Don’t Let Your Short-Term Rental Be a Long-Term Headache

Category: Litigation

Air B-N-Bs, VRBOs, Short term vacation rentals (STRs): Everyone hates them. Everyone loves them. And absolutely everyone and their mother has plans to make supplemental income off their spare room, guest house, garage loft, ADU, second home, or abnormally large doghouse in the backyard. Yours truly is no exception to the aspiration of easy money with the assistance of platforms like Air B-n-B and VRBO. What all my STR hopefuls should be aware of is that this is a regulated industry with dynamic legal interests involved. Make no mistake, there is real money flowing in this market bringing millions of tax dollars to the state. All that money and all those strangers popping in and out of your STRs means two things for you and anyone else interested in trying their hand in this market: 1) Regulation, and 2) Liability.

Regulation: Around 2019, the good people down at the state capital, our legislators, decided to remove most of the regulatory power from cities and counties when it came to STRs. If you were a proprietor, this was a dream come true. If you lived next to a “party house,” this exacerbated the problem and made it seem like the market was the legal equivalent of the wild west. But then the clouds parted, light shown down from the state legislator yet again, and in September 2022, via A.R.S. §§ 11-269.17 and 9-500.39, power was bequeathed back to local governments itching to bring down the hammer on STRs. I speak in jest. The consensus among local governments at the time was that they had been given next to nothing. I know because I was a part of the conversation. But that didn’t stop many cities and a few counties from passing ordinances anyway that may push the boundaries of what’s legal. Looking at you Scottsdale and Paradise Valley. More are sure to follow.

It’s important to know what and how the law allows local governments to regulate STRs. Just to mention a few, cities can require a permit or license to operate an STR, but they cannot limit the number they issue. The law also strictly restricts what can be asked of you and what can be charged for the application. Your permit/license can even be revoked for up to one year if you receive three verified complaints or have one verified complaint meeting certain parameters. The subject of verified complaints are rife with complications. There is ambiguity in the law creates room for argument about how far local governments can go with regulations. Since the law passed, no published court opinion has chimed in on the subject. If you suspect that your city or county ordinance is restricting your STR efforts unlawfully, I suggest seeking legal counsel to ferret out the issue.

It is not all easy money, risk weighs heavily in the balance. Many people do not consider the possibility that an STR guest could slip and fall getting in and out of that hot tub you bought hoping to reach “super host” status. Or a catastrophic tumble caused by that one step in the staircase an inch too high. The very asset you have placed the hope of good fortune in could end up costing you everything. Yes, STR platforms provide insurance coverage for hosts, and homeowner’s insurance provides riders for this very thing, but do not assume that in light of a wrongful death claim from a fire, drowning, or other serious injury that you are covered, or that your other assets are safe. Having a chat with an attorney well versed in this area of law could identify where you are exposed, what coverage you need, and how to shield what you have worked for in case the unthinkable happens.