I recently discovered the money-saving option of booking a vacation rental directly from the owner of a condo on an online market place. It was a fantastic experience. I had a more personal experience than if I had stayed in a hotel. Most importantly, I saved a bunch of money. But one thing I didn’t consider as an end-user was “What will the neighbors think?” I honestly didn’t give them a second thought. But I can assume it’s not fun for community members who are now dealing with strangers — safety issues, noise and extra traffic — all because their neighbor has decided to make some extra money at home…well really, with their home.
In fact, isn’t that why residential areas were invented in the first place? Business should be taking place in a whole other district no? Or, should this new business opportunity trump the quiet enjoyment that is expected by everyone in every community? For a legal perspective on this new hot-button issue, David J. Byrne, Esq. from Ansell Grimm & Aaron, PC shared his thoughts on what condominiums and homeowner associations can do to keep their residents happy, informed and safe.
How can associations enforce short-term rental policies with lodging websites becoming so popular and so lucrative? “Assuming the violations can be proven, the recourse would be whatever is available under state statutes or under the governing documents,” said Byrne. He went on to say that you can go to the trouble of reporting to the site that the listing they are promoting is in violation with the bylaws of the residence. But there is not much incentive to the lodging site to be helpful. Byrne said that lodging websites “can choose to ignore you.” According to Byrne, the online company can list a rental that is going against a particular property’s bylaws. “It’s not illegal. The obligation to not do it is presumably created by a contract that the owner is a party to, not the website company,” he explained.
What can associations do to prevent owners from posting units for rent on these sites? “A lot of it would depend on the state. But you could get court orders that prohibit the owners that are doing it, and maybe get a court order that prohibits the website from taking the ad. But that might be a little more difficult,” said Byrne.
Since many bylaws prohibit home businesses and short-term rentals, one may be wondering how owners can get away with this at all. The ease at which there are work-arounds comes down to the security and anonymity of the owners in a particular association. It can be a lot trickier for owners to hide these online rentals in high-rises with key fobs at every entrance and car permits, than in free-standing condos, single-family homes or townhouses. “They shouldn’t be able to do it,” said Byrne. “The practical aspect of it depends on the community. If you’re in a high-rise building with controlled access and controlled garages it would be very difficult to do it. But if you’re in a regular suburban-type condo where there is really no security, then no one really knows who’s in your building.”
Can these unofficial renters be charged with trespassing? “Generally speaking, the owner has easement rights that are subject to the ability of the association to enforce rules and covenants. You have to get an order or some other prohibition of that particular thing. But the person who uses the key fob isn’t technically trespassing. He or she has the right to be there as far as he or she knows.” he said.
Does the document from the rental site give paying lodgers a right to stay? “It depends. If the association’s rules require a certain form or proof to be submitted to the board and it’s not there, the person isn’t allowed to be there. It’s like you drove in off the street and decided to go there,” Byrne said. But what if all this is happening while an owner is out of town? Can building management or security escort short-term tenants off the property? “Maybe,” said Byrne. “It depends on the state and the governing documents. You can treat the person as a squatter. If the building doesn’t have [the person’s identification] on file or a copy of a lease or some other document, you could make a credible case that the person is in off the street and you’re not going to let them in.”
What recourse does an association have against an owner who violates short-term rental restrictions and posts their unit on a lodging website? “Depending on the state statutes and the governing documents, you can get court orders, damages and attorney fees. Depending on the amounts that are awarded, which can be large, the person’s failure to pay means that they can be foreclosed upon and evicted,” said Byrne. Is there is dollar amount limit on these types of fines? “It depends upon the state. New Jersey, has a cap on the amount of fines that can be assessed for a particular violation,” he said.
But as Byrne noted, the high, daily profit from renting to lodgers can override any fear of getting caught and being charged a nominal fine. “Frankly speaking, fines can be ineffective. If you want to actually enforce the covenant, you have to enforce the covenant. Byrne said the attitude of some owners is that if they’re making enough money by violating the rule, they don’t care how much they are fined.
If this is the game plan of some owners, court may be the only route to meaningful enforcement. Byrne said, “If the board is serious about this and they really care that much about it, then they have to step up and do something real. You have to get a court order.” What would such a court order declare? That an owner broke covenant? “Yes. It would declare violation and set the punishment for continued violations,” said Byrne.
If an unauthorized short-term renter slips and falls in a common area of the association, is the association liable? “There are different laws that apply to a property owners’ obligation to trespassers versus people that are invited there. If the person is there and there’s no proof they’ve entered the property in a fashion that’s consistent with the rules, then they might be deemed a trespasser for purposes of tort law, and they might not be able to recover anything,” Byrne said. “If someone injured themselves inside a unit, they would make a claim against the unit owner,” Byrne continued.
It’s not all bad news when you break down the lodging website trend. Should some condos and HOAs who currently do not allow short-term rentals consider allowing their owners to put their units on lodging websites? “Legally it can be done. It all comes down to the capitalist aspect of this,” he said. Byrne added that it’s a good idea to ask yourself some questions: “What impact does it have on property value? Are your values better if people have more choices about how to handle their property? Or are your property values enhanced because you’re not allowed to rent to short-term tenants, thus maintaining exclusivity?
Associations that have owners in financial trouble will have to weigh the pros with the cons. “One community could be in trouble if people can’t pay their mortgages and can’t pay their assessments, and they are unable to rent their units on a short-term basis. Then they’ll be in foreclosure. The unit will be empty. I don’t know what’s worse — having empty units where the owners can’t pay their mortgage, or to have units that are occupied by temporary tenants who are otherwise good neighbors,” Byrne said.
Byrne also used the recent Super Bowl in Minnesota as an example of possible lucrative gains to owners who rented their homes out. “Guys from news networks could pay $5,000 to live in a condo for a week. It could present a hardship to neighbors, but how bad can it really be,” Byrne said. Quick rentals like that can represent several mortgage payments to a struggling owner.