AVOID HOST GOTCHAS – Common Regulations and Laws Facing Short-Term Rental Hosts

 

By Douglas Katz –  02/27/23

To say that the short-term rental market has boomed in the last few years would be a gross understatement.  What used to be buying a home or using an existing property for extra income has become a challenging environment with greater competition, more challenging economics and rapidly changing and restrictive laws, rules and regulations in many states, counties and municipalities.  The latter can be the most difficult to manage as it can reduce or eliminate the options for short-term rentals.  If there is no plan B with a well planned exit strategy or pivot to long-term rentals, the outcomes can be disastrous.

Categories of Regulation

Most local governments’ concerns about short-term rentals fall into at least one of the following categories:

  • TAXES – This includes but is not limited to collection of lodging and sales tax on these short-term rental stays
  • GOOD NEIGHBOR LAWS – This includes mitigation of traffic, parking, noise and other impacts on the surrounding neighborhood
  • SAFETY – This includes compliance with life/safety standards that are commonly applied to other types of lodging establishments (such as hotels, motels and bed-and-breakfasts)
  • HOUSING AVAILABILITY – This concerns the how short-term rentals further exacerbate the affordable housing shortages that many municipalities struggle with.  In their eye, every short-term rental, while making tax revenue for the municipality, takes away a possible home for long-term residents of the community.

I cannot cover the new and existing framework of regulations around the county because it is too vast, complicated and expansive.  Additionally, it would be impossible to keep current as they are ever changing.  I did find a list from back in 2020 from an article published by Lodgify which gives some great examples of what you could see if you are moving into the short-term rental market

Short-Term Rental Regulation Examples
  • Washington State Examples:
      • Ilwaco’s Municipal Code allows vacation rentals as a conditional use in single-family, residential zones and as a permitted use in other specified zones, and sets minimum standards for rentals to maintain in Chapter 15.41.
      • Leavenworth’s Municipal Code Chapter 18.52, Section 120 allows “bed-and-breakfasts” as a conditional use, so long as the owner resides on the premises during a visitor’s stay, and the operation meets other standards.
      • Poulsbo’s Municipal Code Chapter 18.70 (Residential Districts), Section 070 states “an ADU may not be used as a short-term rental and must be rented for a minimum of 90 days or more.”
      • San Juan County’s Municipal Code Chapter 18.40, Section 270 establishes standards for use of single-family residences and ADUs as short-term rentals.
      • Spokane’s Short-Term Rentals webpage describes that city’s standards for two categories of short-term rentals:
          • Type A, which requires an administrative permit, where bedrooms or an entire dwelling unit can be rented but commercial meetings are prohibited
            Type B, which requires a type III conditional use permit, where bedrooms or an entire dwelling unit can be rented and commercial meetings are allowed
      • Westport’s Municipal Code Chapter 17.22 on Vacation Rental Dwellings addresses its standards and permitting requirements for short-term rentals.
  • Other Examples:
      • Boulder’s (CO) Short-Term Rentals webpage includes a link to a short-term rental license application packet.
      • Durango, Colorado maintains a Vacation Rental Information webpage that details a relatively strict rental code, including a maximum number per block/intersection for designated residential areas. The city requires a rental license, which can be revoked if the Land Use Development Code is violated. The Land Use and Development Code, Section 2-2-3-4, Subsection G outlines the variety of standards vacation rental homes must meet. For more information on the city’s regulatory strategy, check out the following presentation made by Durango City Planner Phillip Supino: Preserving Housing through Short Term Rental Regulation
      • San Francisco’s Office of Short-Term Rentals webpage includes a lot of links to good information about local requirements. In order to legally rent a home as a short-term rental (less than 30 nights), a property owner must meet several conditions, including the following:
          • You must be the permanent resident of the unit that you wish to rent;
          • You must register as a business;
          • You must become a certified host; and
          • You may rent a portion of your residence for an unlimited number of nights if you (the owner) are also present, but there is a maximum of 90 unhosted nights per calendar year.
How to plan for and manage your short-term rentals

To be compliant with the short-term rental requirements for most municipalities, you definitely need to know Cities and counties may require short-term rentals to register and obtain at least one license or permit to operate. These may include the following:

  • Prohibitions or limitations – Are there any straight up prohibitions that mean that you cannot rent your property in the intended mode?  Some municipalities have limits on short-term nights or even rules governing the type of property.  New York City, for example, just passed a law prohibiting the rental of units in multi-family properties where the owner does not live in the property as a primary resident. Yeah, it sounds confusing because it is.  Know the facts and have an idea how the winds are blowing.
  • General business license: Some cities require all businesses to obtain a general business license (sometimes called a privilege or occupation license or a business tax certificate).  This is easy to obtain in most cases, but it does mean that you need to meet the requirements of that business type to get the license. For rentals, many operators need permits, inspections and fees fulfilled prior to and during operation, so this will require work and expenditure of resources.
  • Short-term license/permit: You may get your license, but expect to need a permit in conjunction with that to host guests.  This is where you will probably see most of the aforementioned cost.  The steps to obtaining a license/permit include but are not limited to:
      • Reviewing the local ordinance to check eligibility
      • Submitting an application
      • Providing any required documents (proof of property insurance, possession of property certificate (if applicable)
      • Paying a fee
      • Getting an inspection
      • Certificate of occupancy: States a legal use and/or type of permitted occupancy of a building.
  • Maintenance – Property owners are also responsible for ensuring their short-term rental properties are maintained in a safe and code-compliant manner.  Just because it is not a specific legal requirement does not mean it cannot trip you up.  This is less about keeping a property in a good condition, so basic maintenance and aesthetic appeal are rarely problems.  It is, after all, hard to rent a shanty.  Things like requirements for particular types of landscaping and plant life, color schemes for properties and other requirements for owners, especially where associations are part of the picture, can cause some challenges especially when they impact cost.
  • Other business requirements, especially when borrowing and vesting as a business, may include:
      • Registering with the Secretary of State
      • Obtaining an Employer Identification Number (EIN) from the IRS
      • Obtaining a sales tax permit
What you can and should do

In conclusion, if you are considering short-term rental regulations for one or more of the reasons described above, there is a lot to know.  What I recommend is research, research, research.  You need to know all of the requirements and regulations where you are operating to properly manage your strategy.  Many municipalities provide push updates if you subscribe, so this is not too difficult to get the information, but you need to act on it.  Ignorance will not be an excuse and while many hosts are skirting regulations now, I personally feel that a wave of enforcement is coming as municipalities realize their exposure by not doing so, especially where safety is concerned, as well as to make up for lost revenue from reduced transactions and lower values.