App Rentals: Easy—But Not in the Long Run

The social media revolution has transformed all aspects of our society and economy. The app economy promises ease, convenience, and choice to consumers while seemingly offering independence, self-determination, and a steady source of income for users looking to do business in the digital age.

But just because something is easy does not mean it is a good idea, especially not from a lawyer’s point of view. An app may be a great way to order takeout or shop for shoes. But it can be risky to stake large sums of money, the possibility of a lawsuit, or potential regulatory enforcement on a platform that provides you with little to no legal protections.

Real estate—in particular leasing out properties as a landlord—is a prime example of a financial and legal obligation that cannot be easily or responsibly outsourced to a platform.

If you are a Massachusetts landlord considering switching to short-term leases through Airbnb, VRBO, or another platform—or if you are a Massachusetts property owner considering plans to lease out your property through such a platform—you need to read on about just some of the financial and legal risks you face by taking part in short-term rental agreements.

No Shield from Harm

At first, it might seem convenient to forgo the paperwork-heavy process of leases and disclosures in favor of “tenants” reserving through an app or a website, but there is a reason for that paperwork. That reason is to protect landlords as much as tenants.

What would you do if a “tenant,” whom the law actually views, in most states, as a “guest,” damaged your property or stole some of your possessions? Home-sharing platforms’ insurance coverage often has substantial loopholes. For example, Airbnb’s policy does not protect those things that are most precious to you: artwork, jewelry, cash, and even pets.

Even more concerning, by taking part in a home-sharing enterprise, you may risk losing coverage on your homeowner’s insurance policy. Such policies normally exclude losses incurred through operating a business out of your home, including renting it out through a home-sharing platform.

Additionally, how would you evict a “tenant” who refuses to leave, even after their reservation has come and gone? Without the legal protections of a landlord-tenant relationship, your legal recourse is much more convoluted. You would have to convince the police to remove the other person from your property, if you could prove they had no right to be there.

By trading tenants for “guests,” you could end up with squatters.

Massachusetts Legal Requirements for Home-Sharing Rentals

Many states and municipalities, including Massachusetts, have begun cracking down on home-sharing platforms, either by banning them outright or regulating their operation within these jurisdictions.

In Massachusetts, policymakers have gone in the direction of regulation. As of July 1, 2019, a number of new regulations went into effect.

Now, both short-term rental owners and any intermediaries (i.e., home-sharing apps or other brokers) must register with the Department of Revenue. This makes Massachusetts the first state in the nation to establish a home-sharer registry.

Additionally, the law imposes a 5.7% tax on short-term rental leases. Short-term rental leases are defined as rentals of less than 31 consecutive days. Municipalities within Massachusetts may choose to impose additional tax, bringing the total up to 6%. Boston has permission to tax up to a total of 6.5%.

Exceptions are made for people who rent out their properties infrequently—the tax only applies to owners who rent for more than 14 days a week. The law also carves out properties that are purpose-built as lodging or rental properties, including hotels and motels. Time-shares and month-to-month leases are also excluded.

Play It Safe

As discussed above, there are a number of vulnerabilities—financial and legal—for property owners who rent out space through home-sharing platforms.

As always, the safest course of action for landlords and other property owners is to play it safe, play it by the book—and have an experienced real estate attorney as counsel.

If you need an experienced counselor to discuss your real estate holdings, call our office today.