Airbnb is the newest online vacation rental service which connects travelers around the globe with hosts of residential properties who desire to rent out their entire property, or a single room in their home, to guests for a limited period of time. The way Airbnb works is that hosts register with the company and create a profile, complete with photos and information about the accommodations, including the location, capacity, size, features, availability and pricing. The Airbnb guest, who also registers on the site, can then book the property if available, and submit payment directly through the website if the host accepts their booking. Hosts and guests operate on a ranking system based on prior experiences and reviews written by hosts and guests. Airbnb retains a portion of the total transaction cost as a service fee for acting as the middleman host website. It is important to point out that hosts listing their property on the Airbnb site are not required to be the title owners of the property, which means that lessees of a property can sublease their room to an Airbnb guest without their landlord’s knowledge. This could create issues for landlords who expressly restrict any assignment or subletting of the premises in the controlling lease agreement, and could result in an unexpected eviction notice to the current tenant. Many of my friends are Airbnb hosts, and have also acted as guests in booking lodging in other countries and cities during their travels. The overall experience for most of them has been very positive, and it’s an easy way for them to make some additional money. While I believe the Airbnb idea is novel, there are a number of real estate legal issues that are triggered by acting as an Airbnb host. This article addresses a few of the major legal concerns under California law with respect to Airbnb hosts, and more specifically, relative to the San Diego area. Local rules and regulations may differ with regards to some of the issues presented in this article for hosts outside of San Diego County, so I would encourage the reader to review their local rules.
1. Independent Contractor & IRS Tax Considerations
Under the company’s terms of service, each Airbnb host is deemed to be an independent contractor. The company states that it collects an IRS W-9 form from all U.S. hosts who list their property on the website. As an independent contractor, Airbnb hosts are responsible for reporting rental income to the IRS on their tax returns. Pursuant to the IRS website, if you use a dwelling unit as your home and rent it out for 15 days or more during the year, you must report all your rental income on your tax return. The expenses should be divided between the rental use and personal use based on the number of days allocated for each purpose. However, if you use a dwelling unit as your home and rent it less than 15 days per year, then your property is not considered to be a rental, and you are not required to report the rental income and rental expenses on your tax return. It is unlikely that hosts on Airbnb are aware of these IRS regulations, nor is it likely that they keep track of the number of days and total rental income received per year. This could potentially cause issues down the road if a host is ever audited by the IRS.
2. Insurance and Risks
In the fine print of the terms of service, Airbnb provides insurance coverage in the amount of up to $1,000,000 for physical loss or physical damage to “covered property” of an Airbnb host by an Airbnb guest or invitee of the guest. Covered property under the policy specifically includes real property and buildings for which the host has an insurable interest, and any personal property (with exceptions) owned by the host or in the possession of the host or under the control of the host. It is important to point out that Airbnb’s insurance would not protect a lessee of a property acting as a host for any real property damage caused by guests, which could create additional problems for a landlord if they are unaware the lessee is subletting the property. Many items of personal property are excluded from Airbnb’s coverage which include: money and currency; land, water or other substance in or on land (excluding gardening, pavements, roadways, fill beneath property, enclosed tanks, or pipes); animals, livestock, pets; watercraft, boats, yachts, jet skis (excluding house boats); vehicles; and fine art (if the art cannot be replaced with other of like kind and quality). Thus, any theft of money, pets, watercraft, vehicles, or fine art that is one of a kind, or any damage or injury to the previously named personal property, would not be covered by Airbnb insurance. Hosts should take care to keep any currency or other expensive items of personal property locked in a safe or removed from the premises during the guest’s stay, and maintain possession of all car keys.
The most significant legal issue facing Airbnb hosts is the issue of personal liability for injury to persons (including invitees of the guest) caused while staying in the premises. Airbnb’s insurance policy does not provide any protection whatsoever for premises liability. Hosts should carefully review their existing home insurance policy to see if it covers personal injury to guests or invitees. Most homeowner policies do not provide comprehensive liability. Under California law, residential landlords are bound by Civil Code section 1714(a) which imposes the duty of ordinary care on the owner in the management of the property. Airbnb hosts would likely be held liable for injuries to guests caused by their negligent maintenance of the property, negligent failure to repair defects on the property, or failure to warn of hidden dangers. Airbnb hosts cannot escape liability for injuries that occur in the premises simply by having the Airbnb guest sign an exculpatory agreement or liability waiver. Exculpatory agreements and liability waivers for premises liability are void and unenforceable, and against public policy in California. Airbnb hosts have a duty to ensure that their property is free from any dangerous or hazardous conditions that could foreseeably cause injury to guests, or any invitees of guests during their stay. Airbnb hosts should be aware that their personal assets (ie/ home, bank account, vehicle, paycheck) would likely be vulnerable in the event a guest files a lawsuit against them for injuries sustained in the premises. Civil lawsuits take several years to complete and the costs are significant. Airbnb hosts should take care to keep their property in tip top shape, and it may be advisable to speak with an insurance broker to discuss the possibility of obtaining general liability insurance if their homeowner’s policy does not provide coverage.
3. Local Taxes and Regulations
In the City of San Diego, the Office of the City Treasurer imposes something called a Transient Occupancy Tax (TOT) and Tourism Marketing District (TMD) assessment. These assessments are applicable to all properties rented to “transients” which is defined as a person who exercises occupancy or is entitled to occupancy for less than one month. The property owner is responsible for collecting and remitting the TOT and TMD assessment, and for obtaining a Transient Occupancy Registration Certificate. In the City of San Diego, the monthly TOT assessment is 10.50% of the taxable rent, and the TMD assessment is 0.55% of the taxable rent for lodging with less than 30 units. Late payments are imposed for failure to pay these fees on time. Airbnb hosts rent their property to transients for short periods of time, and would be responsible to pay the TOT and TMD fees.
Additionally, the City also requires home based businesses, self-employed persons, and independent contractors operating in the City limits to obtain a Business Tax Certificate. The annual business tax fee is $34, plus an additional one time $17.00 zoning use clearance fee to determine whether the use is permitted to operate in the requested location, plus a $1.00 State mandated fee. As an independent contractor under Airbnb operating out of your home, Airbnb hosts would be required to file for this certificate.
A third local requirement that the City applies is a Rental Unit Business Tax Fee for anyone who owns, operates, or manages the rental of any residential real estate or portion thereof. “Residential real estate” includes single family residences, apartments, and a property advertised or otherwise held out for lease or rent for more than six days during the calendar year. (San Diego Municipal Code 31.0305(h)). The annual fee for a single family residence, condominium, or apartment with one unit is a $50.00 base fee, plus $5.00 per unit fee. Airbnb hosts that rent a room in their home, or their entire home for more than 6 days out of the year would be required to pay this Rental Unit Business Tax.
In addition to the foregoing taxes, there are local zoning ordinances that restrict vacation rentals. Under Chapter 13, Article 1, Division 4 of the San Diego Municipal Code, Multiple Dwelling Units located in Residential- Multiple Unit Zones (MAP), must enforce a 7 night minimum – as all non-owner occupants must occupy the dwelling for a minimum of 7 consecutive days.
4. Zoning Issues
On September 12, 2007, the San Diego City Attorney published a Memorandum of Law regarding Regulation of Short-Term Vacation Rentals in Residential–Single Unit (RS) Zones. In this Memorandum, the City Attorney reviewed the applicable Municipal Code sections and came to the conclusion that short-term vacation rentals are not currently regulated or prohibited in single-family residential zones. Under the defined terms of the Code, a “dwelling unit” that is rented out in its entirety as a short-term rental is not a hotel or motel. “Hotel/motel” is defined as a building containing six or more guest rooms that are rented for less than 30 days and used or designed to be used for sleeping purposes. A “guest room” is further defined as any rented or leased room that is used or designed to provide sleeping accommodations for one or more guests in hotels, motels, bed and breakfast facilities, private clubs, lodges, and fraternity or sorority houses. The City Attorney concluded “the rental of an entire dwelling unit does not constitute the rental of guest rooms, and thus, does not qualify as a hotel or motel under the restrictions.” Additionally, there are no current regulations under the Land Development Code that prohibit short-term vacation rentals in single family residential zones, and no minimum stay requirements have been adopted, but given the popularity of short-term vacation rentals through Airbnb, I would expect that new laws will eventually be enacted to address this issue. Any new San Diego ordinances will take a significant amount of time to become law because they must be drafted and then approved by local community planning groups, the planning commission, and finally the city council (and the California Coastal Commission if the laws are being implemented in coastal zones).
I have been told about situations where a property was listed on Airbnb, the guest booked the listing and paid the fee, and then showed up at the property address expecting lodging, but instead discovered that the owner had no knowledge of the Airbnb listing. I do not know how Airbnb pre-screens their hosts, if they do so at all, but preventing fraud and abuse of their system should be a higher priority, and at a minimum they should open an investigation. The guests were out the money they paid up front, were left to find new accommodations, and could potentially go after the innocent homeowner for fraud in small claims court depending on the amount of money involved. In these situations, the homeowner would have the burden to prove they had no knowledge of the profile, and did not accept the payment of money. This could create a difficult situation for both the unknowing homeowner and the guest.
Airbnb hosts face another serious threat in the event a guest overstays the length of the rental term. California law tends to favor tenants, and the eviction process is both time consuming and costly for the landlord. Depending on the length of the guest’s stay, an Airbnb guest would likely be deemed to be a periodic tenant, which means the host would be required to comply with California notice and eviction laws. An Airbnb guest could potentially live rent free for several months in the host’s home until the eviction process is complete. The old rule of thumb is that it’s easy to invite someone into your home, but it’s a lot more difficult to get them to leave. That rule especially applies here where Airbnb hosts only expect a guest will stay for a short period of time, but they end up staying for several months rent free. The notice and eviction process in California is very specific and must be followed precisely by the landlord in order to successfully evict a tenant. If a host encounters this situation, it would be advisable to contact an attorney immediately to initiate the eviction notice to get the tenant out as soon as possible.
For most Airbnb hosts, the short term rental of their property is a successful business that provides them with a source of income, and a way to connect with travelers from around the globe. Many of the issues addressed in this article are the “worst case scenario” situations that we, as lawyers are trained to look for, however they are legal issues that all hosts should be aware of before making the decision to rent out their property to strangers.
Please note,this post does not constitute legal advice and is not a substitute for the professional judgment of an attorney. For specific questions related to this article or your particular legal situation, please contact the Law Office of Ashley M. Peterson, and we would be happy to answer whatever legal questions you may have.