By David C. Hartwell, Attorney
Penland & Hartwell, LLC
This US economy is changing rapidly and one segment that is growing faster than most is the relatively new concept of a shared economy where individuals can engage in informal business opportunities without having to succumb to the formal business model. Popular examples of these shared services are UBER, LIFT, AirBNB, VRBO. Because these services have become so popular and dynamic in their explosive growth, it is often difficult to identify and assess their impact and effect. In regard to services such as AirBNB or VRBO, a person can easily and efficiently utilize an internet based platform to engage in the short term rental of their apartment, condominium or house, which are commonly referred to “vacation rentals”. However, such uses often times violate provisions of a lease or the covenants and rules and regulations of a condominium or homeowners association. This article shall examine the proliferation of vacation rentals in the Chicagoland area and how associations are addressing them.
Recent news of the proliferation of vacation rentals in Chicago has illuminated the fact that for certain neighborhoods or buildings, vacation rentals are significant and are having a substantial impact. The Chicago City Council has sought to address these types of rentals because of the negative impact on hotel room rental and hotel tax to the City. While legislation is still pending, how effective it will be remains to be seen because identification of rentals and enforcement of code provisions will be difficult at best. Boards of directors for condominium associations have also sought to address vacation rentals because such rentals frequently violate the covenants, the declaration and rules & regulations; and many have argued that these types of rentals downgrade the livability of the building. Readers should note however that some high rise condominium buildings allow for such vacation rentals and have adopted strategies to embrace it.
Typically, declaration covenants for a condominium association prohibit short term leasing of a unit in several ways. The declaration may ban unit leasing altogether, or if leasing is allowed, may prohibit short-term leasing, requiring units be leased for a minimum of six or twelve months. Secondly, most all declarations include a covenant that disallows an owner from utilizing his/her unit for business purposes. Despite creative arguments to the contrary, it is indefensible that use of a unit for vacation rental is not a business purpose. Additionally, many associations have enacted rules & regulations prohibiting short term rentals and prohibiting subleasing of units. Therefore, boards are generally equipped with remedies to address vacation rentals.
If a board does not consider the association’s governing documents to be sufficient, it can seek to amend the declaration or alternatively enact additional rules prohibiting such rentals. Amendments are often challenging because to successfully pass one, a super majority of either two-thirds or 75% of the unit ownership is required. Enactment of rules is a more streamlined process, requiring only a vote of the board; however the Illinois Appellate Court has recently created a new wrinkle in the February 3, 2016 decision of Stobe v. 842-828 West Bradley Place C. A. The Court invalidated a percentage leasing restriction rule on the basis that the covenant allowing for leasing did not also specifically authorize the Board to enact additional rules to restrict leasing. Therefore, boards will need to carefully review the leasing covenant in the declaration to determine if it can successfully enact rules to curtail or eliminate vacation rentals of units.
As stated above, most associations already have sufficient prohibitions and remedies to address vacation rentals; but identification of such rentals is difficult. Typically, rental websites do not state the address of building on the initial advertisement. To obtain this information, a person would need to sign up with the service and pay a fee. Undertaking this level of investigation would be burdensome for most associations. Usually identification of vacation rentals arises form vigilance. A random traveler entering a building with luggage is indicative of a vacation renter and doorpersons should be able identify these people and make a simply inquiry of the nature of their stay. Often times, vacation travelers make inquiries with doorpersons and property managers as if they were a concierge, again another good sign of a vacationer. For those building which do not have a doorperson or security, the vigilance must come from fellow unit owners.
Once a vacation rental operation is suspected, the board should undertake reasonable investigation to ascertain a likelihood of its occurrence and engage in the rule enforcement process. Gathering evidence is important, such as a screen shot of an advertisement, a statement of a neighboring unit owner, or a statement of a doorperson or property manager. In my experience, once a unit owner has experienced the rule violation process and been assessed a fine (which is often significant) the practice stops.
Lastly, it is important for boards to understand why this is a critical issue. While livability in a building is always important for boards to address, there are more significant considerations. Unit owners renting to vacationers almost never inform door staff, property management or security of an incoming vacationer, thus raising security concerns of unidentified people entering the building. Second, general liability insurance policies may not cover losses occurring from vacation rentals, which would open the association to uncovered liability. Third, an argument could be made that the short-term rental of unit or rooms to vacationers could cause the building to be viewed by officials more as a public accommodation instead of a private residence, which could implicate the association to follow provisions of the Americans With Disabilities Act, additional building code and fire safety provisions, and other codes and regulations.
Vacation rentals are not likely to disappear and therefore boards need to understand their impact on the building and owners, how to identify the rental, and how address them. Boards should work in conjunction with property management and their legal counsel to have a protocol for attending to vacation rentals and being prepared should vacationers begin showing up in your building.
By: David C. Hartwell
Penland & Hartwell, LLC
1 N. LaSalle Street, 38th Floor
Chicago, Illinois 60602