Can I Use My Home as a Short-Term Rental?
With the growing popularity and success of short-term home rental platforms such as Airbnb and VRBO, many property owners may be wondering if they too can list their home for short-term rental. The Connecticut Law Tribune reported that, in 2018, Airbnb alone supported 3,800 hosts in Connecticut, who earned a total of $35 million by accommodating about 170,000 guests; and this translated to $5.2 million in tax revenue to the State of Connecticut. Connecticut Law Tribune, Time is Short for Short-Term Rental Regulation (Feb. 22, 2019).
The following are some important items for consideration if you are thinking about engaging in the short-term rental (STR) market:
You want to make sure you are not shut down just as you are starting your new endeavor. I suggest you start by checking whether this type of use is permitted by the Zoning Regulations for the Town in which the property is located. To my knowledge, to date, Hartford is the only town or city in Connecticut to adopt specific regulations for STRs. In the absence of specific local regulation on the topic, you must then determine whether the use could be permitted some other way under the regulations. This will typically involve an analysis of the regulations to determine: (a) if they are permissive regulations, in which case the regulations list all permitted uses and uses not listed are not permitted; (b) if they are prohibitory regulations, in which case the regulations permit all uses except those specifically prohibited (this is not the norm); and (c) if the STR could fall under another category of permitted use, such as a single family home, bed and breakfast, rooming or lodging house, or home occupation. Consultation with the local Zoning Enforcement Officer and your own land use attorney is strongly recommended.
Land use restrictions do not only appear in Zoning Regulations. Sometimes there may be recorded deed restrictions on the property that could prevent you from operating a STR. If your property is part of a larger subdivision or a homeowner’s association (HOA), it is fairly common to see recorded Restrictions that address the type of uses that may take place on the property. Most of the reported cases involving STRs (all from out of state) involve HOAs bringing actions to prohibit short-term rental operations. Some of these cases hold that a STR constitutes a business or commercial use of property, thereby violating restrictions requiring single-family residential use of the property only. Others cases hold that the STR use is still considered a residential use of the property, even if it’s just for a very short duration. Connecticut has not yet decided the issue. But, to be safe, a thorough title search of the property by your real estate attorney will disclose any potential problems.
Effective October 1, 2019, STRs are subject to Room Occupancy Tax. See Connecticut Department of Revenue Services Special Notice 2019(9). The tax rate is 15% of the total payments received for occupancy of the room or rooms for up to 30 consecutive calendar days (11% if you are deemed a bed and breakfast). After the 31st day, the tax no longer applies. The Room Occupancy Tax is not applicable if rentals exceed 90 consecutive calendar days. Registration with DRS and how the tax is paid to the State depends on whether a property owner is listing or advertising the property through a short-term rental facilitator (such as Airbnb or VRBO) or doing it on their own. Again, consultation with an attorney is strongly recommended.
In addition to the above, don’t forget to consult your business attorney about ways to minimize your risk. You may want to consider forming a limited liability entity to own and lease the property. And you certainly want to make sure you have the right type and amount of liability insurance in place. STRs are an intriguing prospect, but make sure you do your homework first. There is a lot to consider before you place that ad.