Tips for Navigating the Legal Risks of Becoming a Short-Term Rental Host

Do your legal due diligence before renting out property

By Judy Malmon, J.D. | Reviewed by Canaan Suitt, J.D. | Last updated on March 9, 2022 Featuring practical insights from contributing attorney Evan L. Loeffler

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A lot of people have thought about becoming an Airbnb host and renting out an empty room or underutilized vacation home. It seems like a fantastic way to bring in some extra income. And to be sure, many property owners have capitalized on the opportunity and had positive relationships with renters. But the arrangement is not without risk.

Before offering your property as a short-term or vacation rental through Airbnb, VRBO, Craigslist, or a social media ad, there are several steps you can take by way of legal due diligence. It’s easy to assume the odds are in your favor and nothing will go wrong. But you are much better off anticipating and preparing for potential problems than responding after the fact.

Look at Local Government Regulations

First, check with your local regulations—such as zoning ordinances and homeowners association (HOA) rules—to verify accepted and prohibited uses. Some municipalities have limits on the number of days per year you may have unrelated guests in your home or even prohibitions on short-term rentals altogether. Different city councils may have requirements on occupancy and other regulations. You will also need to comply with registration and tax requirements and obtain insurance.

Evan Loeffler, a real estate lawyer at Williams Kastner in Seattle, has seen the dark side of the short-term rental industry. “We only hear about the horror stories,” he says, noting the legal-protection grey area that short-term rentals often fall into.

Loeffler offers a “horror story” to illustrate: “My client rented his place through Airbnb for a week. After a week, the woman called and asked if she could stay longer, and they agreed she could stay for another week. That second week became a separate agreement outside Airbnb—a side deal. Now, nothing was covered by any Airbnb rules, and this technically became a month-to-month tenancy, which was not what my client had in mind. The second week’s check bounced, and we had to start an eviction action. It turned out she was a professional at this: The name she gave wasn’t her real name. The police detained her during this same time because she was driving a car she test drove and never returned, under a false name. She didn’t show up to the hearing. And still, with all that, it took about a month before we were able to get her out.”

[Without proper liability insurance], if a deposit isn’t enough to cover damages… There may be an arbitration provision, but there really are no protections, for owners or renters [at that point].

Evan L. Loeffler

Review Contract Agreements and Liability Coverage

If you do list your property through a broker like Airbnb, keep in mind that a contractual arrangement protects the companies. So, what will happen if a renter causes damage to your short-term rental property?

If you’re renting through a broker, you will have entered into an agreement addressing how such damage is handled. However, some property owners may find that this agreement doesn’t cover what they thought it did. It’s essential to secure the appropriate level of liability insurance coverage before entering a rental agreement. “[Without proper liability insurance], if a deposit isn’t enough to cover damages… There may be an arbitration provision, but there are really no protections for owners or renters [at that point].”

Getting an Attorney to Review Your Short-Term Rental Agreement

Of course, not every short-term rental arrangement goes badly. If you’re still thinking you want to get into the game, be sure to talk to an experienced real estate attorney beforehand so that you know what you’re getting into and how you will be protected. A real estate attorney can guide you through the process, from ensuring compliance with local laws and short-term rental regulations to navigating your tax obligations and insurance coverage. For more information on this area, check out our overview of real estate laws as well as related content on land use and zoning law and landlord-tenant law.

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