes. Some jurisdictions have regulations requiring inspections before hosting a guest. In Chicago, the regulations require hosts to abide by certain health and hygiene standards relating to food, bed linens, and towels.
Taxation. Many jurisdictions collect a hotel tax for transient occupancy. Legislators were concerned that short term rentals provided a way to avoid the hotel tax, reducing tax revenues. Most short term rental regulations:
- provide that the guest must pay a given percentage as a tax. For instance, San Francisco imposes a 14% Transient Occupancy Tax on rentals under 30 days; and
- detail how the tax should be collected and remitted. In some situations, the tax is collected by the host, but in San Francisco the tax may be collected directly by Airbnb.
Registration Requirements. Some short term rental regulations mandate that hosts register each unit they operate with their particular city. The city then issues a registration certificate with a unique identifying number for each unit. San Francisco and Chicago both require the registration of short term rental units.
Rent Stabilized Apartments (Rent Control). Short term rentals of rent controlled or rent stabilized units are generally prohibited or limited. In San Francisco, a host of a rent controlled apartment may not charge more than what the host would pay its landlord in rent.

Practical Implications

The short term rental industry is venturing into new legal grounds. Real estate counsel, owners, hosts, and guests should familiarize themselves with the applicable rules in their jurisdiction. Landlords, condominium and co-op boards, and homeowners associations should also consider prohibiting the use of short term rentals in their applicable agreements if they have significant concerns about issues related to transient guests.

For more information about short term rentals in Chicago, see:

For more information on the recent New York short term rental legislation, see Legal Update, New York Imposes Stiff Fines on Short Term Rental Operators.

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