Short-Term Rental Liability

The short-term rental sector continues to gain momentum among investors as it disrupts traditional real estate investments thanks to the rise in remote work around the country. Accommodation-sharing platforms report that interest in owning short-term rentals or becoming hosts on marketplace platforms is at an all-time high.

Whether you’re leasing a spare room or an entire property, this lucrative industry is not without its challenges, and protecting your investment can be the difference between a successful business opportunity and an expensive mistake. With the summer tourist season just a few weeks away, now is the time to evaluate your short-term rental strategy and ensure that you are in compliance with all relevant regulations while taking necessary precautions to safeguard against potential risks. Property owners should consider general liability, the warranty of habitability, and required insurance.

When operating their homes as businesses, short-term rental owners have a legal duty to ensure their premises are reasonably safe, and they must actively inspect their premises for potential safety hazards. In Massachusetts, if a homeowner fails to address any safety hazards of which they may be aware (or even of which they should be aware) they can be held fully liable for injuries incurred on the property. As part of their terms and conditions, most online short-term rental services provide a disclaimer against all liability; this means that the responsibility for safety is wholly on the property owner. By offering their properties for rent, hosts also represent that their properties are fit for occupation and will remain so throughout the duration of the rental period. Therefore, a host can be held liable due to negligence and also under the implied warranty of habitability.

As a sad example, recently, a family sued Airbnb, the property owner, and the prior renter after their toddler died of fentanyl poisoning while staying at a Florida property. They allege that Airbnb and the property owner failed to ensure the safety of the property and claim the prior renter was negligent in allowing drugs to be used at the property and leaving behind drugs or drug residue. The case is still pending.

As of July 2019, the state of Massachusetts requires that operators of short-term rentals (defined as less than 31 days) maintain liability insurance of not less than $1,000,000 to cover each short-term rental unless the rental is offered through a hosting platform such as Airbnb, that maintains equal or greater coverage. See M.G.L. c. 175 § 4F. The coverage is required to defend and indemnify the owner or operator and any tenants in the building for bodily injury and property damage. For those with coastal properties, note that the Massachusetts Fair Plan insurance, which covers many coastal properties when other insurance companies refuse coverage, will only provide up to $500,000 of liability insurance for short-term rentals, and therefore supplemental insurance will be required.

Short-term rental real estate is an area of law that continues to evolve. Property owners should invest some time into evaluating the risks associated with a short-term rental before jumping in.