Massachusetts Passes First-of-its-Kind Legislation on Short-Term Rentals

In addition, the bill will mandate that all short-term rental hosts must carry insurance, register with the state, and provide relevant property information in connection with accommodations offered for rent.

Under the bill, many short-term rental hosts will have to pay the same 5.7% state excise tax that hotels are required to pay. On top of the state tax, municipalities will have the option of imposing their own excise tax of up to 6% (except in Boston where it will be up to 6.5%) or banning short-term rentals altogether. Moreover, local authorities can also choose to impose a “community impact fee” of up to an additional 3% on rentals of “professional managed” units, in which a rental host runs more than one short-term rental in the same city or town and at least one of those isn’t located within a single, two or three-family dwelling that includes the rental host’s primary residence.

Baker first returned the bill last August, after it initially passed the state legislature, suggesting an exemption for occasional rental hosts who rent for 14-days or less in a one-year period, as well as changes to the property information requirement to protect privacy. Baker received the amended bill on December 20, 2018, giving him only a mere 10 days to review and sign the redraft before the new legislative session that began January 2.

Prior Short-term Rental Regulations Imposed by Municipalities

The Massachusetts land court ruling that came out of Styller v. Lynnfield Board of Appeals, decided last September, gave towns and cities stronger legal footing if they seek to regulate or even prohibit AirBnB and other short-term rental platforms under their local zoning codes. Alexander Styller, who frequently rented his Lynnfield mansion on AirBnB and similar websites, attracted wide publicly when a 33-year-old was shot to death during a house party taking place at Styller’s property, which he had rented through AirBnB in 2016. Subsequently, the Lynnfield Building Inspector served Styller with a cease and desist order prohibiting further short-term rentals of 30 days or less without a special permit from the zoning board of appeals, and the town amended its zoning bylaw to explicitly address such rentals.

After the zoning board’s order was affirmed on appeal, Styller appealed the board’s decision to the land court on the basis that short-term rentals through AirBnB-type website platforms were permitted as of right by the pre-amended bylaw, and thus that he had a “grandfathered” right to continue them. Judge Keith Long ultimately found and ruled that local municipalities have the power under zoning law to regulate (or prohibit) short-term rental platforms like AirBnB in a single family residential zoning district, and that the local zoning board has the authority to consider said use as a “non-grandfathered” use.

Expansion of the AirBnB Concept

The ever so popular AirBnB began with a simple model: owners of homes with surplus or unused bedrooms would rent them to others for extra money while also staying in the property themselves, often providing breakfast (“air bed and breakfast”). However, this model had a limited audience of persons who did not mind staying in someone else’s home while the owner was around and did not mind the “awkwardness” of that experience. What that model lacked, and what the larger pool of potential users clearly wanted, was the privacy offered by the exclusive use of the entire property. AirBnB thus expanded to include situations where the owner would be completely absent during the rental. No longer would there be on-site supervision to prevent or mitigate off-site impacts. This also gave owners the opportunity to use their properties as de facto hotels without paying state taxes that would otherwise be applicable.

Impact on Massachusetts

Massachusetts has experienced an uproar in its short-term rental housing market, one that is said to be responsible for driving up rents and disrupting neighborhoods. Investors are buying up housing solely to rent it out on AirBnB, displacing long-time residents in the neighborhood. This trend is placing a strain on people who are trying to find long-term housing, as home-sharing is increasing rents by decreasing the supply of units available to potential residents. Further, transient tenants have less of a stake in both the properties they occupy and the larger communities than longer-term tenants, since they will soon be gone and never return. Even with the best-behaved short-term renters, short-term rentals are more disruptive to a neighborhood than longer-term rentals due to the reduction in stability. Faces and vehicles will be ever-changing, making “community” more difficult to establish and maintain, which in turn affects residents’ abilities to distinguish between those looking to be part of the neighborhood and those who are not.

While condominium complexes have begun to include language specifically prohibiting AirBnB type rentals in their by-laws (and landlords have included similar restrictions in residential leases) the state and localities had not yet come up with a way to regulate the industry for itself. Baker views this bill as the conclusion after years of debate over how to navigate an industry that has exploded through companies like AirBnB, as well as a fair compromise to level the playing field for those engaged in traditional lodging while exempting rental hosts who rent for 14-days or less per year. In addition, the expansion of the room occupancy tax is estimated to generate $25 million annually in state revenue and $25 million annually in local revenue. No less than 35% of the revenue generated would be required to be spent toward affordable housing and local infrastructure needs.

Impact on Rental Hosts

Since it began operating in 2008, AirBnB has shaken up the hospitality industry, and reports estimate that the company could soon be valued at over $20 billion. With that much capital behind the AirBnB platform, it comes as no surprise that rental hosts are cashing in as well.

From the rental host’s perspective, AirBnB-type short-term rentals have many advantages and little downside. Aside from the extra money, an owner can rent their property whenever they want to rent it, and the short-term nature of those rentals give the owner great flexibility. They can even factor-in the cost of cleaning, repairing damage and replacing missing items in the rental charges they set. Historically, AirBnB’s have been more appealing for renters due to affordable pricing, extended living amenities and the ability to host larger groups of people, all while offering a more unique and comfortable space than traditional alternatives.

The new bill, however, will create higher costs for rental hosts to cover, which will either be absorbed directly by the rental host, or passed through to the renter. The altered economics could deter owners from renting due to the lower profit margins, or renters from renting due to escalated costs which might outweigh the benefit of AirBnB over a hotel. While the exempt owners will not be subject to the tax, they will still be required to register with the commissioner of revenue and file a declaration that they intend not to rent for more than 14 days in a year, which could be considered unduly burdensome.

AirBnB Response

AirBnB has been in a legal battle with the City of Boston ever since Boston Mayor, Martin J. Walsh passed the ordinance, which took effect January 1, setting limits on what types of dwellings can be used for short-term rentals, approved regulations and also set up a system for collecting taxes. While the company has not indicated whether it intends to also file a suit against Massachusetts for its new law, people anticipate that it’s only a matter of time. AirBnB has taken the position that first in the nation is not always best, because it leaves room for error.

“This bill raises serious concerns for the thousands of Bay Staters who share their home to make extra income. In addition to undermining the Governor’s effort to shield hosts’ personal information, the bill would impose significant burdens on individual hosts, many of whom rent their homes for just a few weeks a year,” AirBnB company spokeswoman Liz DeBold said. AirBnB claims to have facilitated the lodging of more than 1.2 million people who traveled to Massachusetts in 2018, with roughly 2 million state residents engaging with the platform for travel plans. The company has further commented that they will continue to fight to protect the community and economic engine of short-term rentals for hosts, guests, and small businesses.