Law

What You Need to Know About Massachusetts’ New Law

Navigating Short-term Rentals

By Ryan K. O’Hara, Esq.

Ryan K. O’Hara

Ryan K. O’Hara

Maybe you’ve spent a lazy July week with your family in a cottage overlooking Cape Cod Bay.

Maybe you’re letting Janice from work use Grandma’s cabin in Otis for a long fall weekend – you weren’t going to use it then anyway, and who would say no to an extra $200?

Maybe you’ve temporarily filled your empty nest with an Angolan physicist and a Chilean biologist attending a two-week academic conference put on by the Five Colleges.

Whatever the specifics, without actively realizing it, many Massachusetts residents have been party to a short-term rental (that is, a temporary rental of a living space that isn’t in a hotel, motel, lodging house, or bed and breakfast).

While short-term rentals are nothing new, they have become much more prevalent with the rise of entities like Airbnb. Short-term rentals can be an exciting source of income, and powerful online tools have made participation in the market easier than ever. Together with that increased participation, however, comes increased regulation.

Airbnb, Vrbo, and other companies like them act as third-party platforms where property owners can list premises for rent, and prospective renters can find a place that meets their needs. Both renters and property owners can now enter the market and operate with relative ease and informality. The market has also expanded to include a wide range of rental offerings — not only traditional houses and apartments, but also cottages, cabins, “micro” homes, campers, and even letting out vacant rooms in owner-occupied homes.

“While the notion of creating an online account and letting the rental income flow is very appealing, property owners should be aware that there is much more responsibility involved than a first glance at a website might suggest.”

While the notion of creating an online account and letting the rental income flow is very appealing, property owners should be aware that there is much more responsibility involved than a first glance at a website might suggest. Particularly in areas where the rental property is in close proximity to non-renting neighbors, conflicts and complications can arise.

Neighbors worry about vetting the renters, frequent turnover, and increased noise, traffic, and litter from transient visitors who don’t have the same investment in the neighborhood as those who live there. State and local governments are concerned with the number and density of rentals, the loss of tax revenue through unreported rental income, and the movement of customers away from traditional lodging options like hotels (and the excise-tax revenue that comes with them).

In response to these concerns, in December 2018, Massachusetts enacted “An Act Regulating and Insuring Short-Term Rentals” (Mass. Acts 2018, c. 337). This law defines short-term rentals, establishes and imposes obligations on both owners and renters, and empowers local governments to regulate short-term rentals on a town-by-town basis. The act goes into effect on July 1, making it critical that anyone interested in the short-term rental industry familiarize themselves with this new law.

The first thing to understand is whether your property is covered by the act. The act applies to any property that is not a hotel, motel, lodging house, or bed-and-breakfast establishment, and where at least one room or unit is rented, and all rentals are reserved in advance. The next question is whether a specific rental is in fact a short-term rental. Owners beware: if the space is rented for more than 31 calendar days to a given renter, it is no longer a short-term rental, but a residential tenancy, which carries vastly different obligations and duties.

If your property constitutes a short-term rental within the act’s definitions, you are considered an ‘operator,’ and are obligated to register with the Department of Revenue, file special tax returns showing rental income, and pay a 5% state excise tax on rents received. Cities and towns can also choose to impose an additional excise tax of up to 6% (or 6.5% for Boston properties). For Cape and island towns and cities, an additional 2.75% excise tax may be added.

The act also authorizes cities and towns to pass ordinances or bylaws regulating operators. These regulations may, among other things, limit the existence, location, and/or number of operators and the duration of rentals; require local licensing and registration; require health and safety inspections; or even prohibit future rentals where violations are found. Operators must consult with town authorities before operating any short-term rental, to ensure compliance with local regulations.

Per the act, operators must maintain liability insurance of $1 million or greater to cover bodily injury and property damage relative to each short-term rental, unless the rental is offered through a platform such as Airbnb or Vrbo that has equal or greater coverage. Operators must also notify their own property insurer that they will be operating a short-term rental at their premises.

Finally, the act makes clear that Massachusetts’ anti-discrimination statute applies to short-term rental operators. Any unlawful discrimination could expose operators to significant liability. For this reason, it may be advisable for operators to obtain training and legal advice on housing and rental discrimination.

Operating a short-term rental business can be a profitable endeavor that carries less expense and exposure than operating traditional, long-term residential rentals. However, it is vital that any operator understand and abide by the laws and regulations that govern this growing industry. Those who arm themselves with knowledge — whether by reviewing the law on their own or consulting legal counsel familiar with the industry — give themselves a fantastic chance at profitability and success with minimal complications.

Ryan K. O’Hara is an associate with Bacon Wilson, P.C. and a member of the firm’s litigation team. His legal practice is focused on contract and business matters, landlord-tenant issues, land-use and real-estate litigation, and accidents and injuries; (413) 781-0560; [email protected]

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