Mountain Law: Thoughts on the practice of leasing a property long-term and then subleasing it short-term (column)
Under websites such as airbnb.com, travelers can book homes from local hosts. This can be a legitimate way for property owners to generate income by renting out some or all of their properties.
However, there is a shadow industry that is sometimes less than legitimate under which tenants lease properties from their owners on a long-term basis and then sublease the properties to travelers on a short-term basis. This allows tenants to make money on the spread between the cost of the long-term rental and the income from the short-term rental. I call this “short-terming a long-term.” Here are a few thoughts on legal aspects of this activity.
When landlords lease their properties long-term in areas that are desirable for short-term rentals, they should not be naïve about the prospect that the tenant will short-term without consent. In my experience, the booking company itself is unlikely to be helpful even if the landlord objects to the tenant’s activities.
Short-terming a long-term is a form of sublease. If the lease prohibits subleases without landlord consent — as many do — then short-terming a long-term violates the lease. This is the case even if the original tenant offers only a portion of the property, such as one room, for rent. Because short-term bookings are subleases, the landlord does not have to honor them after the landlord evicts the original tenant. That doesn’t mean travelers won’t appear at the doorstep expecting lodging.
If the lease merely says that the landlord must consent to subleases, then the landlord’s decision whether to consent is subject to attack for being unreasonable. A stronger lease provision for the landlord would give the landlord an absolute right to withhold consent to subleases. With that kind of provision, the landlord’s decision could not be challenged for being unreasonable.
Landlords sometimes take the position that they are entitled to the extra money that their tenants made by short-terming a long-term without consent. I’m not sure that is the case. If a landlord willingly agreed to lease the property to the tenant for a given rent that the landlord thought was fair under the circumstances, then the tenant merely making money on the property does not damage the landlord. To the contrary, the landlord has received all the compensation that was expected and required. In contrast, the landlord may have a claim for extra wear and tear on the property caused by the short-term rentals (although, in practice, that is difficult to substantiate).
Not all landlords care if their tenants short-term a long-term. After all, there are certain advantages to the landlord from this activity, such as (1) the tenant has an incentive to pay the rent to the landlord so the tenant can keep making money from the property; and (2) the tenant is likely to keep the property in good condition so that it receives positive feedback online for purposes of future rentals.
Even if a landlord is willing to allow a tenant to short-term a long-term, a lease-addendum clearly addressing the situation would be advisable. For example, the addendum could give the landlord access to the bookings online so that the landlord could track them and potentially take them over as needed if the tenant does not pay the rent.
Overall, short-terming a long-term is not necessarily a bad thing where the landlord is made aware of the tenant’s intentions at the outset and the situation is addressed in a lease addendum. Most problems seem to arise when the landlord is surprised to find out that the property is being short-termed.
Noah Klug is owner of The Klug Law Firm, LLC, in Summit County, Colorado. He may be reached at 970-468-4953 or Noah@TheKlugLawFirm.com.
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