Widespread Racial Disparities In Criminal Justice System Justifies New Policy
Last week the Obama administration released new controversial Fair Housing guidelines telling the nation’s landlords that it may be discriminatory for them to refuse to rent to those with criminal records. The U.S. Department of Housing and Urban Development (HUD) says refusing to rent based on a criminal record is a form of racial discrimination, due to racial imbalances in the U.S. justice system, despite the fact that criminal history is not a protected class under the federal Fair Housing Act.
“The Fair Housing Act prohibits both intentional housing discrimination and housing practices that have an unjustified discriminatory effect because of race, national origin, or other protected characteristics,” say HUD’s newly-released guidelines. “Because of widespread racial and ethnic disparities in the U.S. criminal justice system, criminal history-based restrictions on access to housing are likely disproportionately to burden African-Americans and Hispanics. While the Act does not prohibit housing providers from appropriately considering criminal history information when making housing decisions, arbitrary and overbroad criminal history-related bans are likely to lack a legally sufficient justification.” About 25 percent of Americans have some kind of criminal record, which can range from felony convictions to arrests that never led to charges.
HUD says that landlords may be allowed to bar those with criminal records, but they will have to prove that such a policy is necessary for protecting the safety of other tenants, and designed to avoid illegal discrimination. The new guidance recommends that landlords consider factors such as the severity of the criminal history and how long ago it occurred.
Practice Pointer: Blanket prohibitions denying applicants with criminal histories will get landlords into major trouble under the new HUD policy.
Evaluating whether the criminal history policy or practice has a discriminatory effect
Evaluating whether the challenged policy or practice is necessary to achieve a substantial, legitimate, nondiscriminatory interest
Evaluating whether there is a less discriminatory alternative
Policy Places Burden On Small Landlords
I’m all for giving people a second chance at life, but the major problem with this policy is that it puts the onus and burden on the small landlord to do the criminal history check and then figure out how severe the offense is and what the underlying circumstances are. Also the policy does not advise a landlord exactly how old a crime is to be considered “too old.”
In Massachusetts, a CORI (Criminal Offender Record Information) report contains only the basic of information of the offense such as the date of arrest/conviction, disposition, court and sentence, if any. There is nothing in the CORI report showing the underlying facts of the crime and it does not include police reports. Thus, for a charge of open and lewd conduct, a landlord does not know whether this is a serious offense or just a college kid urinating in an alley. Under the new HUD policy, landlords now have the burden of playing criminal investigator and assessing whether a crime is not truly serious.
Also, please remember that under the so-called Mrs. Murphy exemption, the federal Fair Housing Act does not apply to owner-occupied rental properties of up to 4 units.
What Now?
So how are landlords going to navigate this new policy? Well, first I would expect that risk-adverse landlords will cut down or stop requesting criminal history information all together. Of course, this puts landlords in a dilemma because they retain a legal duty to keep residents safe, and if they rent out to a known sexual offender, for example, who attacks another resident, they can be sued for millions.
For those who still ask for criminal record information, they will have to offer an applicant the opportunity to explain the circumstances of their arrest/conviction before making a final decision. As with all rental application decisions, it’s best to make the decision rest on financial considerations such as credit, income, and employment.
If you need guidance navigating this new policy, feel free to contact me at [email protected].
In a ruling which reaffirms Massachusetts’ place as one of the most landlord-unfriendly jurisdictions in the country, the Supreme Judicial Court ruled yesterday that a landlord’s minor security deposit law violation over failing to pay $3.26 in interest can be a complete defense to an eviction case even where the tenant owed thousands in rent. After this ruling, tenants will have another powerful tool to avoid eviction in both no-fault and non-payment cases. A change in this ruling would only come about through legislative action — which is usually a non-starter on Beacon Hill.
Rich’s Legal Advice: I have long advocated to my landlord clients that they NOT take security deposits. This ruling should be the nail in the coffin on that issue.
Garth Meikle v. Patricia Nurse
The Massachusetts Security Deposit Law provides a three month penalty, including payment of the tenant’s legal fees, against landlords who don’t follow its strict requirements. One of the requirements of the Security Deposit Law is that annually the landlord must pay the tenant any accrued interest on the deposit. That’s what got landlord Garth Meikle in trouble with his tenant who was three months behind in rent. Meikle brought a no-fault eviction case in the Housing Court, but the tenant raised the counterclaim and defense that she did not receive interest on the security deposit. Ruling that the landlord’s minor violation of the security deposit was not a complete defense to the eviction, the Housing Court Judge Marylou Muirhead allowed the eviction to proceed, ordering the tenant to pay the past due rent, but deducting the security deposit plus the $3.26 in unpaid interest. However, the tenant, represented by Harvard Legal Aid Bureau, appealed her case all the way up to the Supreme Judicial Court.
Statutory Interpretation
The issue on appeal was the distinction between a counterclaim and a defense for a security deposit violation. Everyone agrees that the tenant can raise a security deposit violation as a counterclaim (entitling the tenant to up to triple damages), but the question was whether such a violation could be a complete defense to an eviction, preventing the landlord from regaining possession of the rental unit. Landlords and yours truly argued that a security deposit is a separate financial matter between the landlord and tenant which has nothing to do about whether the tenant owes rent or the condition of the property.
Justice Geraldine Hines, writing for SJC, disagreed and found that a security deposit violation was within the list of defenses to an eviction. Despite quite unclear and murky statutory language, the justice was persuaded that the Legislature’s historical tightening of penalties and sanctions against landlords was indicative of the legislative intent to include a deposit violation among the list of available defenses to eviction.
So we’ll have to thank the SJC and the Legislature for sticking it to Massachusetts landlords once again. With tenant activist groups pushing “Just Cause Eviction” i.e, rent control and the Legislature’s continual failure to enact any sensible landlord-tenant reform, no wonder Massachusetts has a well-deserved reputation as one of the most tenant-friendly states in the union.
Many Massachusetts landlords are unaware that before charging tenants for hot water and sewer service, they must comply with the numerous and onerous requirements of the Massachusetts Water Sewer Sub-Metering Law, General Laws chapter 186, chapter 22. These requirements include having separate water meters for each unit, installation of low flow faucets and toilets by a licensed plumber, and certification with the local health board, among other requirements outlined below. Non-compliance with this law may result in a three month rent penalty to the landlord plus payment of the tenant’s attorneys fees.
A landlord can only charge a tenant for water/sewer service under the following conditions:
1. The tenant’s unit must be separately submetered by a separate water meter installed by a licensed plumber. A separate water meter measures the amount of water supplied to a particular unit, and enables the landlord to charge the tenant for the tenant’s own water usage. So, for example, if a building contains 4 dwelling units and a basement where water is utilized for the entire building, a landlord would need to have 5 submeters installed in addition to the primary meter that measures the building’s water use in its entirety. If the building does not have separate meters for each unit, the tenant may not be charged for water service.
2. The tenant’s obligation to pay for water usage must be contained in a signed lease, in an obvious place, and not in the fine print. Each bill for submetered water usage must clearly set forth all charges and all other relevant information, including the current and immediately preceding submeter readings and the date of each such reading, the amount of water consumed since the last reading, the charge per unit of water, the total charge and the payment due date. If the landlord bills the tenant on a monthly basis, payment of the bill by the tenant must be due 15 days after the date the bill is mailed to the tenant, but if the landlord bills the tenant at intervals greater than 1 month, payment of the bill by the tenant is due 30 days after the date the bill is mailed to the tenant.
3. A landlord may not charge the tenant for water supplied through a submeter unless the a licensed plumber has installed fully functional water conservation devices for all faucets, showerheads and water closets/bathrooms in the unit (low-flow shower heads and faucets and low-flush toilets)
4. The landlord must provide a certification under the penalties of perjury, with the board of health or health department, that the appropriate submeters and water conservation devices were installed by a licensed plumber.
5. A landlord cannot charge a tenant for water/sewer service mid-way through a tenancy or lease. A landlord can only charge a tenant for water/sewer upon the start of a new tenancy in the unit; and only if the unit is being occupied for the first time, or if the previous tenant left voluntarily, or was evicted for non-payment of rent or other breach of the lease.
6. A landlord who engages in self-help by willfully failing to furnish water or directly or indirectly interfering with the furnishing by another of water, or transferring responsibility for payment for water to the tenant without their knowledge or consent, is punishable by a fine of not less than $25.00 nor more than $300.00 , or by imprisonment for not more than 6 months and is liable for actual and consequential damages or 3 month’s rent, whichever is greater, and the costs of the action, including a reasonable attorney’s fee.
Given these onerous requirements, my advice to landlords is to never charge the tenant for water/sewer! Just pay the bill and make it “hot water included” in the rent.
Hundreds Cram Into City Council To Debate Controversial Petition
Hundreds of tenant activists, small property owners and landlords packed City Hall and poured over into overflow rooms last night as the Boston City Council held its first public hearing on the need for “just cause” eviction legislation, to stem the city’s skyrocketing rents. Harking back to the days of rent control, the proposal would prohibit a landlord from evicting any tenant except for certain “just cause” grounds. These grounds and their related procedural impediments to eviction, would in my opinion, make it nearly impossible (or cost prohibitive) to evict tenants, raise rents and sell occupied rental property in the City of Boston. For more specifics of the proposal, please see my prior post, Boston Tenant Activists Pushing Just Cause Eviction Proposal.
The City Council, led by Councilor Josh Zakim, heard four hours of impassioned testimony from both sides of the issue. Renters say it would create safeguards against eviction; landlords say it would slap them with thinly disguised rent controls.
“Any way you look at it, this is rent control,” Skip Schloming, of the Small Properties Owners Association, said in an interview just before the hearing started.
Lisa Owens Pinto, executive director of City Life/Vida Urbana, for the tenant side told news outlets that “this proposal would just require property owners to provide a good reason to evict someone.” Ms. Owens Pinto said her organization’s measure has three central provisions – landlords must provide a reason for an eviction; if a rent increase is sought, a landlord must first notify the city; once notified, the city must use its resources to contact and advise the affected tenant.
Gilbert Winn, chief executive of Boston-based developer Winn Companies, told the council that a new set of regulations isn’t needed and warned that any changes may have an adverse effect on housing. “You can’t attack the very thing you are trying to protect, which is the rental economy,” Winn said. His company is a major developer of affordable housing projects. Winn, the son of Winn founder Arthur Winn, also claimed the proposal would provide tenants with a potential avenue to avoid living up to their rental agreements. “If a contract between a willing renter and a willing owner cannot be adhered to, and only one party has to adhere to it, then the whole system falls apart,” Winn said.
The proposal has been a moving target. A revised draft of the group’s proposal, originally submitted as a home-rule petition, wasn’t available at the hearing, leaving several councilors perplexed as to why it hadn’t been officially filed. “We’re talking about a specific proposal and I’m finding it hard to follow because we don’t have the draft in front of us,” City Councilor Josh Zakim said about halfway through the four-hour hearing.
Prior to the hearing, tenant advocates agreed to drop one of their most controversial requests: a mandate that rent increases of 5 percent or more be subject to nonbinding mediation. Instead, they are pushing for a rule that would require landlords to notify the city of rent hikes that result in eviction, known as a no-fault notice to quit.
Mayor Marty Walsh had initially signaled support for the measure, but wanted to see how the details would be fleshed out. As they say, the devil is in the details and it’s quite possible this proposal will get significantly watered down during the legislative process, if it survives at all.
As with this year’s blockbuster Star Wars — The Force Awakens, my prediction for an active and entertaining 2015 in Massachusetts real estate law has come to fruition. Without further ado and with a Star Wars theme, I present you with the top 5 “episodes” for the last year in Massachusetts real estate law.
I. TRID (Truth in Lending RESPA Integrated Disclosure) Rules
Heralded as the most comprehensive change to real estate closings in the last 20 years, the new TRID rules (Truth in Lending/RESPA Integrated Disclosure) have certainly lived up to their billing. If TRID were a Star Wars character, it would be Kylo Ren of the First Order, smashing and destroying the old way of doing closings with his scarlet cross-guard lightsaber. The new rules went into effect on October 3, and the real estate industry has been, by and large, scrambling to get up to compliance speed with the new regulations. The new “Closing Disclosure” is quite convoluted with far too much information, and also necessitates a separate “seller” closing disclosure. So, the old three page HUD-1 form has turned into two forms with seven pages. That’s the government for you… There is also a 3 day waiting period for closings to be scheduled after the issuance of the new Closing Disclosure. Some lenders have been great getting the “CD” out on time. Some others, not so much. In my estimate, I would say that at least 50% of my transactions have been delayed due to TRID related issues. For 2016, I predict continued delays and compliance issues for the first two quarters of the new year, with things hopefully smoothing out for the spring market. Oh, did I already tell you that I miss the old HUD-1 Settlement Statement already!
II. SJC Rules Real Estate Agents Can Remain Independent Contractors
The summer saw the SJC come down with its long awaited ruling on independent contractor classification inMonell, et al. v. Boston Pads, LLC. After much lobbying from the industry, the Court ruled that Massachusetts real estate and rental agents can remain classified as independent contractors under the state’s real estate licensing and independent contractor law. The ruling keeps the traditional commission-only independent contractor brokerage office model in place, with brokers allowed to classify agents as 1099 independent contractors, without facing liability for not paying them salary, overtime or providing employee benefits. However, like the plot holes in The Force Awakens, the Court left open a few important questions such as whether agents could build a case on other legal theories. In 2016, look for the Legislature to address the murkiness which remains with the law.
III. Gov. Baker Signs Foreclosure Title Clearance Law
If Gov. Charlie Baker were a character out of the Force Awakens, he would be the hotshot Resistance pilot Poe Dameron, swooping down in his X-Wing fighter and saving the day for thousands of Massachusetts homeowners who have been unable to sell or refinance their homes due to foreclosure title defects. After a five year legislative struggle (in which I testified before the Legislature), Gov. Baker signed into law the Act Clearing Title To Foreclosed Properties. The bill will resolve potentially thousands of titles which were rendered defective and un-transferable after the SJC’s landmark ruling in U.S. Bank v. Ibanez. There is a one year waiting period, but after that we should start seeing previously unsellable homes start to come back on the market.
IV. SJC Continues To Scrutinize Foreclosure Compliance
In a major foreclosure decision, the Supreme Judicial Court ruled in Pinti v. Emigrant Mortgage Co. Inc. that a lender’s defective notice of default is grounds to void and nullify a foreclosure sale. This is so even after the property was purchased at auction by a third party without knowledge of the defect. This ruling has resulted in two leading title insurance companies, First American and Fidelity/Chicago, deciding to restrict underwriting title to foreclosed properties
V. Just Cause Eviction Proposal
The upcoming year will see a looming “Resistance” battle between liberal tenant activists and small property owners over a Just Cause Eviction proposal submitted to the Boston City Council. As I’ve written here, the proposal is just a clever re-branding of rent control which was outlawed a decade ago and has been proven not to work by leading economists and city planners. The Just Cause Eviction petition would prohibit a landlord from evicting any tenant except for certain serious “just cause” grounds, making it very difficult and expensive to evict tenants at will or those whose leases have expired. Small property owners claim — and I agree — that the procedural impediments to the Just Cause Eviction proposal are shockingly socialist in nature. Everyone agrees that Boston has a problem creating affordable housing, however, rent control disguised as a just cause eviction proposal is not the answer. It’s not fair to make small property owners to bear the burden of creating affordable housing across the city. That’s the job of the government. Rent control has never been a successful solution to the housing problem. To be continued in Episode VIII…
—————————
I hope everyone has a very happy, healthy and prosperous New Year! –Rich
Rent Control Thinly Disguised As “Just Cause” Eviction Proposal
Citing skyrocketing rents and lack of affordable housing, several activist pro-tenant groups in the City of Boston, with the assistance of the Harvard Legal Aid Bureau, have submitted a home-rule petition to the Boston City Council to create a wide-ranging “just cause” eviction protection for all Boston tenants. Harking back to the days of rent control, the petition would prohibit a landlord from evicting any tenant except for certain “just cause” grounds. These grounds and their related procedural impediments to eviction are shockingly socialist in nature, and in practice would make it nearly impossible (or cost prohibitive) to evict tenants, raise rents and sell occupied rental property in the City of Boston. Rental property owner groups are vigorously opposed to this proposal.
“Just Cause” Grounds for Eviction
The petition provides that landlords may only evict tenants for eight (8) specified reasons. The most troubling situations are outlined below.
Non-payment of rent. A tenant’s failure to pay rent must be “habitual” (which is left undefined) and “without legal justification.” Ordinarily, if a tenant fails to pay rent even once, the landlord may terminate the tenancy and evict. Under the just cause standards, the standard is significantly higher. What exactly is “habitual”? Two late payments, three, four? No one knows, but the petition puts the burden of proof on the landlord.
Damage by tenant. In order to evict, the tenant must have “willfully caused substantial damage to the premises beyond normal wear and tear and, after written notice, has refused to cease damaging the premises, or has refused to either make satisfactory correction or to pay the reasonable costs of repairing such damage over a reasonable period of time.” This would make it much more difficult to evict based on damage caused by a tenant.
Disorderly conduct. The tenant has continued, following written notice to cease to be so disorderly as to destroy the peace and quiet of other tenants at the property.
Illegal activity. The tenant has used the rental unit or the common areas of the premises for an illegal purpose including the manufacture, sale, or use of illegal drugs.
Failure to provide access. The tenant has, after written notice to cease, continued to deny landlord access to the unit as required by state law.
Rent Increases and No Fault Evictions
The most fundamental impact of the just cause eviction petition is how it attempts to severely curtail landlords’ legal right to raise rents and file no-fault evictions. Make no mistake about it, the underlying premise of the petition is rent control – to keep rents (even under market) from increasing and stabilizing “affordable housing.”
Resurrecting the old Boston Rent Control Board, landlords are required to participate in a City-approved mediation session with that agency before raising rents or even declining to renew an expired lease. The board is then required to notify all tenant advocacy groups in Boston of the situation. These groups are invited into every eviction or rent increase process. It will be one landlord against many tenants and advocates. There is no stated limit as to how long the mediation process can last, and after which a landlord still must go to Housing Court which can take anywhere from 6-12 months to complete a no-fault eviction under current law. A landlord’s failure to follow these requirements will result in the immediately dismissal of their eviction case and can also subject them to a $1000 fine by the City.
Moreover, in true socialist form, there are also substantial roadblocks to evicting tenants even where the unit will be used for the owner’s own personal residence. Owners are banned from evicting tenants who are 60 years old, disabled or have children in the school system and have lived in the premises for 5 or more years. (Landlords can only end tenancies after the school year is over.) Seeking to turn private properties into government subsidized elderly and disabled housing, the petition thereby creates lifetime tenancies for these classes of renters. This will greatly discourage investment and capital improvements for these properties many of which are double and triple deckers in struggling neighborhoods.
Rent Control Does Not Work
As counsel for landlords across Greater Boston and having testified at the State House in support of various landlord tenant legal reforms, I am strongly opposed to this proposal. This petition is the fourth attempt by Boston tenant advocates to bring back rent control, all of which have failed after voters rejected rent control state-wide in the mid-1990’s. The idea of rent control has been debunked as a failed policy by countless economists, and actually makes affordable housing stock shrink. A restrictive price ceiling reduces the supply of properties on the market. When prices are capped, people have less incentive to fix up and rent out their property, or to build new projects. Slower supply growth actually exacerbates the price crunch. Those landlords who do rent out their properties might not bother to maintain it, since both supply and turnover in the market are limited by rent caps; landlords have little incentive to compete to attract willing tenants. Landlords may also become choosier, and tenants may stay in properties longer than makes sense.
The problem of skyrocketing rents in Boston and affordable housing is complex and certainly worthy of out-of-the-box thinking. As an old city with little if any developable land left, Boston has always dealt with a supply vs. demand problem. Boston developers have long been required to pay into linkage funds designed to promote affordable housing. Mayor Walsh recently announced a plan to build 53,000 new housing units by 2030. The city’s colleges can also do a better job of creating new student housing. But even with all of this centralized planning, the influx of people to the city, drawn by jobs and Boston’s quality of life, have made this problem a very tricky one to solve.
However, rent control disguised as a just cause eviction proposal is not the answer. It’s not fair to make small property owners to bear the burden of creating affordable housing across the city. That’s just flat out Un-American. If we want more affordable housing, create economic incentives to build more, and encourage the City to buy their own properties and create housing. Rent control has never been a successful solution.
If and when the Just Cause Eviction proposal rears its ugly head in the Boston City Council again, email your local city councilor and the Mayor.
A copy of the Just Cause Home Rule Petition can be found below.
Landlord Stopped From Evicting Tenant Over $3.26 In Interest
Massachusetts has a well-deserved reputation as being a hostile jurisdiction for landlords. With a myriad of tenant favorable laws on the books, the proverbial playing field is often stacked against landlords. Exhibit A is the Security Deposit Law which provides a three month penalty, including payment of the tenant’s legal fees, against landlords who don’t follow its strict requirements.
One of the requirements of the Security Deposit Law is that annually the landlord must pay the tenant any accrued interest on the deposit. That’s what got landlord Garth Meikle in trouble with his tenant who was three months behind in rent.
Garth Meikle v. Patricia Nurse, SJC-11859
Meikle brought an eviction case in the Housing Court, and essentially won with the judge ordering the tenant to pay the past due rent, but deducting the security deposit plus the three dollars and change in interest. However, to the tenant’s rescue came the crusading Harvard law students from Harvard Legal Aid Bureau. Representing her for free, the students have taken her case all the way up to the Supreme Judicial Court. (Why is it that landlords are not offered the same free legal aid?). The tenant posted an appeal bond so she’s allowed to stay in the apartment while paying the rent during the pendency of the case.
The SJC heard arguments this morning with third year Harvard Law student Louis Fisher arguing the case. (Damn lucky kid!).
The Harvard tenant lawyers are advancing the dangerous argument that a landlord who violates the security deposit law — even in the most minor of circumstances — cannot evict a non-paying tenant.
Scary right? If the Court accepts this argument then tenants will have yet another powerful tool to avoid eviction. The Security Deposit Law is so strict that most landlords make minor errors in holding the deposit. That’s why I have advised that landlords don’t even bother taking security deposits in the first place.
You can guess where I stand on the merits of the case. The security deposit is a separate financial matter between the landlord and tenant which has nothing to do about whether the tenant owes rent or the condition of the property. Those are the two primary issues in a non-payment eviction case. You don’t pay the rent without legal defense, you’re out. Period. Compliance with the security deposit law should have no bearing on a non-payment eviction. The Legislature did not intend otherwise, and regardless, that should not be our policy. Enough is enough already.
You know what else bothers me? These legal aid organizations take on these “test cases” to train law students and get them experience. After all when does a law student ever get to argue a SJC case? Is that really fair and just to small unrepresented landlords like Mr. Meikle who told the justices that his son and fiancee were hoping to live in the apartment?
The SJC should come out with a final ruling in the next few months. Check back here for future developments. In the meantime, I will keep on fighting the good fight for landlords.
I will be speaking about Rental Legal Trends and Security Deposits at the monthly Boston Real Estate Investors Association meeting on November 3, 2015 at the Hilton Hotel – Dedham, 25 Allied Drive, Dedham, MA. Time: 5:30PM-9PM.
Agenda below. It is FREE for anyone who mentions my name!
5:30 PM – “Meeting Before The Meeting” – Multifamily Investing with Charles Dobens
7:30 – 8:00 pm – What You Need To Know BEFORE Placing An Offer. Lee Abdella of Walsh Home Inspections will address what you should look for before putting an offer in on a house or before waiting your home inspection!
8:00 – 9:00 pm – Mass Security Deposit and Rental Law with Richard D. Vetstein Esq.
Landlord Sued for Wrongful Death After Assailant Shoots Four Guests At House Party, Killing One
A landlord’s worst nightmare is someone getting hurt, or worse, shot and killed on their rental property, and then getting sued for wrongful death. This was the situation facing a property owner in Dorchester in the recent case of Belizaire v. Furr, (Appeals Court 13-P-1908 Sept. 11, 2015). Fortunately for the landlord, the Court ultimately concluded that she was not legally responsible for the shooting because there was no reason to predict it would happen. Had the facts been different in this case, the landlord would not have been so luck to escape liability. After discussing this important case, I’ll talk about some ways that landlords can manage their risk.
Shooting at House Party, 5-7 Edson Street, Dorchester
The landlord owned a two-family in Dorchester which she rented out to several individuals. The landlord was fairly lax with written lease agreements, with some of the tenants having leases, but others not. On the night in question, the landlord’s son and one of the occupants (who were friends) hosted a party with a DJ, alcohol and dancing. Carl Belizaire attended the party as a guest. Late at night, an unknown assailant shot up the room, killing Belizaire and injuring three other guest. The assailant was never found or charged. There was no prior history of violence at the property.
Landlord Sued For Wrongful Death
Belizaire’s estate sued the landlord for wrongful death, alleging that she failed to keep the property safe. The Court first analyzed whether there was a tenancy or lease in place, because that would minimize the landlord’s liability and control over injuries occurring on rental property. The landlord’s failure to secure leases with the tenants at the property, particularly the tenant who threw the party, resulted in the court concluding that there was insufficient evidence to rule that there was a valid tenancy in place to shield the landlord from liability.
The Court, however, ultimately ruled that the landlord was not liable for the shooting because there was no evidence of prior shootings or similar violent incidents on the property. Although there was evidence of prior drug activity at the property, the court found this insufficient to support a finding of liability. There was no evidence of other large parties with uninvited guests similar to the one in question taking place on the property. Nor was there any evidence that the landlord was affiliated in any way with, or knowledgeable about, the assailant or any dispute that the assailant may have had with the victim. The evidence submitted suggests that the victim’s death was tied to events beyond the party at the rental property. As a general rule, a landowner does not owe a duty to take affirmative steps to protect against dangerous or unlawful acts of third persons. In certain exceptional circumstances, landlords may be liable for ignoring criminal activities that occur on their premises and were known or should have been known to them. That was not the case here.
Managing The Risks Of Property Ownership: Use Strong Leases and Set Up LLC’s to Hold Title
Many of my landlord clients often worry about liability issues at their rental property. They often ask me whether they can get sued over someone getting hurt on their rental property and what they can do to minimize their risk.
The landlord in this case made some catastrophic mistakes which, had the facts been different, could have resulted in a multi-million dollar liability. The first mistake she made was not securing written leases for all tenants and occupants at the rental property. The form lease that I have drafted contains a unique indemnification clause which would have help shield the landlord for liability for injuries caused by the tenants. The second major mistake made by the landlord was holding title to the rental property in her individual name, thereby exposing her personal assets to a lien or judgment. Although not always appropriate for every landlord, it’s a prudent idea to hold rental property in a limited liability company which would shield the landlord’s personal assets from liability. There is expense to set up the LLC and there is a $500 annual fee, but in my opinion, it’s well worth it relative to the risk of getting sued for wrongful death.
If you are a rental property owner and would like advice concerning your leases or would like to discuss setting up an LLC, please contact me at [email protected] or 508-620-5352. I would be happy to help you in any way.
By-Pass Housing Court For Expedited Superior Court Restraining Order Procedure
I recently handled an interesting case involving an unauthorized family member taking up residence in my client’s rental unit. My client, a doctor, owns a very nice condo unit in the Theatre District in Boston. He and his family live next door in the adjacent unit. The client signed a one year lease with a wealthy foreign national from Jordan, a middle aged lady. Per the lease, the tenant was the only authorized occupant for this 1BR unit. There was no discussion about family members being authorized occupants, and my client would not have agreed to it.
My client comes to find out that the tenant’s 20-something year old son, who attends a local college, has taken up residence in the unit. To make matters worse, the kid hosts several loud late night parties reeking of marijuana and cigarette smoke. My client is incensed, and to add insult to injury, he is fined several thousand dollars for noise and lease violations by the condo association. My client attempts to take action against tenant and son, but they hire a well known tenant’s rights attorney who stonewalls the two attorneys hired by the client. The client finally hires me.
Typically, this type of case would be filed as a standard eviction case in busy pro-tenant Boston Housing Court. The tenant’s attorney is also well known there. Accordingly, I needed to find a way to bypass Housing Court and take away this lawyer’s home court advantage.
So I came up with an creative approach. I filed a restraining order application in Superior Court to remove the son as an illegal trespasser. Although Superior Court typically handles major civil cases, it does share jurisdiction with the Housing Court over trespass cases requesting equitable relief. I served the interloper with a formal trespass notice, then filed the Superior Court application a few days later. The judge granted the move out order, after which my client and I had the pleasure of taking a victory walk down Tremont Street to serve the move out order. We were able to have the management company immediately change the locks and remove all the kid’s possessions. He is now permanently barred from entering the building. And the best part was that he left his wallet and passport in the unit! My client is now preparing the unit for rent to a better tenant.
I am honored to be one of four fantastic speakers at the Massachusetts Rental Housing Association (MRHA) Annual Meeting and Conference on Saturday, May 30, 9AM-1PM at the Embassy Suites, 550 Winter Street, Waltham, MA.
My presentation will be “War Stories from the Eviction Court Trenches.” I will retell some colorful stories from my career handling over 5,000 evictions throughout the Commonwealth, as well as talk about my thoughts for fixing the system going forward.
We have all heard of the large penalties inflicted upon unsuspecting landlords who are not aware of fair housing laws, protected classes of people and discrimination red flags. Ms. Williamson is a Commissioner of the Massachusetts Commission on Discrimination(MCAD) and her presentation is not to be missed.
Marcus Papajohn, Financial Planner, www.MarcusPapajohn.com, The Good, the Bad and the Ugly, Estate Planning for Landlords
How do you plan your estate of income properties? Whether your properties total $200,000 or $2,000,000, whether you are 25 years old or 52 years old or 82 years old, whether you have children or not, you are wise to have an estate plan. Mr. Papajohn is a financial planner who has worked with MRHA for many years.
Mark Leger, MRHA Legislative Chair
Do you charge late fees? Have you had the “free rent” trick played on you? If “survivors of domestic abuse” become a protected class, will you be able to evict them? Mr. Leger explains landlord bills before the Massachusetts legislature that will effect the way you conduct your rental property business.
State House Hearing Set For May 12, 1pm, Joint Committee for Judiciary Hearing Room A-2
For the last decade, Massachusetts landlords have been lobbying for a tenant rent escrow bill which would prevent tenants from using the infamous “free rent trick” in evictions. The free rent trick works like this: Tenant stops paying rent for various reasons, such as economic hardship or by design. After receiving a 14 day notice to quit for non-payment of rent, the tenant will immediately call the board of health to get the owner cited for minor or cosmetic code violations such as a hole in a window screen. Under current Massachusetts law, any code violation cited, however minor, allows the tenant to withhold rent until the eviction case is resolved. What usually happens is that the tenant skips out of town or agrees to a move out but never pays the months of accrued unpaid rent, leaving the landlord stuck with thousands of lost income to pay their mortgage and expenses.
Even the liberal Boston Globe recently published a compelling piece on how the Massachusetts legal system unfairly penalizes small landlords in these situations.
Unlike most other states, there is no requirement in Massachusetts that the tenant post the withheld rent into some form of escrow account. There have been many instances where tenants have intentionally inflicted property damage to claim code violations or just made them up altogether.
Bill Would Level Playing Field Between Small Landlords and Tenants
Hopefully, this will finally be the year that the Legislature passes this much needed reform to curb tenant abuses of the eviction process. Three bills will be discussed, H.B. 1654, H.B. 1663 and H.B. 1664. Landlords are urged to come and testify before the committee and otherwise support the bill by contacting their local representatives and senators.
A mandatory rent escrow law would require any tenant who exercises their right of rent withholding to pay the withheld rent into an escrow account until the unsafe conditions or code violations are repaired. After repairs are done, either the landlord and tenant agree on how the escrowed rent should be divided, or a judge orders a fair settlement. In most cases, the owner will get back most of the withheld escrowed rent. But the most important impact of a mandatory rent escrow law is that those nonpaying tenants who do not escrow can be promptly evicted for nonpayment of rent. Although nonpayment evictions will still take on average three months to resolve, much-longer-delayed evictions and the free rent trick will be stopped.
The bills will most benefit small landlords and owners-occupants of multi-family residences who rent out apartments. These property owners are typically on strict budgets, and any lost rent and attorneys’ fees will prevent them from paying their mortgages, real estate taxes and property expenses, potentially leading to default and foreclosure.
Elizabeth Gerhman, a writer for the Boston Globe Magazine and owner of two rental units, is fed up with how the Massachusetts legal system favors tenants over landlords.
“In just five years as a rental, the other [unit] — which has hardwood floors, granite countertops, and a $1,200 dishwasher — has been a nightmare, with tenants who bounced checks, didn’t pay their rent, and threatened to call the building inspector over, among other things, a loose toilet seat, a missing outlet cover, and, I’m not kidding, a bedroom that is allegedly 0.389 of an inch too small. The tenant who detailed these horrific, slum-like conditions also threatened to take me to court over some food that had spoiled when the refrigerator broke — which is what prompted the intimidation tactics in the first place.”
As landlord groups have been arguing for years, one of the major problems with the current system is that Massachusetts has no rent escrow law. Under the present system, a tenant can withhold months of rent for any cosmetic or minor problem with the unit until the eviction case is resolved, leaving the landlord unable to pay their mortgage. We call that the “free rent trick.” As Ms. Gerhman correctly points out, “with an average judgment of about three months’ rent, this can be a real hardship for house-poor landlords. And once a landlord does evict a tenant who owes back rent, he or she must pay to move the tenant’s belongings out of the apartment in addition to three months’ storage costs.” As I was quoted in the article, many landlords opt for “cash for keys” deals to avoid huge losses during an eviction.
A rent escrow law would require any tenant who withholds rent to simply pay it into an escrow account until the unsafe conditions or code violations are repaired and the eviction case is resolved. After repairs are done, either the landlord and tenant agree on how the escrowed rent should be divided, or a judge orders a fair settlement. The “free rent trick” would be gone and landlords less likely to get left holding the money bag.
Sounds fair? Tell that to your state legislators who have been sitting on rent escrow bills for over a decade.
New rent escrow bills return to the Legislature this session as House Bill 1654 sponsored by Rep. Chris Walsh and House Bill 1112 sponsored by Rep. Brad Jones. Both bills are expected to get hearings at the State House this spring. I will keep you posted.
Personally, I think a fair legislative compromise would be for landlord groups to support the Housing Court Expansion bill under the condition that a Rent Escrow Bill is passed along with it. That would be a win-win for both sides.
In the meantime, please email and call your local state rep and senator and tell him or her you are in favor of these bills. If you have any tenant horror stories, make sure you include those as well. Also, consider joining your local chapter of the Massachusetts Rental Housing Association or Masslandlords.net. Both organizations will be coordinating legislative efforts on the rent escrow bill and other landlord legislation. Lastly, please share this article and the Globe Magazine article on your Facebook pages, Twitter feeds and email blasts!
Attorney General’s Office Accused of Smearing Local Landlords In Press
A Craigslist rental ad posted online for merely 8 days turned into a complete nightmare for a Melrose father and son who claim that Attorney General Martha Coakley’s office ran roughshod over their rights and tried to smear their reputations in the local newspapers. After a five year legal saga, the landlords, Nicholas Keramaris (pictured right) and George Keramaris, fought back and won, convincing the Appeals Court to overturn a $38,000 civil penalty and attorneys’ fees assessed against them.
“Apartment Is Not De-Leaded”
The Keramaris family trust owns a 20 unit apartment building in Melrose. All of the units originally contained lead paint, and five of the apartments have been deleaded. One of the leaded units became available for rent, and Nicholas Keramaris, who is also an attorney, researched the lead paint laws prior to posting an advertisement on Craigslist stating “Note that this apartment is not de-leaded, and therefore it cannot be rented to families with children under six years old.”
A Melrose mother, who did not have a child under six and who did not attempt to rent the advertised apartment, filed a complaint with the MCAD about the ad. (This could have been a dummy renter employed to find fair housing violations). Once the landlords were notified of the complaint, they took the ad off Craigslist. It ran for a grand total of 8 days.
AG’s Office Steps In
Attorney General Martha Coakley’s Office then stepped in and filed a civil action for discriminatory rental practices, seeking penalties and damages under the state Consumer Protection Act, Chapter 93A. According to the Keramaris family, “from the day that the Assistant Attorney General assumed responsibility over the case, he insisted on collection of steep penalties as a condition for settlement. Also, the Attorney General’s office publicly smeared us through repeated press releases while the case was pending. Our request for the Attorney General’s office to stop issuing negative press releases was described as a “non-starter” for settlement negotiations. Therefore, this very simple case, which involved a relatively benign violation, dragged on for almost five years.”
Award Struck Down
Despite the fact that the ad ran for only 8 days and no one was actually harmed, the Attorney General was able to persuade a Superior Court judge to assess an aware of nearly $38,000 in penalties and attorneys’ fees. Unwilling to accept this unjust result, the Keramaris family appealed and got the justice they deserved.
Employing some well needed common sense, the three judge appellate panel concluded that although the ad technically violated the lead paint discrimination statute, any harm done was minimal and did not rise to the egregious level of a Consumer Protection Act violation. In a rare ruling, the judges ruled that the lower court abused its discretion, finding that this was nothing but a good faith mistake by landlords who were not intentionally setting out to violate the law. The Appeals Court ultimately stuck down the entire award, leaving the Keramaris family with justice, albeit after 5 long years and I’m sure thousands in legal fees.
Where’s the Discretion?
I have handled numerous rental discrimination cases involving the Attorney General’s Office. The one thing I can say is that they often have a very one sided view of cases and suffer from tunnel vision. They also hardly ever exercise their discretion to back down. It’s usually all or nothing. I would like to see them try to see both sides of the coin in future cases and be more open to negotiated settlements. Maybe this ruling will encourage that. I won’t hold my breath though.
And lastly, I’m curious if the Attorney General will issue a press release announcing that the Appeals Court overturned this award? I doubt it.
I will be speaking at the upcoming Metrowest Resourceful Realtor Meeting on March 2, 2015 at John Harvard’s Brewhouse at Shoppers World, Framingham. Networking starts at 5:45PM with dinner and speakers starting at 6:30PM. Any licensed estate agent welcome.
I’ll be talking about the latest court rulings and legislation affecting Massachusetts real estate law, intermixed with a few colorful war stories from the front lines. Topics will include the status of the independent contractor office model, the new CFPB closing disclosures and settlement statements, and a rental housing update.
Also speaking is Sandy Krenz, a 30-year interior designer and consultant with Debsan Paint in Natick. She will talk about color and decorating trends.
City Universities Providing ISD With Addresses of Student Apartments
In the coming weeks, some Boston college students living off-campus and their landlords may be greeted by city inspection officers at their doors. Shrugging off privacy concerns, pursuant to a new city ordinance, the city’s 31 local colleges and universities have sent the city’s Inspection Services Department the addresses of their students who live off-campus. Of the 25,000 addresses it received, ISD will pay visits to the 580 it deems to be suspect of violating zoning codes. Boston.com reporter Julie Xie in her article “City Will Inspect Off-Campus Student Apartments, And It’s Legal” reported this new development.
They’ll primarily be looking for issues related to overcrowding. There are over 45,000 undergraduate and graduate students living off-campus in Boston, according to The Boston Globe. A 2008 city ordinance prohibits more than four undergraduates living together in one apartment.
The city’s crackdown comes in the wake of BU senior Binland Lee’s tragic death in 2013 from a fire in her overcrowded Allston apartment. Flames blocked the staircase from the third floor — her only egress. Scofflaw landlords and poorly managed units unsafe for students were the subject of the Globe’s “Shadow Campus” investigation last year. Now, an ordinance requires colleges to provide a list of where students live off-campus every semester. Another requires private rental units to register their properties annually, and inspections are performed every five years.
There is no question that some Boston landlords catering to the huge undergraduate population have skirted the law, creating dangerous living spaces for far too long. Regardless of the issue of occupancy limits, landlords need to comply with the sanitary and building codes so they don’t create fire traps for housing.
However, I have always had issues with the legality of the 4 undergraduate rule. I’m quoted in the article as saying that the no-more-than-four rule has always been somewhat suspect, arbitrary, and tough to enforce. Though neighbors do complain about late-night parties and loud college students, not all undergrads are troublemakers.” “Undergrads are not a protected class under any discrimination laws, and they’re transient, so it’s not like they’re going to come up with a lobbyist or fight for their rights in that way,” I’m quoted. “Colleges don’t want to get in trouble and they know they won’t get much pushback from Boston’s student body.”
Landlords Get Useful Tenant Screening Tool for Massachusetts District Court Records
In a much anticipated announcement, expanded online court docket information is now available for all district courts in Massachusetts including records on evictions, small claims, civil, and supplementary process (collection actions) cases. The website is Masscourts.org. It is free to use.
Using this site, landlords can check to see if prospective tenants have been involved in any prior evictions or have been sued by creditors. Housing Court dockets have already been available for about a year.
The only downside to the site is that users must search each individual court separately. My advice for landlords is to match the court with the prospective tenant’s former address and check to see if they were previously involved in any summary process or debt collection lawsuits.
About 30% of people in Massachusetts do not have access to the state’s Housing Court — one of Massachusetts’ specialized courts handling landlord-tenant disputes, evictions and sanitary code enforcement. The unserved areas include the largest county in the state, Middlesex County and most of Norfolk County, with high density rental towns including Cambridge, Framingham, Brookline, Waltham, Dedham, Malden and Somerville. Also unserved by a Housing Court is all of Cape Cod and the Islands and Chelsea.
Under a plan touted by Supreme Judicial Court Justice Ralph Gants, the Housing Court would be expanded to cover the entire state by July 1, 2015. “We believe that all residents of the Commonwealth, regardless of where they live, should have the opportunity to have their housing case heard by a Housing Court, and benefit from its specialized expertise in residential housing matters,” Gants said in a statement.
As an eviction and landlord-tenant attorney who practices quite a bit in both Middlesex County and in the Housing Court, I can say positively that this is a great idea. In Framingham District Court, for example, the Thursday eviction session can be standing room only with landlords and tenants often spilling outside into the hallway. The busy court is already swamped with criminal matters, and getting a trial date in an eviction case can take upwards of several months — certainly not “just, speedy and inexpensive” as mandated by the Uniform Summary Process Rules.
The Housing Court would be able to take the burden off the local, overworked district courts. With a few more full time judges and already with one of the lowest cost-per-case ratios of any court, they should be able to handle the increase in cases. The “X-factor” will be the overall cost, of course.
The Legislature is set to take up the proposal in early 2015. I’ll keep tabs on any developments.
Perry v. Equity Residential: Application Fee, Amenity-Community Fee, Move-In Fee and Upfront Pet Fee Held Illegal
In a stinging class action ruling on August 26, 2014, Boston federal district court judge Rya Zobel ruled that Equity Residential’s up front apartment fees are illegal under Massachusetts law. Even worse for the national apartment owner, the judge found the fees also violate the Massachusetts Consumer Protection Act which imposes up to triple damages and attorneys’ fees. With potentially thousands of affected tenants, Equity Residential could be faced with a sizable legal tab for this policy.
The class action was brought by Brian and Kim Perry, former tenants at Longview Place in Waltham, and Cheryl Miller, who lived at Emerson Place in Boston. The Perrys paid Equity an upfront $100 application fee and a $99 amenity or move-in fee, while Miller paid $50 application and $500 amenity fees, according to the lawsuit. Equity also allegedly charged a $250 pet fee and $500 “community” fee.
Judge Zobel held that the application fee, amenity/move in fee, the community fee and the upfront pet fee was unlawful under the Massachusetts Security Deposit Law which prohibits landlords from charging any upfront fees except for first, last months rent, security deposit and a lost key fee. The judge also found that Equity attempted to do an unlawful end-around the law by charging some of the fees in the second month of the tenancy.
The judge also ruled that the case can be consolidated with another federal lawsuit pending against Equity and granted it class-action status. The potential number of Massachusetts tenants impacted is unclear. Chicago’s Equity leases some 31 apartment complexes in the Bay State with about 6,680 units.
This case is yet another big wake up call for Massachusetts landlords, both large and small, to be extremely careful about up-front move in charges imposed upon tenants. This is also one of the first publicized cases calling into question the practice of charging an upfront application fee. Application fees are very much widespread, and I would counsel landlords and property managers to think twice about charging them under any circumstance. This ruling may also call into question the legality of charging prospective and actual tenants credit report and background check fees.
_____________________________________
If you have any questions about this ruling or your policy for upfront fees, please contact Attorney Richard Vetstein at [email protected].
Law Catching Up With Popular Airbnb Room Rental Website
With the promise of relatively easy money, Airbnb (Air Bed & Breakfast) is making innkeepers of many Greater Boston homeowners who are taking advantage of the popular website’s rental listing service. For those who don’t know already, Airbnb is a website where you can rent out one or more rooms in your home, condo or apartment for a nightly, weekly or monthly fee. But with some homeowners earning upwards of $20,000/year on rental income, Airbnb raises a multitude of thorny legal issues in Massachusetts, including whether an innkeeper or rooming house license is required, whether it violates condominium rules and regulations, and whether guests qualify as tenants. For example, in a recent case, a Back Bay condominium fined a unit owner over $9000 for unlawfully renting his unit out through Airbnb in violation of the condominium rules.
According to a recent Boston Globe article, Airbnb’s website currently lists nearly 3,500 properties for rent in the Boston area — a 63% increase since July 2013. Some of the lodging arrangements offered cost less than $50 per night and involve little more than a bed, a key, and zero conversation. Others offer entire homes, bed-and-breakfast-intensity chitchat, and prices that can top $800 per night. Aspiring innkeepers are everywhere, from Dorchester to Revere, Boston to Somerville, advertising “treetop views,” “steps to the T,” “cozy penthouses,” even “lovely puppies.”
But with success has come negative attention from cities and towns that want to tax the lodging arrangements as they do hotels, from landlords with leases that prohibiting sublets, and from neighbors who don’t want strangers traipsing through buildings. There are also some horror stories popping up with Airbnb guests turning into squatters and refusing to leave. In New York City, the Attorney General is waging a publicized legal fight to get Airbnb host names and recover unpaid hotel taxes. Last year, a group of Brookline residents dropped a dime on a local homeowner who rented out rooms to foreign exchange students via Airbnb. According to Brookline Building Commissioner Dan Bennett, an owner may rent up to two rooms to two lodgers as of right, as long as there are no separate cooking facilities. If an owner wants to have another lodger, they would require relief from the Zoning Board of Appeals.
Licensing and Registration Requirements
From a legal perspective, there is no doubt that Massachusetts municipalities will eventually be considering whether Airbnb qualifies as a rooming or lodging house, bed and breakfast or hotel for purposes of both regulation and taxation. Hey, you think cities will pass up a golden opportunity to increase tax revenue? No way.
The state Executive Office of Health and Human Services recently opined in a memo that lodging of this type is subject to local licensure as a bed and breakfast. For now, the City of Boston Inspectional Services Department has issued a temporary policy that they will not issue citations to homeowners while an internal group works on recommendations. A city policy is expected this fall, and as yet, no per-bed fee rate has been set.
The Licensing Board for the City of Boston requires a lodging house license if lodgings are rented to four or more persons not within the second degree of kindred to the person conducting the lodging. This license is an annual requirement and a lodging house is further required to keep, in permanent form, a register of the true name and residence of occupants for a period of one year. Lodging house license may require upgrades with smoke detectors and fire prevention systems which may be cost prohibitive for any Airbnb host.
The Boston Inspectional Services Department requires that a property be registered if it is to be occupied without the owner of the property present. This registration is done on an annual basis and inspection of the property is required on a five (5) year cycle by the Inspectional Services Department. This regulation applies to “a non-owner occupied room or group of related rooms within a dwelling used or intended for use by one family or household for living, sleeping, cooking and eating.” More information is available here.
In the suburbs, Airbnb may also run afoul of zoning by-laws which regulate whether a home is a single family or multi-family dwelling.
Taxes. The City of Boston excise and convention center taxes (together known as room occupancy taxes) may apply to an Airbnb listing. Refer to the Massachusetts Room Occupancy Tax Guide for more details. In addition, the Massachusetts excise tax may also apply. Refer to Section 64G(3) of the State Tax Code.
Guests Considered Legal Tenants?
Airbnb offers rentals for a daily, weekly or monthly charge. Whether a guest would be considered a legal tenant entitled to the vast protections under Mass. law depends primarily on the length of the tenancy. Under state law, if the premises is deemed a rooming house or lodging house, a rental for three consecutive months constitutes a tenancy at will which can only be terminated with a rental period notice of at least 30 days. Occupancy of a dwelling unit within a rooming house or lodging house for more than 30 consecutive days and less than three consecutive months may be terminated only by seven (7) days notice in writing by the operator of the rooming house or lodging house to the occupant. A daily rental is a grey area and would likely be considered a mere license. However, in all instances, the host must use court eviction proceedings to evict the guest, and cannot resort to self-help such as changing the locks, lest they be subject to liability.
Apartments
If you have the chutzpah of renting out a room in your leased apartment via Airbnb, the rental will likely violate your lease’s provision against sub-leasing and your landlord will not be happy. Most standard form apartment leases provide that any sub-lease must have the written consent of the landlord so the landlord can control who occupies the unit. Most landlords I know will not approve of an Airbnb rental situation, unless they are getting income and are assured of the security and safety of the situation. Renting out your apartment through Airbnb can violate your lease and subject you to a quick exist via eviction. From one legal question and answer website, tenants are already facing eviction for using Airbnb.
Condominiums
If you are renting out a room in your condo, Airbnb rentals may also conflict with condominium rules and regulations, many of which prohibit short term rentals, business use of units, or both. I highly doubt your condominium association and fellow unit owners would be happy if a unit were turned into a revolving door of bed and breakfast guests. Most condominium documents provide for rules governing the type and length of rentals of units. Unit owners who violate these rules can be subject to fines, penalties and court action. These cases should be popping up more and more.
Mortgage and Homeowner Insurance Policy Ramifications
Most conventional single family and condominium Fannie Mae compliant mortgages contain a provision where the owner agrees that the mortgaged property will remain the borrower’s principal place of residence and not an investment property. Investment property mortgage typically carry a higher interest rate and are sold in a different category in the secondary mortgage market. Homeowners who make a practice of using Airbnb may unknowingly be violating their mortgage agreements by converting the property into in essence a rental property. The same holds true for a standard homeowner’s insurance policy. Turning your home into a bed and breakfast certainly raises a host of new risks for both the homeowner and the insurance company underwriting those risks. If there is an unfortunate accident involving an Airbnb guest, watch out because the insurance company could deny the claim due to converting the character of the insured property into a rental property.
What’s Next?
Airbnb is certainly a game-changing technology in the rental space. As is common with any new distruptive technology the law is just catching up. But the law will catch up and Airbnb hosts and guest must pay attention and comply with whatever regulations and law that are passed. Check back here for more developments as I will be monitoring the situation.
Richard D. Vetstein, Esq. is regarded as one of the leading real estate attorneys in Massachusetts. With over 25 years in practice, he is a four time winner of the "Top Lawyer" award by Boston Magazine, a "Super Lawyer" designation from Thompson/West, and "Best of Metrowest." For Rich's professional biography, click here. If you are interested in hiring Rich or have a legal question, email or call him at [email protected] or 508-620-5352.
Widespread Racial Disparities In Criminal Justice System Justifies New Policy
