Airbnb: Hard and Fast Rules for Short-Term Leases
The City and County of Denver assert more than 65 percent of Airbnb hosts are properly licensed
I’ll begin by saying I firmly believe the Airbnb and VRBO models are here to stay. Like many others, I have closely followed the changing regulations regarding these short-term rentals, which are defined as residential properties available for rent for a period of one to 29 days.
I also applaud Denver’s early attempt to regulate the short-term rental market. In other cities, where the short-term rental market is already well established, getting hosts to comply with new regulations has proven very difficult. The City and County of Denver assert that more than 65 percent of hosts are properly licensed – which puts Denver among the nation’s highest compliance rate. While I won’t attempt to outline all the rules and regulations surrounding the short-term rental market, I will tell you the cornerstone of this legislation requires that “The Property” must be your primary residence, and “The Host” must obtain a Lodger’s Tax ID. Additionally, hosts are also responsible for collecting the 10.75 percent Lodger’s Tax fee.
But there's another perspective. My company, InTransit Properties, is in the property rental business, both short- and long-term. We have the necessary business licenses and required Lodger’s Tax License. As a company, we do not participate in the Airbnb or VRBO models. In fact, our lease agreement specifically forbids such activity.
There’s very good reason for this decision.
Here’s a true story: We were representing an individual owner in an attempt to lease a beautiful, completely furnished apartment. In keeping with our business model, we were advertising this apartment for a term of three months or longer. A couple looked at the unit, and after much deliberation, decided they wanted to sign a one-year lease. The owner was thrilled. We ran credit and background checks, called employers and landlords, and verified funds. In short, we did everything possible to vet this nice young couple. He had a job that required travel (or so the story went), so they were happy to have a fully furnished, lock-and-leave living situation.
They moved in, and in the first week we had the normal maintenance calls for things like touch-up paint, help with getting cable installed and a request for extra keys. Then in the second week, unbeknownst to us, they listed the apartment on Airbnb.
A nightmare ensued.
First came an angry call from the home owner’s association of the building, demanding we cease all Airbnb activity. Not only was it extremely disruptive to the other owners, but it is also strictly forbidden in the bylaws of the HOA. After a quick search on the Airbnb site, we discovered the sad truth; our tenants were indeed leasing the property on Airbnb and making a handsome profit off our lease. To make matters worse, the property was fully booked for four months.
We called our attorney and found out that this happens all the time.
The “lovely young couple” disappeared and we were left to clean up the mess, including canceling reservations, proceeding with legal eviction and paying hefty fines to the HOA. And, the once-beautiful apartment was destroyed.
This unfortunate situation did not benefit the Airbnb tenants who signed up for a “stay” only to lose their deposit money and suffer the inconvenience of not having anywhere to land. It did not benefit the city, as it wasn’t able to collect any taxes or fees as this unscrupulous couple did not have any of the required licensing. It certainly did not benefit the owner of the apartment nor did it benefit us as a company. The only winners were the dishonest tenants, who have probably moved on to another “advantageous lease.”
This is a complex problem with no easy answers.
It reinforced our decision to not participate in the short-term rental market as well as assuring we have strong language in our Lease Agreement forbidding any such activity. It has also led us to become very diligent about searching the Airbnb and VRBO sites to attempt to spot illegal activity as it relates to the properties we represent. Indeed, we have spotted such activity but were able to put an immediate stop to it before any harm was done. Although the story above was a direct attempt to skirt the law and make a profit, we find that most tenants are simply ignorant of the rules and not deliberately dishonest.
And so, the discussion continues. We still firmly believe the Airbnb and VRBO models are here to stay. The models also work well for many, as time has shown. However, keep in mind the arrangements are not always as they seem on the surface, and whether you're looking to engage in short-term rentals as a lessor or a lessee – dig a bit deeper and know with whom and how the short-term rental is made available.
You could be cleaning up multiple messes, including your own, if the arrangement has not been properly vetted and registered.
Holly Toenjes is president of InTransit Properties and recognized as a seasoned leader in the Denver-area real estate scene. Well known to bankers, investors, buyers, renters, sellers and the business community at large, she possesses an uncanny ability to asses virtually any given real estate puzzle – and solve it effortlessly. She has sat on a number of business, philanthropic and artist boards and currently invests in and navigates a wide variety of real estate transactions from luxury properties to condominiums, to mountain homes to the rentals.