Short-term rentals have their place as a way to make money in real estate. Like any other new business model, it functions like the Wild West. Some people make a fortune. Some of those people do a good business. Some use the loosened regulation as a way to rent poor-quality spaces and avoid taxes.

When small property owners become short-term landlords:

A condo owner with an extra bedroom can make as much money from short-term renting the extra bedroom for 30 or so weeks a year as they can from having a roommate for twelve months. However, it is a significant amount of work and a big loss of privacy to have strangers booking in as short-term roommates. Some of those people need the money, or the flexibility, or both.

Some need the extra money. Some need the space for the other 20 weeks a year. This is a reasonable option if someone owns a property where a friend or family member lives with them for part of the year. (Examples: parents of college-age children, people who live in warm climates in the winter and cooler ones in the summer.)

For a landlord of a separate apartment, the same math is true; charging more per night maximizes the income and allows time when the apartment could be used for family members or friends. It is more work and more uncertainty to rent an apartment for a short period of time. Time is spent vetting the tenants, booking them, and cleaning and preparing between guests. Traditional rentals have a turnover only every year, or more. So why bother? Because short-term rentals charge more per night. For some owners, it is worth the additional work and turnover.

When a landlord rents a bedroom in the condo they are living in, it has little impact on housing availability in a city or town. Those with a full, rentable unit are changing the community because stable, long-term rental opportunities are used for short-term visitors. This change is being felt (and resented!) by renters in cities across America. The more people who change year-long lease properties into short-term rentals, the harder it gets for year-long renters to find suitable apartments.

When big landlords become short-term landlords:

Until recently, there were a few companies that ran corporate short-term rentals. These companies housed people for weeks or months.  These businesses run like hotels, but with longer stays available, and rental properties that had kitchens.

With the software-driven convenience of short-term renting, the Air B & B kind of rentals have become big business. Some investors are buying blocks of apartments and getting higher per-night return on their investments. The economy of scale makes it cost-effective to hire people to monitor the various people who move in and out and to do the turnover administration and clean-up.

This is affecting rental property pricing and availability in cities all over the country, in a really bad way.

What is changing with the Massachusetts short-term rental law?

Short answer: not much.

The new Air Bed and Breakfast law goes into effect this July. Before it does, there are likely to be changes made by your municipal governments.

  1. Owners have to register as a landlord offering short-term rental.
  2. Properties will be taxed, if they are rented for more fourteen days a year, and are being rented for periods less than thirty-one days at a time.
  • Professionally managed properties and those owned by landlords of multiple properties will be taxed higher than the single-property owner who is renting rooms or one unit.
  • There is a State tax.
  • There can be local and municipal taxes. Boston has one. Cape Cod has one.
  1. Landlords are required to create and post fire safety information for the short-term renters. (This is a good idea for anyone. It’ll take an hour.)
  2. Landlords are required to carry liability insurance on the property at a minimum of $1,000,000. (This sounds like a lot, but most two-family homeowners carry at least that much liability to cover injury to tenants in the house.)

So, in short, what has changed is that short-term rental owners will be registered and taxed and held to basic safety regulations that most good landlords uphold anyway. There is no sky-is-falling for the short-term rental industry. As long as demand stays high, renters will continue to use short-term rental as a hotel/motel alternative. They will pay a little more, now that there is a tax on it, like there already is on hotels and motels.

If you are running short-term rentals, your paperwork just got more complicated. You’ll need to register, keep good records, and pay your taxes. Contact your local reps, so that you can stay in the loop. The way that the taxes are going to be monitored and collected isn’t fully developed. Local taxes have not been established in all areas. What you need to do to stay in good stead will be a moving target for a year or two, as the new law gets rolling.

Everything about the business of owning a house is the business of the Realtors ®. They put together a summary of the changes, and what they mean to property owners. It has some more details for those who want them:

An Act

An Act Regulating & Insuring Short-Term Rentals, Chapter 337 of the Acts of 2018

On December 28, 2018, Governor Baker signed into law “An Act Regulating and Insuring Short-Term Rentals”. While this state law, which will take effect July 1, 2019, does NOT prohibit short-term rentals, it does establish both a tax on such uses as well as certain registration and regulatory requirements. The following is brief summary of the Statute.

What is a “short-term rental?
A “Short-term rental” is defined as any property where at least one (1) room in a dwelling is rented to an occupant for less than a period of thirty-one (31) consecutive days and such accommodations are reserved in advance. It applies to all forms of housing and regardless of whether the owner or a tenant is leasing same. Although the definition is not as concise as would be desired, it specifically exempts tenancies at will and appears to exempt other forms of tenancies (i.e. tenancies for a term longer than one (1) month).

What are the requirements for Short-term rentals?
1. Registration: Any owner or person operating a Short-term rental must register their property and be issue a “certificate of registration” prior to offering such unit for this use. The specific requirements of registration, and the fees relating thereto, are to be established by the Executive Office of Housing and Economic Development, subject to public comment. Local municipalities are also authorized to create registration systems.

2. Tax: If a property is used for Short-term rentals more than fourteen (14) days per calendar year, the tax provisions of this Statute take effect. A state tax of 5.7% is imposed by the statute. Local municipalities may also impose an addition 6% tax (6.5% for Boston) and an additional 3% fee for professionally managed properties (owners of 2 or more properties in a town). Properties on the Cape & Islands are also subject to a 2.75% fund for the Cape Cod and Islands Water Protection Fund.

The taxes imposed are to be paid by the occupant and must be listed as a separate disclosed charge. The owner is personally responsible to remit the tax to the proper authorities (i.e. the state or local governments). In addition, if the owner/operator hires an intermediary to collect the charges, the intermediary is then responsible to both register and remit the taxes. The intermediary is also responsible to ensure that the owner has complied with the requirements of the Statute.

The Department of Revenue is required to adopt regulations intended to “minimize the administrative burden relative to filing returns” for units offered for less than one (1) day in five (5) separate months in the taxable year and to file a return only for a month in which the unit is actually offered.

3. Fire Safety: Any person operating a Short-term rental is required to post a notice in the unit confirming the location of any fire extinguisher, gas shut-off valve, fire exits and fire alarms in the unit and building. Local municipalities may also require additional safety inspections, etc. and may assess a fee for same.

4. Insurance: Any person operating a Short-term rental is required to maintain liability insurance in an amount not less than $1,000,000, covering bodily injury and property damage, unless the operator uses a rental platform which offers such coverage.

It is important to reiterate that units used for short-term rentals fourteen (14) days or fewer per calendar year are not subject to the tax provisions of the Statute. They are, however, subject to the remaining provisions.

Analysis:
Clearly, the primary effect and purpose of this Statute is to impose a tax on short-term rentals and to create a statewide registration system. As such, the right to use an apartment for Short-term rentals remains. However, owners and management companies which are involved in Short-term rentals should implement systems to be able to collect and transfer these taxes effective on July 1, 2019. In addition, these properties must be registered with the Commonwealth and maintain the required insurance and property notices, even if they are being used for Short-term rentals less than fourteen (14) days each year. Failure to register renders any such uses illegal and could lead to monetary damages and other results. In addition, the failure to collect and remit taxes when required could result in both personal liability for the owner/manager as well as the imposition of fines and penalties. While the manner in which these taxes will be required to be remitted is still to be determined by DOR, the requirement to remit same is inevitable. As such, any owner or manager involved in such use should specifically review these new requirements and ensure compliance.

Finally, the Statute clearly does not apply to tenancies at will and does not appear to apply to apply to tenancies for a term. As such, if the lease term is more than thirty (30) days, this Statute should have no effect.

This Memorandum is intended as a general summary of this state Statute. Owners should consult with an attorney in relation to any specific questions.

Regulating & Insuring Short-Term Rentals, Chapter 337 of the Acts of 2018

 

On December 28, 2018, Governor Baker signed into law “An Act Regulating and Insuring Short-Term Rentals”. While this state law, which will take effect July 1, 2019, does NOT prohibit short-term rentals, it does establish both a tax on such uses as well as certain registration and regulatory requirements. The following is brief summary of the Statute.

 

What is a “short-term rental?

A “Short-term rental” is defined as any property where at least one (1) room in a dwelling is rented to an occupant for less than a period of thirty-one (31) consecutive days and such accommodations are reserved in advance. It applies to all forms of housing and regardless of whether the owner or a tenant is leasing same. Although the definition is not as concise as would be desired, it specifically exempts tenancies at will and appears to exempt other forms of tenancies (i.e. tenancies for a term longer than one (1) month).

 

What are the requirements for Short-term rentals?

1. Registration: Any owner or person operating a Short-term rental must register their property and be issue a “certificate of registration” prior to offering such unit for this use. The specific requirements of registration, and the fees relating thereto, are to be established by the Executive Office of Housing and Economic Development, subject to public comment. Local municipalities are also authorized to create registration systems.

 

2. Tax: If a property is used for Short-term rentals more than fourteen (14) days per calendar year, the tax provisions of this Statute take effect. A state tax of 5.7% is imposed by the statute. Local municipalities may also impose an addition 6% tax (6.5% for Boston) and an additional 3% fee for professionally managed properties (owners of 2 or more properties in a town). Properties on the Cape & Islands are also subject to a 2.75% fund for the Cape Cod and Islands Water Protection Fund.

 

The taxes imposed are to be paid by the occupant and must be listed as a separate disclosed charge. The owner is personally responsible to remit the tax to the proper authorities (i.e. the state or local governments). In addition, if the owner/operator hires an intermediary to collect the charges, the intermediary is then responsible to both register and remit the taxes. The intermediary is also responsible to ensure that the owner has complied with the requirements of the Statute.

 

The Department of Revenue is required to adopt regulations intended to “minimize the administrative burden relative to filing returns” for units offered for less than one (1) day in five (5) separate months in the taxable year and to file a return only for a month in which the unit is actually offered.

 

3. Fire Safety: Any person operating a Short-term rental is required to post a notice in the unit confirming the location of any fire extinguisher, gas shut-off valve, fire exits and fire alarms in the unit and building. Local municipalities may also require additional safety inspections, etc. and may assess a fee for same.

 

4. Insurance: Any person operating a Short-term rental is required to maintain liability insurance in an amount not less than $1,000,000, covering bodily injury and property damage, unless the operator uses a rental platform which offers such coverage.

 

It is important to reiterate that units used for short-term rentals fourteen (14) days or fewer per calendar year are not subject to the tax provisions of the Statute. They are, however, subject to the remaining provisions.

 

Analysis:

Clearly, the primary effect and purpose of this Statute is to impose a tax on short-term rentals and to create a statewide registration system. As such, the right to use an apartment for Short-term rentals remains. However, owners and management companies which are involved in Short-term rentals should implement systems to be able to collect and transfer these taxes effective on July 1, 2019. In addition, these properties must be registered with the Commonwealth and maintain the required insurance and property notices, even if they are being used for Short-term rentals less than fourteen (14) days each year. Failure to register renders any such uses illegal and could lead to monetary damages and other results. In addition, the failure to collect and remit taxes when required could result in both personal liability for the owner/manager as well as the imposition of fines and penalties. While the manner in which these taxes will be required to be remitted is still to be determined by DOR, the requirement to remit same is inevitable. As such, any owner or manager involved in such use should specifically review these new requirements and ensure compliance.

 

Finally, the Statute clearly does not apply to tenancies at will and does not appear to apply to apply to tenancies for a term. As such, if the lease term is more than thirty (30) days, this Statute should have no effect.

 

This Memorandum is intended as a general summary of this state Statute. Owners should consult with an attorney in relation to any specific questions.