By: Howard S. Goldman, Esq.* –
Airbnb – you either love it or you hate it. With roughly 1 in 10 U.S. adults using short-term accommodations, their popularity is undeniable. And for the millions who vacation in Massachusetts each year, short-term rental sites offer a wide range of price points in a state notorious for its lack of mid-priced accommodations at premier tourist draws: Boston, Cape Cod, and the Berkshires.
But other populations are decidedly less enamored by the ascent of Airbnb: condominiums, abutters and the hotel industry. At Goldman & Pease we regularly help condominium associations, property managers and management companies faced with refereeing a new breed of disputes. Additionally, abutters to the roof deck that is rented out for bachelorette gatherings each weekend and the condominium owner sandwiched between two downtown Airbnbs have had lots to complain about. In short, some are winning and some are clearly losing in this new rental accommodation landscape.
Strict Registration Requirements
Massachusetts’ new laws regulating short-term rentals became fully effective on December 1, 2019, and define short-term rentals as accommodations rented out more than 14 days per calendar year at more than $15/day. The new laws require short-term rental owners and intermediaries like Airbnb to register online with the Mass. Department of Revenue by providing proof of residency and adequate insurance through various documentation, paying certain annual licensing fees, getting a business certificate, notifying neighbors and, once an owner has accomplished all that, adding the registration number to on-line intermediary sites such as Airbnb to prove that the accommodations are properly registered. These registration requirements make Massachusetts the first state in the nation to establish a state-wide registry.
At the end of 2019, Boston’s tough registration rules for the short-term rental industry went into effect, the results were almost immediate. Boston officials have reported they’ve cited over 500 addresses thus far – everything from Back Bay pieds-a-terre to modest two-family rentals in South Boston – for breaking rules that effectively ban landlords from renting apartments by the night to tourists. Fines run about $300 per violation.
After heated litigation between Airbnb and the City over these new rules, the popular site appears to be making an effort to become a more welcome part of the accommodations landscape and is taking Boston’s requirements to heart. In the few months Boston’s registration has been mandatory, Airbnb has notified many short-term rental providers that non-compliance with the new rules will result in removal from their site.
City officials have been candid that one of the goals of its new registration rules is to return some rental properties to the long-term rental market to ease the housing crunch facing our region.
Cities and Towns Can Adopt Further Restrictions
These new laws also grant authority to Massachusetts’ cities and towns to further regulate short-term rental operators through local ordinances and bylaws. Areas that are already popular in the short-term rental market have been quick to take advantage of this authority.
“The goal of [local requirements] is not to punish people that want to operate AirBnbs, but to maintain the quality of life in residential neighborhoods.”
New Bedford Councilor Joseph Lopes
For example, at the beginning of January 2020 the City of Newton imposed occupancy limits and homeowner residency requirements on short-term rentals. Newton’s city council has attempted to balance neighbors’ quality of life needs against a homeowner’s income potential. The new rules include that short-term rental providers must live in their accommodations for nine months of the year, and they may rent out no more than three of a homes’ bedrooms. Further, no more than nine people will be allowed to rent an accommodation at any one time.
Other cities and towns, including New Bedford and Fall River, are currently embroiled in debate over appropriate rules for their communities. It remains to be seen whether local ordinances can adequately balance complaints about noise, disruption, and the transience of neighborhoods against the income benefits to unit owners.
New Taxes for Short Term Rentals
While Massachusetts has been in the vanguard regarding short-term rental registration, it has been slow to address tax revenue loopholes. But fear not, Massachusetts has now caught up and then some. The new law applies a 5.7% excise tax on short term accommodations, which is the same rate at which hotels and other accommodations in Massachusetts are currently taxed.
The new law also allows cities and towns the discretion to levy a separate tax of up to 6%. The additional 6% automatically applies in cities and towns that already have enacted local room occupancy taxes. Further, municipalities may impose a community impact fee of up to 3%, with a little more than a third of that revenue designated for affordable housing. Finally, short-term accommodations on Cape Cod and the Islands are taxed at an additional 2.75% to help subsidize critical water pollution abatement projects. Aggregated, the maximum possible taxes on short terms rental at the state and local level is a whopping 17.45%.
Effects on the Short-Term Accommodations Industry
The industry which has quickly grown to serve the short-term rental community is feeling the greatest impact from these new rules. Property managers, bookers, and cleaning companies who work to make available and ready these short-term rentals complain that Massachusetts’ new rules are stifling their industry, and that do not have the resources or leverage to compete with the established hotel industry.
In the past several months many short-term property managers have reported losses of a significant percentage of bookings because of the increased prices resulting from new taxes and because of what they deem onerous registration requirements. Some property managers overseeing multiple short-term rental properties are fighting back, and have begun to lobby the legislature to reclassify their units as “executive suites”, a separate accommodation designation taxed at a lower rate with fewer use restrictions. The City of Boston, for one, is pushing back on this reclassification effort, as Mayor Walsh has made increased housing for residents a cornerstone of his agenda.
Registration Requirements May Help Condo Associations
In addition to aiding cities and towns, the new State registration requirements may provide more enforcement opportunities for condominium associations and trustees seeking to limit or prohibit short-term rentals in their buildings. For example, most condominium documents expressly prohibit short terms rentals such as Airbnb. Therefore, condominium managers and trustees can easily review if a condominium unit is registered under the State’s new extensive registration requirements, and if so, the unit owner would readily be in violation of the condominium prohibition against short term rentals and be issued a strongly worded cease and desist letter.
Whatever the effect of these new short-term rental State registration requirements, Goldman & Pease continues to strongly recommend that property managers advise building owners to enact amendments to authorize large fines on unit owners who violate the condominium short-term rentals prohibition and to impose corresponding legal fees to enforce the violations. Further, condominiums should make those fines collectable as liens on the defaulting unit owner’s units pursuant to Massachusetts General Law chapter 183A, section 6.
About the Author
Attorney Howard S. Goldman is the founding partner of Goldman & Pease LLC, 160 Gould Street, Needham, Massachusetts 02494 (781) 292-1080. Mr. Goldman concentrates his practice in the areas of real estate, finance, and civil litigation, where he represents property managers, lending institutions, developers, and contractors for more than thirty-five years. He is an active member of the Massachusetts, Norfolk, and Rhode Island Bar Associations and is also an active member of CAI and IREM, where he frequently lectures and writes columns concerning the real estate and finance industries. Mr. Goldman serves as a member of the Zoning Board of Appeals for the Town of Needham, as a court appointed mediator at the Boston Municipal Court and as an advocate at Federal District Court mediations.
*Attorney Rachel Zoob-Hill, provided substantial assistance in producing this Client Update, and is a senior litigation associate with extensive civil litigation and real estate experience.