PART I OF III
Your neighbor has decided to rent his unit out on weekends when he is out of town. You worriedly wonder: How will this affect you? Is it even allowed in your condominium? Will it have any effect on the value of your condominium unit? The dawn of the brave new “AirBNB” era (short for “air bed and breakfast”) is upon us, raising many new questions and concerns for condominium co-owners. This blog post (the first in a three-part series) will examine the basics of the AirBNB issue and the possible problems it presents for condominiums.
The popularity of websites such Airbnb, VRBO, FlipKey, and HouseAway has seen a recent boom due to the increased demand for short-term rental AirBNB’s. Such rentals usually last for a period of less than thirty days, and sometimes less than a week (e.g., a weekend getaway, or a business trip). Sometimes the property owners stay at the unit during the rental period, but many times they do not. These transactions often involve an agent (such as the aforementioned website companies) who acts as intermediary between the property owner and the renter. The agent company may also perform other services or functions related to the rentals, such as cleaning and minor maintenance of the rental property.
The AirBNB is not an entirely new phenomenon. In fact, there are entire communities that have been dedicated to alternative/vacation home rental for decades, with minimal adverse impact. Such rentals can certainly provide benefits to property owners. AirBNB’s can provide co-owners with a steady stream of income while allowing them to maintain an asset that may appreciate in value in the long-term. Through careful management and agency relationships, AirBNB’s may also provide benefits to co-owners who might find themselves in exigent financial circumstances (e.g., a steady alternative stream of rental income in the event of a job loss, relocation, the death of the owner, etc.). AirBNB’s can be a unique and valuable alternate to the traditional lodging experience for many travelers. Most Air BNB’s are located within large municipalities or vacation destinations. Generally speaking, they are less expensive and provide more flexibility than a hotel or motel. They often allow for preparation of meals on-site, separate bedrooms for family members, and an additional level of privacy not afforded in public accommodations.
Nevertheless, there are certainly some legitimate concerns that the presence of AirBNB’s can raise in many condominium communities. Most condominium unit owner’s insurance policies will not cover damage caused by renters, and very few renters’ insurance policies cover AirBNB’s. Most of the agencies that handle AirBNB’s maintain insurance policies for the transactions, but the coverage is extremely limited and certainly would not include common elements appurtenant to the condominium unit. Likewise, the condominium association’s master insurance policy will not cover these types of renters, nor will it cover many of the liabilities created by AirBNB transactions.
There is also the concern that AirBNB transactions inherently involve persons who (due primarily to the short duration of their expected stay) have very little concern about or investment in following the community’s bylaws, rules and regulations. In addition to the increased general likelihood of bylaw/rule violations, there is the possibility of increased traffic and noise concerns, and perhaps increased incidents of property damage as well. Indeed, the sudden proliferation of AirBNB’s can create an undesirable “transient” environment even in the most well-established neighborhoods. Finally, there is the danger that AirBnB activity, if allowed to grow uncontrolled in a community, could cause the total number of rental units to rise to a level where mortgage financing and FHA certification for the Condominium are jeopardized. All of these concerns have caused the meteoric rise of the popularity of AirBNB’s to spark real fear and concern in the hearts of many condominium communities to a degree that would have been unthinkable only 10 years ago.
So, what can the modern condominium association in 2017 do to control AirBNB’s? Significantly, the AirBNB phenomenon may already be adequately addressed by many communities’ exiting condominium bylaws. Most condominium documents in Michigan do not allow rentals for periods of less than six months. In Michigan, the Court of Appeals has already determined that STRs are “commercial activities” for the purpose of zoning ordinances and neighborhood associations. See Bauckham, et al v James and Linda Skarkin, et al., (Case No. 15-054455-CH, 48the Judicial Circuit Court, December 30, 2015, and April 5, 2016). Many condominium communities disallow commercial activities in units, and some communities do not allow commercial activities in areas zoned for single-family residential use. Thus, AirBNB’s are already restricted in condominiums that contain such minimum leasing terms and prohibitions against commercial activity in their bylaws.
In Part II of this series, we will discuss the restrictions and regulations that many communities are enacting to control, manage or ban short-term Air BNB rentals, including bylaw amendments. In Part III, we will examine how the State of Michigan is addressing the issue legislatively, and how such legislation might impact condominium associations.