Article Courtesy of JD Supra
By Adrianna Northrop
Published February 5, 2023
Short-term rentals have become a popular way for homeowners
to earn extra income when they are away from their property. Websites like
Airbnb and Vrbo have made short-term rentals easy and accessible. For homeowner
associations (“HOAs”), management companies, and other community members;
however, these short-term rentals present various problems.
Will insurance cover damage caused by short-term rental guests?
When short-term rental guests are invited into a community, they might have
access to common amenities such as pools, gyms, and elevators. These
non-residents could disregard community rules and restrictions or damage
property including common amenities or the property of other owners. This leads
to questions about whether the insurance policies of the Association and the
owner cover such incidents.
Without coverage, the HOA may bear those costs, which might also lead to an
increase in the HOA’s insurance rate. Many insurance policies exclude costs
arising from accidents caused by short-term renters or commercial uses or
contain provisions that would deny coverage in some instances.
HOAs should determine whether their insurance covers such events. They should
also consider imposing limitations on short term rentals that prohibit use of
the amenities and common grounds, require proof that the homeowners’ insurance
policies contain such coverage, and name the HOA as an additional insured.
Mitigating risks associated with short-term rentals.
Based upon the location of the HOA, state law, and other regulations affecting
its community, the HOA may not be able to outright prohibit short-term rentals
or restrict the behavior of tenants as desired. On the other hand, HOA
restrictions and limitations are often upheld if they exist for a legitimate
purpose, are applied in a non-arbitrary manner, and are not barred by statute.
For example, an HOA could require that a homeowner obtain prior approval from
the HOA of its lease form, provide the HOA with a signed copy of each lease
acknowledging tenant compliance with the subdivision rules and rules for common
areas, and require proof of insurance coverage. The HOA should provide for the
imposition of fines as assessments upon homeowners who fail to comply with the
restrictions, including failure to enforce compliance with the restrictions by
their tenants, and stipulate that the homeowner is responsible for all damages
related to short-term tenants.
HOAs and management companies should consider consulting an attorney to
determine how short-term rentals might impact their community, how their
insurance policies might apply in the event of damage, and how to mitigate risks
associated with short-term rentals by its homeowners.