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How Should Your Association Handle Condo Short-Term Rentals?

Home-sharing has become very popular with the advent of websites like Airbnb, HomeAway, and VRBO. Travelers find short term rentals in condominiums a cheaper alternative to hotels, while owners enjoy an additional source of income. However, this arrangement can lead to conflicts — particularly if the condo is run by an association or management company. As such, condo boards should be clear on how they will handle short term condo rentals.

 

Are Short Term Condo Rentals Allowed in Your Association?

The first thing to determine is whether your governing documents already have HOA short term rental restrictions. But, what counts as a short term rental? How many days is considered short term rental?

It’s possible that your condo association rules already state that rentals should have a minimum length of stay of at least 30 days. If so, owners would not be able to have short term condo rentals for periods shorter than that.

Meanwhile, if short term rentals have been prevalent, you may already have a condo Airbnb policy or something similar. If you do not have a clear policy on short term rentals in condos, it’s time to draft one.

So, can a homeowners association prohibit renting? Yes, they can. However, the condo board should not decide this on their own. Prior to making the decision, board members should consult with their management company or association attorney.

They should also ask the owners if they want to allow or prohibit short term rentals in condos. The final verdict should be based on the majority vote or after obtaining a consensus.

 

What Does the Law Say?

Your association’s policy should incorporate laws that your city or state may have when it comes to short term condo rentals. For instance, condo owners in major cities like Seattle, Boston, and Austin need to have licenses before they can rent out their units.

New York City’s short term rental law has a provision that owners cannot rent out their entire apartment. Meanwhile, in San Francisco, condo owners must register as a business in order to rent out their unit for short term periods. Lastly, in Los Angeles, condo owners can only rent out their unit for a maximum of 120 days a year.

As for the IRS, the “Masters” exception states that condo owners who rent their unit for 14 days or less do not have to pay taxes on income generated, but they cannot deduct operational expenses from their tax returns. Meanwhile, owners who rent their unit for more than 14 days must submit a Schedule E form, but they will be allowed to deduct expenses.

So, when drafting your own policy, make sure to check your city, state, and federal laws on short term vacation rentals.

 

Rules and Policies for Short Term Condo Rental

Rules and Policies | hoa short term rental restrictionsIf the condo association decides to allow condo short term rentals, it’s important to establish rules and policies for the owners. The board should also ask condo owners to fill up short term lease or rental agreements.

The agreement must state the condominium rental restrictions established by the board or association.

For instance, the agreement can state that the unit will only be used for residential purposes. This could mean that short term renters are not allowed to throw parties or conduct any business.

You can also incorporate other rules in your agreement or contracts. This can include noise hours, use of amenities, alcohol use in common areas, and the like.

The condo board can also implement a rule stating owners should provide detailed information about their short term renters. This includes the start and end dates of their stay in the property, contact information of the renter/s, and so on. Condo associations may decide to charge a nominal fee every time owners decide to rent out their property for less than 30 days.

If no one on your board has legal know-how, it’s recommended to send a draft of your policy to an HOA attorney for review. This will ensure protection from liability for your association and board.

 

Airbnb Rules According to Your Location

Airbnb is arguably the most widely used online vacation rental marketplace today. Given its immense popularity, it comes as no surprise that it’s the rental app of choice for a majority of condo owners. Airbnb was groundbreaking in that it made it possible for property owners to easily find short term renters for their homes.

But, when Airbnb first rose to mainstream fame, hotels experienced a 3.7 percent drop in profits. Moreover, states and cities had no way of regulating them. Fast forward a few years later, and now many states and cities have laws in place that add restrictions to Airbnbs.

San Francisco, in particular, quickly leaped into action. The city’s Airbnb law, according to the San Francisco Administrative Code Chapter 41A, imposed new restrictions. For instance, the 90-day rule states that hosts can only rent out their units for a maximum of 90 days per year.

Additionally, hosts may only be able to rent out their primary residences but not their vacation or second homes. New residents must have lived in the unit for at least 60 consecutive days prior to listing it for rent. The law also goes into the permit, tax, and insurance requirements hosts must comply with. Violating these restrictions will subject the host to certain fines.

Other cities have similar or additional restrictions, such as business licenses and special permits. Hosts must also follow building, housing, and zoning rules. When it comes to taxes, many jurisdictions also require hosts to collect tax for rentals. Plus, for longer stays, hosts may need to follow the Landlord-Tenant Laws in their location.

You can view local regulations in your area by visiting your city’s government website or Airbnb’s Help Center.

 

How Do Local Airbnb Regulations Affect HOAs?

It’s worth noting that your city’s regulations on Airbnbs do not overrule the rental restrictions found in your association’s CC&Rs. In the case of San Francisco, the city’s Airbnb law simply adds to HOA covenants and in no way disregards them.

Although federal, state, and local laws generally precede your HOA’s governing documents, it’s important to pay attention to the language used. Phrases such as “notwithstanding any provision of the governing documents to the contrary” or anything similar usually means that the statute overrides your CC&Rs. On the other hand, phrases such as “unless the declaration otherwise provides” or anything similar means the CC&Rs prevail.

When in doubt, it’s always best to consult with your HOA attorney.

 

How to Deal with Owners Who Violate Your Rentals Policy?

Condo owners who do not comply with your association’s short term rental policy should be reprimanded and/or fined. The board can send a warning letter on their first offense, but succeeding violations can have fines in increasing amounts. There should also be strict consequences for owners who continuously refuse to comply. For instance, the policy may state that the board can pursue legal action on an owner who already has five offenses.

The condo board can also levy fines on owners who violate the short term rental agreement. The same applies if their renters cause property damage to common areas while staying in the property.

Have your policy studied and approved by an HOA attorney to avoid any legal proceedings in the future.

 

Condo Short Term Renters Insurance

Airbnb | short term condo rentalAllowing short term condo rentals will have repercussions on your association’s insurance costs and coverage. It’s most likely that your current insurance plan does not cover short term rentals.

The association may choose to add short term renters insurance to their plan to protect against property damage, theft, injury, and other liabilities. As an alternative, the board may require owners to purchase their own short term renters insurance. Insurance is critical to protect the condo association from any damage or danger.

Take note that home-sharing websites like Airbnb and HomeAway offer up to $1 million in liability insurance coverage. This can protect owners from costs associated with property damage or if short term renters sustain an injury while staying in their unit.

You will want to consider the insurance implications on whether you decide to allow or prohibit short term rentals in your condo association.

 

The Verdict on Short Term Rentals in Condos

Ultimately, the verdict on short term condo rentals will depend on the board and the homeowners. There is no blanket answer as to whether your association should allow it or not. It’s best to seek the opinion of all parties and make a decision based on the majority vote.

Keep in mind that, as a condo board member, you should never execute the policy on your own. You should have it thoroughly looked at by an HOA attorney or management company. This is to ensure that everything complies with the law and that there is a minimal legal risk for the association.

On the other hand, condo board members can seek help from an HOA management company. Find the best one in your area with the help of HOA Management’s online directory today.

 

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