By BRYAN HUNT
Innovative and very popular technologies and services have created new opportunities for real estate owners to generate income by renting their properties. Companies like Airbnb, Inc., Craigslist, Inc. and HomeAway. com, Inc. now provide the opportunity to easily advertise houses, condominium units and other types of real property as available for temporary use online.
While the potential income from this type of property use can be enticing for property owners, renting does present several legal issues to consider, including whether a property may be used as a rental; local government regulations; use restrictions in condominiums, subdivisions, and planned communities; and other sources of legal requirements.
Local government and the regulation of real property
Local government entities (e.g. cities, villages and townships) generally have the authority to enact laws to protect the public health, safety, morals and general welfare of their communities. One form in which this jurisdiction is exercised is through the establishment of zoning ordinances. These zoning ordinances are meant to restrain certain areas of land to specific types of uses. Frequently, for example, bed and breakfast operations, hotels and motels are uses that are not permitted in an area that is strictly zoned for single-family residential use, at least not without first receiving special permission, or a “variance,” from the government entity. Therefore, in certain circumstances and arrangements (especially when the property is rented on a short-term basis and/or to multiple persons simultaneously) renting a home you own could be in violation of a government’s zoning and property use ordinances.
Local governments may have other requirements for property owners who wish to rent their property, like a license or registration with a government office. Renting could also require compliance with certain building code standards and housing regulations. Because these requirements can vary greatly from one locale to another, speaking with all relevant local government officials is always a good idea prior to renting property.
State law, of course, is also a factor. For instance, Chapter 5323 of the Ohio Revised Code requires “residential rental property” to be registered with the county auditor in certain circumstances. Property in a condominium, planned community or subdivision Ohio law requires condominiums and planned communities to have governing documents filed with the recorder of the county in which they are located. Older residential subdivisions often have similar instruments of record. While Ohio law requires these governing documents to contain certain basic terms, they almost always include additional community- specific terms called covenants and restrictions that regulate how properties in the communities can be used. Often, these types of residential communities institute restrictions specifically targeted at the use of properties as rentals. Before renting any property in a condominium, subdivision or planned community, the governing documents need to be reviewed to determine whether that type of use is restricted, and if it is, the scope of the restriction. For example, a restriction in a condominium’s declaration might prohibit a unit from being used as an overnight bed and breakfast but allow for rental agreements of a year or longer. Other communities might require an application and approval prior to renting, while others may prohibit the practice in any form.
Violations of local ordinances, or community governing documents
The first action generally taken against a property owner who has violated a local ordinance, requirement or community governing document will simply be a demand to stop the nonconforming activity or to come into compliance. The property owner will then typically be given a period of time to do so. If the property owner continues to rent the property despite demands to stop, or fails to take the necessary action, the consequences can be substantial.
For violations of restrictions in governing documents, an association (the managing entity of a condominium, subdivision or planned community) can seek a court order prohibiting the activity, sue for damages, including attorney fees, and sometimes even institute eviction proceedings.
Penalties for violating local zoning regulations and other ordinances can be even more severe. The usual consequence is some form of financial penalty or assessment. But in some extreme circumstances, property owners could wind up facing criminal charges and additional penalties for such violations.
In these types of situations, there are often viable defenses. Property owners may want to consult with an attorney if they receive notice that they are violating a community restriction or local ordinance.
Other contracts relating to property (mortgages and insurance policies, for example) may have terms that restrict or prohibit renting. When considering becoming an internet landlord, these documents must also be reviewed to ensure that renting a property does not inadvertently result in some form of liability from a breach, default or loss of insurance coverage.
In addition to the topics covered here, renting property raises issues related to insurance, taxes and landlord/tenant law, just to name a few. Attorneys can help property owners assess any legal implications associated with property rentals. Anyone with questions is encouraged to consult a professional prior to marketing their property as a rental.
Bryan Hunt, an attorney with Loveland Law, LLC, provides an overview of possible issues that should be considered when renting one’s home and when to consult an attorney.