The short-term leasing of properties, particularly vacation properties, has been a hot topic of discussion for the last several years. Leasing out a vacation property when not in use by the property owners has been done for decades to help defray the cost of maintenance, or even as a regular income stream to the owners. The explosion of short-term rentals like VRBO and AirBNB have expanded the market to a much wider audience which in turn has unearthed more issues. Anyone interested in investing in a property that they plan to offer on a short-term rental basis needs to be aware of those new issues.
There has been a recent trend of municipalities seeking to restrict the usage of short-term rentals by designating any rental of less than X number of days, as commercial activity. The commercial designation makes renting out property on a short-term basis a violation of zoning restrictions for most residential areas, and also opens the door to legal action by neighboring property owners if there are residential only deed restrictions on the property.
The Michigan Supreme Court dipped its toes in the water on this issue recently in Reaume v Township of Spring Lake, where the court determined that a single family home that was being used as a short-term rental was a “motel” under the Spring Lake Township ordinance, and thus was not able to be located within a residential only neighborhood. The court did not establish any overarching principals relating to short term rentals however, so the decision making on this issue is largely up to the local municipality.
There has been some push at the State level to address this issue, with House Bill 4046 of 2019 attempting to define short-term rentals as residential activity across the entire state, but the bill has been stalled out in committee for some time now.
In more built-up vacation areas, purchasing a condominium unit to use as a short-term rental has become very popular, but that has led to some pushback from owner occupiers within those condominium complexes.
In some ways, an apartment style or townhome condominium is the perfect vacation/short-term rental property. Most often the grounds and the structure itself are maintained by the association, which means that there is generally someone there to watch over the property year-round and address any critical issues, and there is usually insurance in place to cover large hazard or liability issues that come up. Buyers are paying a known fee for association dues on a monthly/quarterly/yearly basis for this service, which allows easier budgeting. But a condominium unit also comes at the cost of being subject to the terms of the condominium by-laws, and those by-laws can be amended.
Most condominium associations are run by permanent residents, and those residents in turn may not like having rental units in the complex. That is particularly true if it means a higher frequency of new people cycling in and out of condominium common areas such as pools and exercise facilities – the very things that help make a short-term rental more attractive. There has been a recent surge of condominium associations amending their by-laws to restrict the ability of property owners to rent their properties out on a short-term basis.
Property owners should also be aware that there is no “grandfathering” of their usage of the unit as a short-term rental. This means that if you are considering purchasing a condominium unit to be utilized as a short-term rental, not only do you need to carefully review the by-laws for any restrictions, but you also need to pay attention to the materials that come from the association. A change to the by-laws may slip by you otherwise, and suddenly your investment property may no longer be viable.
For questions about this contact Kemp Klein.