The Powerful Ways The Tenant Wins With An Illegal Sublet Of Your Property

Tenant wins with illegal sublet

Airbnb promotes itself as a home sharing system – a way for homeowners to make their permanent residences, vacation homes, second homes, and other unused property available to others for a reasonable nightly rental fee. The concept of Airbnb of exchanging empty space for dollars fills a niche in the market by connecting those who want to rent space with those who need it, but it is not just property owners who are selling off their space. Many tenants offer an illegal sublet of their property to others during the time of their lease without the knowledge of their landlord.

New studies from the American Hotel & Lodging Association (AHLA) show that an increasing percentage of business worldwide (now 81% in the US) comes from the rental of whole units. The fastest growing percentage of income comes from hosts who rented out two or more homes, which suggests that many hosts are making the provision of short-term rentals a business. In New York City, as the New York Post pointed out, about 64% of Airbnb listings covered an entire apartment building, while five hosts were found to have 200 or more listings.

The concept is so popular that Airbnb is now a company active in 192 countries worldwide and valued at $31 billion from commissions earned from both the “rentor” (the host) and the “renter” (the guest) on each transaction. While Airbnb, rentors, and renters benefit from this multi-billion dollar industry, landlords around the world are being shortchanged. As a landlord, you are right to be very concerned about the rising popularity of companies like Airbnb that challenge your role as a landlord.

Hotels hate Airbnb and its competitors for cutting into their revenue stream, while landlords and property managers much more serious concerns with illegal sublets..

Why Airbnb Is Catching On

Airbnb and its competitors such as HomeAway, HouseTrip, VayStays, and FlipKey offer new opportunities for those who need a place to stay short term, and those who have the space and are renting it. Those with available space on their hands welcome the opportunity to profit from a spare room or a whole house or apartment they are not using. Since rentals are short-term, this new class of “landlords” can set the dates of occupancy and the terms of the rental and collect funds to defray their own expenses.

Using Airbnb is popular among travelers who seek to cut lodging costs. Businessmen who work out of town for a few weeks or months utilize the service, which is also popular among travelers to foreign countries. Depending on how much they want to pay, they may rent a room in a home that the owner is occupying or have possession of the whole property.

While Airbnb properties usually rent for less than hotels and other commercial properties, the other big advantage is that they also allow users to select the type of property they desire so that they can personalize their lodging experience; rather than residing in a hotel, they can find a location that meets their needs and those of their family or anyone who travels with them.

When travelers find alternatives to patronizing hotels, and others who need to rent property can bypass the normal channels of dealing directly with the property owner, the “landlord business” suffers, especially when hosts rent out multiple units. Recent statistics show that nearly 10% of Airbnb listings nationwide are commercial, with the percentage rising to 21% in Honolulu, 16% in Los Angeles, and 12% in Seattle.

Why Airbnb Is A Nightmare For Landlords

Airbnb a nightmare for landlords & hotels

Hotels hate Airbnb and its competitors for cutting into their revenue stream. The more popular the concept is, the more that the hotel industry has to lose as potential renters examine the alternatives. On the other hand, landlords and property management companies have other, sometimes much more serious concerns with the short-term rental concept:

Airbnb rentals allow property occupancy by those the property owner does not vet. As a landlord, you might run a credit check or contact references for those seek to occupy your property and refuse to rent to someone who is financially unstable, who has a history of wild parties that destroyed property, or who is planning to run a dangerous business there. When your tenant sublets property without your knowledge, you have no control over who occupies it. Airbnb maintains some oversight over transactions, but they do not exercise the same due diligence over subletting your property as you would.

Illegal subletting provides tenants with a way to circumvent their lease provisions. Tenants find the ability to sublet to be a good way to run out a lease they are legally obliged to honor when their own circumstances change. Unlike legal subletting, where you agreed to the process and have say over who occupies your property, illegal subletting is “under the table”; your tenants receive money from using your property as a hotel.

For those who travel, Airbnb offers a way to make money on an apartment they rent when they are not using it by charging a nightly fee to short-term renters. For example, an engineer at Google who lives in New York City in a $1,500 rent control apartment makes regular business trips to Google headquarters in Mountain View, California every month. Well aware that the market rate on his apartment is about $4,000, he rents out for $250 per night. In just six nights, he brings enough to pay his rent. He abuses the system, while living for free. The total rent that the tenant-rentor receives far exceeds what the landlord can charge, which puts the landlord in violation of the law and subject to fines.

Unauthorized short-term rentals are no longer a mom-and-pop enterprise of renting extra space, but now encourage the growth of “illegal hotels” in residential neighborhoods. In most locations, the business of renting property is subject to a host of federal, state, and local regulations that rentors and Airbnb itself try to get past. Many cities are adopting laws that prohibit short-term rentals, while having laws that dictate how many individuals can occupy a space; overcrowding can result in a poor quality of life, make the property unsafe, and subject it to excessive wear and tear.

When a tenant becomes a rentor by turning their rental space into a business and leasing it with the explicit purpose of turning a profit, he might jam in a maximum number of people into that space for maximum rent in return, while assuming neither the costs nor the risks that landlords assume when they rent or lease property. Consider the example of someone who rents out their $2,000/month rent-controlled apartment in New York City to sports fans who come to town for the World Series for a few days and charges five people $400/person per night. This tenant pockets $4,000, while an illegal sublet puts the landlord at the mercy of angry or jubilant sports fans, depending on whether the Mets or Yankees win or lose.

Unauthorized rentals can also increase landlord liability. While Airbnb tries to screen guests and hosts, there are many examples of sexual abuse by hosts and users, as well as theft and vandalism. As a property owner, you may be the one that injured parties try to sue. Even if the suit is dismissed, the amount of time and money you will have spent to get to this point is considerable.

If an accident occurs on your property, you could still be liable for a big payout or what occurred on your property, whether it was an illegal sublet or not.

Illegal subletting can violate your insurance. Many companies, including Allstate, allow clients to rent out their home for a week or two, and extend liability coverage to the occupants, but illegal subletting is not what they have in mind.

In writing a policy for you, your insurance company calculated your risk before assigning a rate. What you pay is based on residential occupancy and the profile of the property. If your tenant runs a hotel business that you are unaware of, you could increase the carrier’s risk. The same is true if your property was subject to the continuous coming and going of unvetted people. Your liability, and that of your insurance company increases.

Airbnb offers free liability coverage of $1,000,000 to hosts, but this is secondary insurance; the expectation is that the host would use their own insurance companies to cover claims for guests’ deaths or injuries, as well as property damage. Both the host’s and the renters’ insurance (if they have it) and the landlord’s insurance might refuse to pay. There are also things that Airbnb insurance will not cover, such as mold in a home that made a guest sick. The landlord might be faced with paying damages out-of-pocket.

When your insurance carrier gets wind of the fact that your home or apartment is used for ongoing short-term rentals, you face cancellation. Ignorance of the law does not eliminate your responsibility if your tenant is renting the property out to others without your knowledge.

How Landlords Can Fight Illegal Sublets

Landlords can fit illegal subletsMany Airbnb sublets progress without incident and without your knowledge as a landlord, but this does not mean that you should be oblivious to what could happen should your tenant sublet. The Internet is a vigilant reporter of many examples of property damage, theft, safety problems, and injury to both hosts, guests, and property owners. As a landlord, what can you do to combat the growing problem of illegal sublets of property that you own or manage?

Fortunately, round-the-clock monitoring services provide an affordable and economical approach to this growing problem. If your property appears on Airbnb or similar sites, you will be notified via email or a website dashboard, where you can view the status of your properties.