With Cleveland’s vibrant restaurant scene, buzzworthy sports teams, and recent spot on National Geographic’s “Top Places to Visit” list, the city has made strides in becoming a getaway destination. Perhaps the spike in tourism has sparked an “ah-ha” moment, and, in an attempt to cash in on Cleveland’s favorable reputation, you have decided to spruce up an old bedroom to rent on Airbnb or other property rental services. While the prospect of a quick extra income can be tempting, there are numerous legal concerns to consider before you list your property. Here are the important questions to ask before completing your renter’s profile.
1. Are you renting?
If you currently rent your apartment or home, rather than own it, take the time to look through the hefty stack of papers your landlord had you sign prior to move-in. Keep in mind your lease is unlikely to contain specific references to Airbnb, but instead include information about utilizing your property for short-term rentals or “subletting,” which means the tenant rents his or her property to someone else during his or her lease. Your lease may allow subletting, directly prohibit it, or require a signed agreement with your landlord. In addition to thoroughly reading through the paperwork, consult with your landlord to make sure you won’t be creating any violations, and be prepared for the possibility of giving up a percentage of profits.
2. Are you part of a homeowner’s association or condo-owner’s association?
Once again, the document you signed lays out the regulations. If you are a part of a homeowner’s association or a condo-owner’s association, locate the governing documents and take time to read them thoroughly. The terms of these documents may explain whether you can list your unit on Airbnb, and if you can, how long you can do so, among other restrictions.
3. Are you violating zoning provisions?
Every city’s zoning ordinances are unique, so you need to fully review the provisions affecting your home. You may be in an area that your city has zoned to accommodate only single-family residences, exclude use of a commercial property for commercial activity or require a business license. In addition, the zoning code may determine how many renters or rooms rented you may have simultaneously. There could also be regulations for how long you may rent to any one person, whether you must occupy the home while renting it out, or if you can rent your entire home to guests. If you are prohibited from renting the property, you can potentially apply for a variance with the city that will allow you to rent through Airbnb. Keep in mind you may be penalized if caught violating your city’s ordinances.
4. What if someone gets hurt?
Let’s say you successfully list your property on Airbnb and someone gets injured while staying at your place. If you think it will solely be your guest’s fault regardless of what occurred, think again. You can still be held liable as the tenant or the owner in this scenario. You might think nothing serious will happen, but remember, you know the unit better than anyone, including a loose handrail or extra step outside the door. Even if you have homeowner’s or renter’s insurance, your policy may not cover injuries sustained by tenants or incidents occurring on your property due to conducting commercial activity. Consider your insurance policy and the possibility of piling medical bills before you decide to list your property to avoid a financial disaster.
5. Do you know how to account for rent received for tax purposes?
If you are renting rooms within your home in exchange for cash, you need to know what constitutes income; otherwise you can run into problems with taxing authorities. Determining tax consequences is not as simple as it sounds, because you will need to consider factors like: (a) how many days of the year is it rented; (b) do you normally live there; (c) how much of your house are you renting; and (d) what expenses can you claim as deductions? In addition to the amount being considered income, certain city ordinances impose transient taxes for short term rentals. There may be other taxes that apply as well depending on your city’s ordinances. Regardless, you should fully understand the tax consequences prior to renting the unit to ensure compliance and prevent future penalties.
Although the idea of renting out your unit on Airbnb appears to be seamless, there are a number of factors to consider. Contact one of our real estate or tax attorneys today to see how these factors affect you and your potential rental unit.
