BEWARE AirBNB / Short Term Rental Warning for Apartment Owners

[Dan Handford]

No More AirBNB / Short-Term Rentals on Apartments with Agency Lenders

At almost every conference that I have attended this year, I am seeing so many 3rd party AirBNB/short term rental companies trying to get apartment owners to lease vacant units to them so they can share revenue using an AirBNB-type model. 

For a variety of reasons this is very intriguing and as the potential to solve some vacancy issues.

However, as of Aug 2019 agency lenders have added specific language into their loan documents that STRICTLY PROHIBITS the practice of short term rentals including AirBNBs even if signing long term leases with 3rd party companies who use your apartment as short term rentals. 

Here is specific language from the loan docs: 

"Short-Term Rentals (regardless of the duration of the term) shall not be permitted unless otherwise expressly approved by Lender in writing;"

Here is their "definition" of short-term rentals directly from the loan docs: 

“Short-Term Rental” means any Lease or master Lease (including subleases, licenses, and other possessory interests, whether oral or written) of an individual dwelling unit, for which the intended occupancy of the dwelling unit is for a period or periods of less than thirty (30) days, irrespective of the stated term of the Lease, including any Lease:

(a) for corporate tenant and guest suite purposes; or

(b) with an agreement or arrangement between either:

(i) Borrower and a tenant whereby the tenant may enter into a separate agreement or arrangement with a Short-Term Rental Provider to offer Short-Term Rentals at the Mortgaged Property; or

(ii) Borrower and a Short-Term Rental Provider, pursuant to which tenants may offer Short-Term Rentals at the Mortgaged Property.

“Short-Term Rental Provider” means any platform or provider (including any internet or online service platform or provider) that offers Short-Term Rental services and arrangements, including booking and reservation services to guests and customers.

So my warning to everyone is to make sure you check your loan docs prior to signing up for AirBNB yourself on your property or before signing long term leases with companies promising to increase your occupancy by using an AirBNB model.