Short term rentals are becoming big business, and California and the Bay Area are no exception. Companies such as Airbnb and VRBO have grown to become massive entities and have drawn a great deal of attention. So much so that San Francisco recently had a proposal on the ballot to limit the number of days Airbnb rentals are allowed.
The question thus becomes: is Airbnb for you? In order to make this decision, there are several variables to consider.
Are you allowed to?
First consideration: Are you even allowed to rent your unit on a short term basis?
The answer to this question is dependent on your housing situation. If you are in a condominium or townhouse, you must look to the CC&Rs. Many homeowner associations have rental restrictions. The recent rise of Airbnb has caused associations that do not have restrictions to add them. If your association restricts them, violations could result in penalties and liens on your home.
If you are a tenant, you must look to your lease. Most leases have restrictions on sub-tenants or guests. If you violate these restrictions, you could be evicted.
Even if you own a single family residence (or condominium or townhouse that does not have restrictions), you must ensure the city or county in which you reside does not have its own restrictions or cumbersome taxes or penalties. Thus, reviewing the municipal code is required.
For example, San Francisco has specific limitations on short term rentals. A homeowner cannot rent their entire unit for more than 90 days a year, and have to live in the unit the rest of the year. These restrictions do not currently apply if you only rent a portion of the unit. There are several other restrictions that are too lengthy to cover in this blog, such as record-keeping requirements, taxes, and registration.
Just this week, a ballot measure to further restrict short-term rentals was defeated. This measure would have limited rentals to 75 days a year, whether or not they were for the entire property or just a portion thereof (among other restrictions). Although this measure failed, it is anticipated that further efforts to control short-term rentals in San Francisco, and throughout the state, will continue.
Are you Insured?
If you determine there are no restrictions in place for renting your unit, you next need to ensure you are insured. Typical homeowner policies do not provide coverage for rentals. Thus, if the tenant damages the property or sues you, you will not have insurance coverage to fall back on. Yes, the hosting site may have some sort of coverage, but it would be unwise to depend on them. These policies typically are rife with exclusions and requirements, making it impossible to ensure any coverage.
What are the tax consequences?
Our firm does not provide tax advice, however we are sure to alert our clients of the potential issue so they may consult the appropriate tax professional. Renting out your unit may come with tax consequences, so it is important for the owner to understand these consequences.
These are some of key issues to consider if you are intending to rent your home out on a short-term basis. To further discuss the legal issues for Airbnb hosts, our office presented a webinar on Tuesday, December 1st at 10 AM. You can watch the replay of that webinar here.