As the summer vacation season approaches, now is the time to plan. Private short-term vacation home rentals and home-sharing arrangements are the rage and provide an opportunity for vacationers to reduce their traditional vacation costs by obtaining cost-effective non-traditional vacation accommodations. Additionally, property owners can use their homes to generate income. Therefore, if the arrangement is handled appropriately with full disclosure and documentation, it can be the quintessential “win-win”. The key, however, is to make sure that both parties avoid certain pitfalls.
Five essential steps the property owners must do to protect themselves and their investment:
- Use a Reputable Online Booking or Management Service. In addition to handling the payment arrangements, many of these services offer pre-screening options for potential guests and additional liability insurance. Of course, the owner has to pay a fee for these services, but it is well worth the protection and peace of mind. If the owner elects not to use a third-party service, then the owner needs to address significant issues, such as credit card payment systems and collection and payment of sales tax, if applicable.
- Use a Guest Agreement. Although, the reputable online vacation and short-term rental sites serve as a facilitator for the transaction, the basis of the contractual relationship is between the property owner and the guest. To protect both parties to the arrangement and to avoid misunderstandings, it is important that a Guest Agreement be used. Such an agreement specifies the exact terms of the rental such as dates, check-in and rate charged. It can also include such important terms as the number of guests, the number of vehicles permitted, and unique restrictions that may be applicable (i.e.: no loud music or house parties). Generic guest agreements are available online, however, to fully protect an owner’s investment, the agreement should be drafted and/or reviewed by a licensed attorney in the state that the property is located. Another cost effective source to obtain an agreement is to go to a website operated by LegalShield (http://forms.legalshield.com/) where an agreement can be completed and then reviewed by an attorney.
- Confirm and Comply with Local Government Regulations. Before any owner posts a property online for rent as a short-term vacation rental, it is important that the owner check state and local government regulations. Many states, cities, towns, villages and counties regulate the use of a typical residential home for business purposes and short-term rentals. Some expressly prohibit these type of rentals and others require special licensing and inspections, including, sometimes, health and safety inspections. If the rental is in violation of a state or local ordinance or code, then the government could shut down the use of the property which would subject the property owner to liability to the renter and/or the imposition of penalties or fines by the government. As an aside, in many instances, it is difficult to tell how a home is being used, however, if an owner intends to regularly rent out a home in this manner, there are often negative impacts on the neighborhood which can cause neighbors to investigate and then complain to authorities. Some negative impacts that can be a sign that the property is being used as a short-term rental home include different people coming and going, loud music or parties and parking of numerous vehicles. Therefore, once the owner has confirmed and complied with applicable laws and codes, the owner should consider restrictions on the use of the property to avoid issues and problems with permanent neighbors.
- Review Homeowners Association Rules. If the property is part of a homeowners association, there may be restrictions in the deeds and covenants for the association that prohibit the short-term rental of property. Many homeowners, who buy homes in subdivisions, do not realize that there may be strict restrictions on the use of their homes. The homeowner is deemed to have agreed to these restrictions, when the property was purchased and is required to comply. It is important to note that even if the state or local government allows the use of the property for this purpose, homeowners restriction may prohibit it and subject the owner to fines and/or legal action. The best course is to read and understand the applicable restrictions and ensure that the property is used by renters in a manner consistent with other homes in the neighborhood.
- Check Homeowners Insurance Policy. A property owner who agrees to offer a property for a short-term rental, arguably creates a greater liability risk related to the use of the property. If someone gets hurt or property gets damaged then there is likelihood that the typical homeowner’s policy will not cover claims if it is determined that the claim resulted from the rental of the home for a short-term rental. Therefore, the owner of the property should verify coverage and obtain specific insurance coverage, if needed. Further the owner should notify the insurance carrier in writing of the intended use of the property.
Five essential steps the renter must do to protect themselves and their vacation experience:
- Use a Reputable Online Booking or Management Service. Review the service’s online reputation, if it is not a national entity or company, check local records, including local business review services. If using a website consider the website’s payment methods and established security policies. Carefully review and consider any comments that may have been posted online about the service. There are many services that facilitate vacation home and home-sharing rentals, so if research reveals negative comments about a particular service it is best to consider another.
- Payment. Do not pay by cash, check, money order or wire transfer. Always use a credit card that enables you to dispute charges in the event that there is a problem. This is extremely important as owners of properties may get “better offers” and then attempt to cancel a reservation and delay or even never refund funds paid.
- Use a Guest Agreement. For the same reasons that a property owner needs to have a Guest Agreement, so should the renter. An agreement should be written to protect both sides, so there is a clear understanding of the terms and conditions of the arrangement. In the event that one party fails to comply then the agreement may be the only way of providing appropriate legal recourse to the aggrieved party.
- Verify that the Property Exists. There are many online resources that can be used to verify that the property exists. Online maps and searches such as those provided by Zillow, Google and the local property appraiser or tax accessor, can provide credible information on the property from anywhere in the world. Additionally, if the renter is not familiar with the area, online tools can be used to research the neighborhood, including crime statistics and proximity to things that may be of interest. Finally, simply searching the address on the internet can reveal whether there has been any positive or negative activity at the property that may have been reported in the media.
- Be a Good Neighbor. Renters should always remember that a vacation home rental or home-sharing property is likely in a neighborhood where many people own and live in their homes. A typical renter is on vacation and therefore, is not limited by the normal restraints of everyday life. In many instances, however, the neighbors are and they may get upset if their quiet use of their homes is violated by the activities of a short-term renter. There are very few things that can put a damper on a vacation, like having to deal with law enforcement because someone has complained about certain activities. If a renter knows the rules and is courteous and respectful of others, then the arrangement will work out great. If, however, the renter wants to have more of a party-vacation, then that renter may want to rent more traditional accommodations, like a resort hotel where almost everyone is on vacation.
Like many arrangements, renting a vacation-home or sharing a home is a transaction that has legal consequences for all involved parties. As a result, it is important that both parties know their rights and just as importantly, their obligations. With research, full disclosure and a well-drafted guest agreement, each party will know exactly what to expect and the transaction will be a mutually beneficial and rewarding experience.