Airbnb—a
Threat or Opportunity for Landlords?
By Charles
P. Castellon, Esq.
CPC Law
© 2015, All
Rights Reserved.
The law has always struggled to keep
up with technology. Back in the 70’s,
the legal system was not ready to address issues stemming “test tube” babies
and currently, there are some gray areas involving digital assets in estate
planning. In
the still-young internet age, it will continue to be difficult for the legal
system to keep up. An interesting
example in the real estate world relates to tenants’ use of Airbnb to earn
money from their properties.
Airbnb is a wildly successful web-based
company that matches visitors seeking to rent a room with lodging
providers. What Uber is to the taxi
industry, Airbnb is to hotels. Recently,
a New York judge ruled to evict a tenant in a rent-controlled apartment for
using Airbnb to rent three of the sprawling apartment’s four bedrooms to
guests. The tenant earned an astounding
$61,000 in nine months of rental activity.
The judge ruled this subleasing
violated the lease and New York’s and rent-controlled housing laws. Though there are unique facts to this case
and New York landlord-tenant laws are very different than Florida’s, all
Florida real estate investors should carefully consider how the Airbnb
revolution may affect them.
Perhaps the first and most important
issue Florida landlords should consider is liability. The constant “revolving door of strangers”
that alarmed the New York tenant’s neighbors should be a real concern to
Florida property owners. As title owner
to the home, the landlord is likely to be held liable in court for any harm an
Airbnb guest may commit while using the property. If a guest renting one room were to sexually
assault a guest in another room, it is a near certainty the victim would sue everyone--the
owner, tenant and perpetrator and try to collect damages against any or
all. Which one is most likely to have
assets the victim could pursue?
A similar liability concern involves
an injury to the Airbnb guest in the property.
Though it’s not advisable, some investor owners don’t carry hazard
insurance on their free and clear properties and instead suggest or require the
tenant to get a renter’s policy. If the
owner does have insurance, the next risk is whether the carrier may deny
coverage based on the “commercial” use of the home effectively being operated
as a hotel, or deny the claim for some other reason.
Fortunately, in our market economy, every
problem leads to an opportunity for profit by solving it. The “sharing” economy has spawned insurance
pools to cover this new category of risk.
The next question is whether the
landlord wants to allow the tenant to make money off the property. Some owners may not mind and would feel more
secure about collecting the rent if the tenant has an additional income
source. Others may demand a piece of the
action if there is extra income to be earned.
Most landlords would likely be swayed by the liability concerns and as a
result, try to prevent the sub-leasing.
A landlord may draft a lease clearly
prohibiting using the property as a hotel with heavy penalties, but enforcement
may be difficult. Periodically
monitoring Arbnb for listings of the investor’s properties may be one answer,
but other sites are likely to arise in the wake of Airbnb’s success, just as
Lyft came along to compete with Uber for passengers. With time being the most scares resource for
most investors, trying to root out such rentals (that may never occur) on all potential
platforms cannot be considered a wise investment.
The best solution to this potential problem is
a well-written lease with a heavy hammer of penalties for violations for
landlords who don’t want their properties used as hotels. For landlords who don’t object or want to
participate in the money-making opportunity, a different lease can be
written.
No matter what, the tenant should sing an air-tight
indemnification agreement in favor of the landlord. This means the tenant would fully cover the
landlord in the event of a claim. Of
course, most tenants will not have the money to protect the landlord, so
insurance coverage will be essential.
The first step for landlords is to be aware of developments
in our society such as Airbnb and how it affects them. The next is to make a well-considered
strategic plan to contain the risk of this web-based platform and either
prevent its use or share in the profits.