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Renting Your Property: What You Need to Know
As rental fees and mortgage payments continue to climb in major metropolitan areas around the U.S., tenants and homeowners are turning to short-term rental services in increasing numbers to relieve the economic burdens that have begun to build up. This option is especially appealing to individuals who travel on a regular basis for work, who travel for extended periods after retirement, or who are looking to make a profit from the rebounding real estate market. But before opening up a home, apartment, or condo to a would-be renter, it is important for the owners or lessors to take the following factors into consideration.
City Ordinances, CC&Rs, and Limitations in Rental Agreements
Housing and rental markets in major cities are already crowded, and adding short-term rental arrangements to this equation only serves to compound the difficulties in finding affordable housing. With this in mind, several cities in California have passed zoning ordinances restricting or completely forbidding the use of short-term rental agreements in otherwise long-term housing.
For example, in San Luis Obispo County, California, a short-term rental home may not be located within 200 feet of a similar rental on the same block. Further south, Palm Desert, California adopted an ordinance allowing short-term rentals of up to 27 days provided that an annual permit is obtained and a 9% transient occupancy tax collected and paid to the city. St. Helena, California enacted a similar law.
In 2015, San Francisco, a city that is already notorious for its rental and housing market, enacted an ordinance permitting short-term rentals of up to 90 days per year, but limited it to owners who live in their property at least 275 days per year. This makes sense, considering that Airbnb originated in this stifling rental and housing environment. This ordinance provides enough restrictions so that renting is limited to property owners and long-term tenants. However, it also provides flexibility so that these owners or renters can make extra money when they are on extended vacations or traveling for work.
Covenants, Conditions and Restrictions, and Lease Restrictions on Renters
In addition to these city ordinances, most planned developments and condominiums have Covenants, Conditions and Restrictions (CC&Rs) that limit what renters or owners can do in these communities. These may bar short-term rentals entirely, or subject them to restrictions. These CC&Rs are enforced by a homeowners’ association or coop board, and the penalties can vary from severe fines to expulsion from the community.
In addition, renters typically have restrictions on subleasing or short-term leasing written into their lease agreements with their landlords. Violating these provisions can result in fines, or more commonly, evictions.
Regardless of whether you live in a commonly planned community subject to CC&Rs or whether you are subject to a lease agreement, it is always a good idea to either read the terms of these agreements, or consult with an attorney, before making the decision to rent for the short term.
When a renter or owner places their unit on the short-term housing market, he or she is typically offering access to his or her property to a complete stranger. Needless to say, this creates risk and uncertainty.
In order to protect against negligent or malicious damage to the property, or to cover basic cleaning costs after the temporary resident moves out, it is best practice collect a security deposit from the temporary renter. While this may not cover all damage that could accrue, holding this deposit could give the temporary renter greater incentive to treat the property with care.
If a renter or owner is worried about greater damage accruing, it is best to check with the host website that was used to advertise the temporary housing. These websites can sometimes contain provisions that cover against significant damages to the temporary housing. For example, Airbnb offers a $1,000,000 Host Guarantee, which protects a host against damages above and beyond the amount of the security deposit. Even though not all websites contain this type of provision, they can be useful if they need to be invoked.
Steps to Take After Finding a Temporary Tenant
If a renter or owner is able to find a temporary tenant through Airbnb or any other online service, best practice would be to treat it like a normal rental agreement. Securing a deposit certainly helps, but it’s best to avoid conflicts with the temporary tenant after he or she moves out.
To avoid these conflicts, try to be up front with temporary tenants about cleaning costs that will be charged against the security deposit after he or she moves out. If it will be standard practice to clean carpets and have professionals wash the bedding after the temporary tenant moves out, be sure to inform the temporary tenant before he or she moves in.
In addition, try to have a walk through of the unit with the temporary tenant to note the state of the unit before the temporary tenant begins his or her stay. Having a checklist noting all the areas of the unit is helpful, as it puts the state of the unit in writing before the stay. Finally, have a walk through with the temporary renter with the same checklist after the termination of the temporary stay. This gives the owner and temporary renter the opportunity to compare the state of the unit before and after the walk through. If both parties agree on the state of the unit after move out, then there will be no conflicts when the property owner makes charges against the security deposit.
As mentioned above, it is always a good idea to check with local ordinances, CC&Rs, and lease agreements. These documents will usually tell a renter or owner whether there are any restrictions against temporarily renting out property in a certain area.
If temporary renting is permissible, then be sure to secure a security deposit. To ensure that there are no surprises, have a walkthrough of the unit before and after the commencement of the temporary rental agreement. If the owner is thorough and clear about how to treat the property, then there should be no conflicts with the temporary renter.