The Risks and Rewards of Short Term Rentals During the Papal Visit, Democratic National Convention, and other Big Events.

The Risks and Rewards of Short Term Rentals During the Papal Visit, Democratic National Convention, and other Big Events.

by: Charles Homler, Community Manager for FirstService Residential,
as seen in the Community Assets Magazine May/June 2015 Issue, published by the Pennsylvania & Delaware Valley Chapter of Community Associations Institute.

Philadelphia has been on a winning streak lately. First there was the announcement of the World Meeting of Families and the Papal visit and more recently the announcement that in 2016, the city will play host to the Democratic National Convention. There are many TV stations and publications reporting that hotels will not be able to meet the demand for lodging and that residents of Philadelphia and the surrounding suburbs may be able to cash in by renting extra rooms or their entire homes to the throngs of people flocking to Philadelphia for these events.

Many associations are already dealing with the problem of short term renters and the media hype only serves to introduce more unit owners to services they may have been unaware of. With local media outlets like the Philadelphia Inquirer reporting that the cost of renting a one‐bedroom apartment in Center City for the week of the Papal visit reaching as high as $10,000 and with one Germantown resident asking $15,000 for a three‐bedroom townhome, the amount of money that can be made is attractive, despite the risk of financial sanctions or other enforcement actions by condo associations.

This puts a heavy burden on condominium associations, boards of directors, and community managers to enforce restrictions on short term rentals (rentals of units for periods of less than one month), which are common in most covenants.

The Philadelphia Convention and Visitors Bureau’s website indicates that there are only 30,000 hotel rooms in the region and the South Jersey Times reports that two million people are expected for the World

Meeting of Families in September. To help find lodging for Catholics and the curious coming for the papal visit, the World Meeting of Families has launched a page on their website enlisting locals to host families. Third‐party websites such as Homestay.com or Airbnb.com allow owners interested in listing their home also exist, usually with a fee to the homeowner based on the rent.

With the advent of websites like Airbnb that allow people (for all intents and purposes) to convert an extra bedroom into a hotel room, community managers and condominium associations are already facing challenges with short‐term rentals. In the face of thousands of potential lodgers willing to pay top dollar for a room close enough to Philadelphia to make attending the World Meeting of Families possible, why shouldn’t associations ignore the governing documents, if only for a week?

Ken Dash, President of Dash and Love Insurance and Risk Management in Bala Cynwyd, says that this course of action is much worse than attempting to enforce the restrictions on short‐term rentals. “If an association turns a blind eye and a property damage or bodily injury claim results from the short‐term renter, the association could be found vicariously liable for not enforcing the rules,“ says Dash.

“Most developers, boards, owners, and lenders think short‐term tenants are undesirable residents in an owner‐ occupied building.” explains Gary Krimstock, Esq., CCAL, a senior partner at Fineman Krekstein and Harris, P.C. in Philadelphia. “It argues that they make bad neighbors, with parties, noise, damage, and frequent move ins and outs. Short term tenants make no investment and have no commitment to the building. Mortgage underwriters (FHA, Fannie Mae and Freddie Mac) do not allow short‐term rentals.”

So while the prohibition on short‐term rentals may prevent a portion of the owners in a given condominium association from profiting by renting to those making the pilgrimage to Philadelphia for the Pope’s visit, it benefits all owners in that association by increasing the number of mortgage products that buyers can utilize to purchase units in that association, or for current owners to refinance.

Airbnb is just one site that offer unit owners the ability to rent their homes to short term guests, but it’s the site that gets the most press. Airbnb requires that the host listing the condominium unit for rent will not “offer, as a Host, any Accommodation that may not be rented or subleased pursuant to the terms and conditions of an agreement with a third party” such as a condominium or homeowner’s association.

“Condo associations can only enforce rules against owners and tenants“, Krimstock said, adding that, “There is no practicalway of taking action against providers like Airbnb.”

Short‐term rentals made through websites like flipkey, Airbnb, roomarama, VRBO, Craigslist, and many others are not vetted in the same way as traditional leases are. Virtually anonymous individuals can search listings and reserve rooms and only need to provide minimal information.

Airbnb’s terms of service require that users “agree to provide accurate, current, and complete information during the registration process and to update such information to keep it accurate, current, and complete.” Their terms of service also states that Airbnb reserves the right to terminate accounts, “if any information provided during the registration process or thereafter proves to be inaccurate, not current, or incomplete.”  In fact, they do not “confirm, or endorse any Member or the Member’s purported identity or background.”

A simple search on the internet will yield scores of “nightmare” stories from people who used such sites to make some extra money and had their property damaged, squatters that wouldn’t leave, stolen identities and more. According to Dash, “There are very few insurance companies that will insure this type of exposure. If a unit owner intentionally conceals or misrepresents any material fact or circumstance to its insurer (i.e. short term rental), the unit owner could be seriously exposed and faced with cancellation of their unit owner’s insurance policy, as well as possible claim declination for misrepresentation of exposure.”

Condo residents considering renting their unit should also be reminded that they are entering into an agreement with a party and are taking responsibility for the actions of that party while they on the property. “Unit owners will be brought into to third party claims,” added Dash.

But the risks go beyond insurance. “The short term renter has no love for the property, community, or its people or reputation,” states Dino Iuliano, a security expert and Executive Vice President with Planned Companies. There is the unsettling prospect for other residents in the condominium of, “not knowing who your new neighbors are, or what their intentions may be.”

And while the faithful will be attracted to the city for the World Meeting of Families, so will “thrill seekers, activists, historians, and sadly, criminals from pick‐pockets to snatch‐and‐grab purse snatchers,” Iuliano cautions.

High‐rise and mid‐rise condominiums with shared corridors, elevators, and parking lots or decks take precautions to keep strangers out of secured areas and these types of rentals are akin to giving a complete stranger the same access that a unit owner or long term tenant has. Iuliano urges adding more security personnel, implementing protocols like ID badges for residents, and establishing a “visual security presence with signage and people to deter criminals.” This is an approach that he refers to as “hardening the target.”

Planning ahead is key to controlling unauthorized access to a property. Get the message out early to unit owners and inform them of the risks that short‐term rentals pose to both the community and  to the unit owner. Let the membership know that the board and management are taking proactive steps and disclose the course of action and/or financial penalties that will result should a unit owner violate the restrictions on use.

If a unit owner wishes to have a guest, especially during an event such as the Papal visit or DNC, insist that the owner be present to greet the guest and grant them access to the unit.  “[A] Condo building is private property and the condo  association can prevent access by any unauthorized or undesirable person, whether a guest, visitor, or tenant.” states Krimstock. “If the lease is not valid, then the tenant is not permitted and access can be denied.” For high‐rise condominiums, or at properties that have an office or a sited manager or concierge, this grants the condominium the authority to “withhold keys or disable fobs,” according to Krimstock.

Finally, sites like Airbnb are designed to make finding a place to stay easy for their clients. This also makes it easy to find unauthorized listings. Browse the map to find units listed in the area of a particular property and contact the offending unit owners to let them know that they have been discovered.

"I signed on to the website and saw several units in the building I manage listed on Airbnb,” says Andrew Sytnik, a community manager with FirstService Residential. “Upon closer inspection of the listing, comments left by previous guests that stayed at the unit revealed the identity of the owner and documented a history of violations. A violation letter was sent to the owner with financial sanctions for each of the comments.”

ABOUT THE AUTHOR

Chuck Homler CMCA, AMS is a Community Manager for FirstService Residential cited at City View II, a 27 story, mixed‐use high, rise condominium in Logan Square. Chuck can be contacted at: Charles.holmer@fsresidential.com

SOURCES

http://www.discoverphl.com/meet/choose‐philadelphia/facts‐and‐ figures/ http://www.worldmeeting2015.org/get‐involved/host‐a‐family/ http://www.latimes.com/nation/la‐na‐pope‐philly‐rents‐20150125
‐story.html http://articles.philly.com/2015‐01‐06/news/57711022_1_world‐ meeting‐papal‐visit‐pope‐francis http://www.hindmansanchez.com/resources/pdf/fha‐ condominium‐certifications‐requirements‐and‐prohibitions http://www.fa‐mag.com/news/new‐rules‐for‐condo‐investors‐ 17399.html http://www.portlandmercury.com/portland/scare‐em‐straight/ Content?oid=14085334 http://www.portlandoregon.gov/BDS/65603 http://www.nj.com/south/index.ssf/2015/02/ how_is_philadelphia_getting_ready_for_pope_francis.html