California Law Regarding Short Term Real Estate Rentals

By September 13, 2016 Blog No Comments
California Law Regarding Short Term Real Estate Rentals

The surge in popularity of short term rental companies has led to conflict and legal uncertainty for tenants, landlords and neighbors. Websites, such as Airbnb and VRBO, offer the opportunity for travelers or others seeking short term occupancies to access various lodging options, often at a significant discount compared to more traditional forms of lodging. Real estate owners and tenants have seized upon the trend to earn extra income from leasing their properties.

But renting a property on a short term basis presents significant issues with respect to local ordinances, lease agreements and other laws targeted specifically to the tourist industry. California has begun to address these arrangements through a number of court cases and municipal laws designed to regulate or outlaw these types of rentals. As described below, there are several potential liability issues for property owners engaged in temporary lease arrangements that call into question the viability of these short term rentals in the future.

Lease agreements and homeowner’s association rules. Most residential leases contain clauses that explicitly ban subleasing the property.  A sublease is created when a tenant rents his room to a third party when he currently occupies the property. California passed a law in 2016 that obligates hosting platform services to notify all subscribers with their service that listing their properties could result in legal action or eviction. In most states, leasing your property with one of these services would constitute a breach of the lease. Similarly, subletting your property may violate the rules and regulations of your homeowner’s association to which you are bound under the covenants, conditions and restrictions (CC&R) of the association.

Licensing requirements. Some California cities have effectively banned short term leases in heavily saturated tourist areas. For example, the city of Indio, has passed a law requiring that any individual that rents a room for short-term occupancy (defined as 30 consecutive days or less) obtain a business license. In San Francisco, short term lessors must have a business license as well, and can only rent the premises for a total of 90 days per year unless the owner resides in the rental unit.

Tax obligations. Most cities and counties in California have a tax on short term occupancy rentals of 12% of the daily fee charged to the occupant.  The definition of “hotel” in many counties is quite expansive and would presumably include owners listing their properties with these services. Property owners or lessors who do not pay these tourism taxes are potentially exposing themselves to liability for unpaid taxes.

Contact Shane Coons at 949-333-0900 or visit his website at www.ShaneCoonsLaw.com to find out more about his practice.

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