On behalf of Sayer Regan & Thayer of Sayer Regan & Thayer, LLP on Wednesday, October 3, 2018.
The rise in popularity of Airbnb has brought more choice, diversity and price points into the equation for people who love to travel. You can host your home or you can book someone else’s. It’s an idea that has revolutionized the travel and lodging industry. But, like other pioneers of industry, there are legal complications that can – and do – arise.
First off, Airbnb outlines on its website any legal and regulatory issues people should consider before hosting. At the crux of the legal issues lies the fact that different cities have different laws (often part of their zoning or administrative codes) that limit the ability for hosting paying guests for small periods of time.
In many cities, for example, you have to register, obtain a permit, or apply for a license before you list your property or book guests. For some types of short-term bookings, you may not be allowed to book them at all. Local governments enforce these laws differently, imposing fines and other penalties.
As you can imagine, the rules can get very confusing. Airbnb specifies that it continues to work with governments around the globe to clarify these rules so that everyone has a better understanding of what the laws are where they live.
In some tax jurisdictions, for example, Airbnb will handle the calculating, collecting, and remitting of local occupancy-tax for you. Occupancy-tax is calculated in different ways depending on the jurisdiction. Always have a qualified attorney review local laws before listing your home on Airbnb, or booking lodging at a home for that matter.
Airbnb in Rhode Island
Since 2015, Rhode Island law requires online home rental services to collect a 7 percent sales tax, 5 percent state hotel tax, and 1 percent local hotel tax. According to a September report issued through the Associated Press, Airbnb has collected $4.6 million in lodging taxes in Rhode Island since the tax law was updated in 2015. Airbnb reports it had 2,100 active hosts in Rhode Island as of July 1, 2018, and the hosts rented to more than 130,000 guests in the past year. Just prior to her naturalization ceremony, Chitnapha wrote to us to say, “Thank you so much for bringing me to today. My case was really hard, but you stayed by my side. I would not have today without your help. I am really thankful.”
Think Before You Rent
Many people approach Airbnb as an investment opportunity, renting out a room regularly in their homes to help themselves pay down the mortgage quicker. Some 2.5 million people have listed their properties—or at least portions of them—on Airbnb to date, earning an average of $20,000-plus a year.
It can certainly be tempting to rake in that extra cash, but for homeowners with mortgages, there are serious implications to consider renting out your space, says Forbes.
While unlikely that Airbnb hosting can place a homeowner in breach of their current mortgage contract, this doesn’t mean there aren’t many potential legal ramifications to consider. This can include violations in regards to homeowner-association policies or even a homeowner’s insurance agency. In a nutshell, hosting could equal liability for many people.
Before renting out your place, check with your town to see if there are short-term occupancy rules or licensing requirements on the books. Then ask your insurance agency if your policy covers these types of rentals and consider adding another layer of protection within your coverage. Yes, Airbnb does offer $1 million Host Protection Insurance, but it’s foolish to rely on this alone.
Let’s take a look at your future financial situation now. Let’s say you want to refinance your mortgage in a few years. While hosting through Airbnb wouldn’t preclude you from doing so, it could affect the interest rate you may qualify for. Not all lenders accept Airbnb-generated income on their applications, which means all the extra cash you’re making may not even count toward your total annual income, or debt to income ratio, for that matter. On top of that, if you rent out your property, a lender may classify it as an investment property, which also brings about higher interest rates.
In the end, there some risks—both financial and legal – that homeowners need to consider before renting out their properties. You don’t want to become legally vulnerable in a situation that could potentially harm you down the road.
Contact Sayer, Regan & Thayer toll free at 866-378-5836 or 401-324-9915 if you have run into legal problems with Airbnb. We would be happy to give you a free initial consultation.
These materials have been prepared by SRT for informational purposes only and are not intended and should not be construed as legal advice.