This month we are discussing short-term rentals and the impact they may have on your community as well as some of the recent laws enacted regulating the same. This newsletter also explores ways in which a community association can protect itself from the negative impacts of short-term rentals.
Generally, the law recognizes a person’s free use of their property. Included in this is a person’s right to lease their property to another person upon terms agreed to between the landlord and tenant. During the past several years, the concept of renting a home on a short-term basis has increased and continues to increase in popularity. Short-term rentals of private homes provide an economical and less conventional alternative to staying in a hotel or a bed and breakfast establishment. Many homeowners have taken advantage of this kind of leasing arrangement by offering their homes for rent because it serves as a source of additional income. Moreover, home-sharing companies, such as Airbnb, Inc., have created an on-line platform which provides a convenient and efficient means for people all over the world to list their homes for rent and allows potential renters to easily identify private homes available for short-term rentals.
Although homeowners and renters alike benefit from the short-term rental of private homes, many community associations are now faced with how to address the negative impacts such rental arrangements have on the common areas and the neighborhood as a whole. As a result of the transient nature of the short-term leasing arrangement, some of the negative impacts affecting communities include, but are not limited to, tenants who disturb, annoy, and/or cause a nuisance for their neighbors, increases in violations of an association’s governing documents and rules, such as parking rules and regulations, increased wear and tear on the common areas and infrastructure, and a general a loss of a sense of community resulting from an atmosphere of transient hotel-style accommodations within a single family community. Many homeowners have expressed a concern about decreasing property values within their association as a result of the negative impacts of allowing short-term rentals. Local governments have also expressed concern because short-terms rentals have generally been unregulated and untaxed. Because short-term rentals serve as an alternative to traditional hotel lodging for many people, local governments have lost revenue that is typically generated from stays in hotels and the like. Therefore, some local governments especially in urban areas have started to enact short-term rental legislation which requires licensure, fees (equivalent to a tax), and other regulations to help curb some of the negative impacts on communities. Many people believe that local legislation will mainly benefit the government but will not do enough to help neighborhoods address the negative impacts from short-term rentals.
In our area, local governments in Maryland and Washington, D.C. have adopted short-term legislation within the past two years and others have pending regulations. The following is a summary of short-term rental legislation approved in Montgomery County, Prince George’s County, Baltimore City, and Washington D.C.:
Montgomery County, Maryland – prior to adopting short-term rental legislation, residential rentals for a term of 30 days or less were prohibited in Montgomery County. The County Council, however, has adopted short-term rental legislation allowing short-term rental of a homeowner’s primary residence, which became effective on July 1, 2018 with a further amendment effective October 9, 2019. Short-terms rentals are permitted for no more than 120 days in a calendar year if the Owner is not present in the home. However, there is no limit on the number of days of a short-term rental when the Owner is present and occupying the property during the term of the rental. Regardless of whether an Owner is residing in the home during the rental period, any tenancy must be for a period of time less than 30 consecutive days. Short-term rental operators are required to have a license, and smoke and carbon-monoxide detectors in each property. Homeowners who operate a short-term rental are limited to 6 total overnight guests who are above the age of 18, and no more than 2 guests 18 or over per bedroom. Further, as part of the license application, the Owner (or applicant) must certify that, among other things, the community association has been notified of the possible short-term rental, the short-term rental is not prohibited by the governing documents of any community association, and that any assessments and other charges due to the community association are not more than 30 days past due.
Prince George’s County, Maryland – the County Council approved short-term rental legislation which went into effect on October 1, 2019 and September 14, 2020, respectively. The laws require any Owner who wishes to rent his or her home on a short-term basis to obtain a license. There are numerous licensing requirements that an Owner must meet including, but not limited to, notifying the community association in which the rental property is located as well as notifying neighbors surrounding the dwelling, as well as certifying proof of available parking and other qualifications. Homeowners are restricted from using an online platform such as Airbnb unless the same has been registered with the County. Further, if an Owner does not reside in the home during the short-term rental, the tenancy may not exceed 30 consecutive days with a maximum limit of 90 days per calendar year. If the Owner does reside in the home during the short-term rental period, then such short-term rental is also limited to no more than 30 consecutive days, but the Owner may rent the home for up to 180 days a calendar year. Moreover, short-term rentals cannot be for less than 24 hours and, there can be no more than 3 guests per bedroom, and 8 guests in total. In addition, the County has exempted from the definition of a short-term rental, an arrangement between a buyer and seller to enter into a leaseback arrangement.
Baltimore City, Maryland – the City Council approved a bill regulating short term rentals which was signed into law by the Mayor on January 28, 2019 and enacted as Ordinance 19-217. The Ordinance extends the requirement to pay a “hotel tax” to short-term rentals. The “hotel tax” is imposed on money paid to a short-term rental company responsible for booking and/or facilitating the rentals such as Airbnb, or on the Owner property is funds are paid directly to such person; the tax is equal to 9.5% of the gross amount of money paid to either party. The imposition of the “hotel tax” became effective on December 31, 2018.
However, the other portion of the Ordinance addresses licensing requirements and regulations of short-term rentals which became effective on December 31, 2019. The City ordinance provides that no person may operate a short-term residential rental without a license from the Housing Commissioner. Further, subject to limited exceptions set forth in the Ordinance, only a homeowner’s permanent residence may be licensed. The Ordinance does not contain any limitation on the number of days during which a home may be used for short-term rental, nor does it contain any reference to compliance with a community association’s governing documents as both such regulations were stricken from the proposed bill before it was adopted into law.
Washington, D. C. – the City Council passed the Short-Term Rental Regulation Act of 2018 (the “D. C. Short-Term Rental Act”), which was approved by Congress on April 25, 2019. The regulations established in the D.C. Short-Term Rental Act went into effect on October 1, 2019. The D.C. Short-Term Rental Act provides that homeowners may only rent out their primary residence, not second homes on a short-term basis. Homeowners may only offer short-term rentals for up to 90 nights cumulatively in any calendar year if the Owner is not residing in the home during the term of the rental; however, there is no cap on the number of days homeowners may offer short-term rentals when they are residing in the home during the rental. However, homeowners can apply for an exemption from the 90-day annual cap on non-owner-occupied short-term rentals to help members of the military and diplomats. There are also limits on the number of persons who may occupy a home in certain circumstances. In addition, there are limitations on use of online booking platforms such as Airbnb, unless the listing displays a copy of the Owner’s license endorsement number. Further, homeowners are required to have smoke detectors in the home and carry liability insurance. Moreover, Owners and must be licensed and collect a sales tax on accommodations from guests for the government. The D.C. Short-Term Rental Act does provide some protections for community associations by requiring the Owner to provide proof that the condominium, cooperative, or homeowners association in which the rental property is located permits the operation of short-term rentals and such proof is required as part of the rental license application.
The above jurisdictions are not the only ones who have addressed short-term rentals. Other counties in Maryland as well as local cities and towns have also enacted or are considering legislation addressing short-term rentals. Accordingly, it is vital that you are aware of all possible laws affecting your community when considering how to address short-term rentals.
We have observed that the foregoing local statutes do not necessarily protect the interests of homeowners’ associations and condominiums in regard to short-term rentals. This could leave your community ill-prepared to address problems and/or covenant violations by the occupants of short-term rentals. For example, some community governing documents have no restrictions regarding leasing at all. A mere “no-business clause” may not be specific enough to serve as a basis for action to prohibit or otherwise regulate short-term rentals. Many of our clients have asked us to address leasing restrictions in their governing documents which could include a prohibition on short-term rentals. In many instances, your community’s governing documents may be amended to expressly prohibit a homeowner from leasing their dwelling unit for transient or hotel purposes generally or for less than a specific period of time. In addition, the governing documents may prohibit renting only a portion of a dwelling unit unless the homeowner continues also to reside in the dwelling unit with the tenant on a full-time basis. If you are interested in amending your community’s governing documents to address short-term rental restrictions we also recommend including more general leasing regulations such as, but not limited to, provisions stating the homeowner is responsible for the actions of his/her tenant, and requiring all tenants to execute a lease addendum acknowledging the governing documents of the community association and the tenant’s agreement to be bound by those provisions and, further, that the tenant’s failure to comply with the association’s governing documents is also deemed a breach of the lease. We also recommend your community’s board of directors should also be given authority to evict a tenant from the property in the event he or she violates the governing documents. As an alternative, many of our clients amend their governing documents to prohibit leasing all together or to create a cap on the number of homes which may be rented at any given time. There are a number of considerations to take into account when deciding to restrict and/or regulate leasing including, permitting exceptions to any prohibition or cap for financial hardships, military deployment and family planning purposes, as well as whether to grandfather existing investor-owned homes.
We would be happy to discuss the benefits of amending your community’s governing documents to regulate short-term rentals and leasing in general. You may contact any of our attorneys to request an evaluation of your governing documents and applicable State, county and local laws to determine whether prohibiting or regulating short-term rentals and other leasing arrangements would benefit your community.