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Online Renting: Traps for the Unaware

June 30, 2016

NORTH CONWAY, NH –  Use of online rental services like Airbnb, VRBO and Home Away has exploded in the last few years.  While use of these services may provide a relatively easy way to earn extra money from your in-law apartment or the unused time at your camp or condo, there are many traps and pitfalls of which a homeowner should be aware before listing your home.

Generally, when you transition from hosting friends in your home or guest room to strangers paying for it, you’ve changed from private property owner to business person. The law governing the use of your property changes accordingly.
 
First – Taxes:  the money you earn is income and you have to claim it on your federal and state income tax return. In addition, in New Hampshire, you may have to pay rooms and meals tax for each rental. Some services, like Airbnb actually collect the rent and pay it out to you, and then send you a form 1099 at the end of the year. This means the IRS is getting notice of the rent you’ve been paid. Other services like VRBO actually allow you to collect the rent directly from the renters and you have to keep track of your income.
 
Second – State law protects renters: In New Hampshire, short term vacation rentals are governed by RSA 540-C. Most importantly, this statute requires a property owner to obtain written rental agreements with specific provisions to evict a renter if they overstay their welcome – lest they become long term tenants. There are penalties for wrongful eviction.
 
Third – Insurance:  Property owners should check their homeowners insurance, as most standard  residential homeowners’ policies do not cover tenants or renters; and you may be violating your policy by renting.  In any case, damage caused by renters is not likely covered; and worse, if someone is hurt on your property, you may face a lawsuit with no insurance coverage. To be  covered, you will likely need to purchase additional insurance to cover your commercial use.
 
Fourth – Liability:  Most people hold the properties they rent in their own names, and therefore if a renter brings suit, your other assets might be exposed.  Property owners should consider additional liability protection, whether through corporate structuring, or additional umbrella insurance. 
 
Fifth – Condominium rules, zoning ordinances and safety regulations: Renting your property may be prohibited or limited by your condominium documents, homeowners’ association documents, deed restrictions, local zoning regulations, or safety codes.  Again, once you rent your property, you have changed the use of your property to a commercial use; and separate laws apply.  Short term rentals are prohibited by many Association documents; and the safety and fire codes may require substantial upgrades to the property for rental uses, including extra means of egress and automatic fire suppression.    
 
The most important thing to understand is that when you rent property to someone, your relationship with that person becomes a business relationship the law governing the relationship changes, and your exposure to financial risk is higher.  Before you list online, it is always a good idea to consult with your attorney and tax professionals to ensure that you and your assets are protected, and your new business is accomplished in a legal fashion. 
For more information, call 603-356-5439 or visit them online at www.coopercargillchant.com.