Communities that allow short-term rentals may find their community association insurance impacted. An insurance carrier considers short-term rentals like a business and doesn’t want the liability exposure. Many standard insurance carriers ask questions on applications regarding short-term rentals. The carriers often carry out underwriting diligence by searching online for properties on websites like VRBO and Airbnb. While short-term rentals bring economic benefits to a homeowner, they also present challenges for community associations. From an insurer’s perspective, short-term rentals can create higher risk for the community association. Many insurance carriers flat out do not allow short-term rentals. The property is at greater risk for both property and liability claims which could impact all owners within the community, not just the short-term rental units. An owner renting to a long-term tenant would have a lease agreement and insurance requirements in place. The contract for short-term renters is not the same and does not transfer the risk to the short-term renters. Although some communities are in coastal areas or vacation destinations, short-term rental guidelines with insurance companies apply to any geographic location.
The association’s insurance policy is not designed to take on this added risk and often the premium does not reflect the added exposure. Community Associations do not always have policies or guidelines in their governing documents that restrict short-term rentals. Typically, the minimum number of days for a rented unit is 30 days. Alternative insurance companies could accept short-term rentals. However, this may be in the non-standard market with reduced coverages and higher premiums.
Establishing clear policies and guidelines for a community is important for all owners. A policy should also include enforcement mechanisms if an owner continues to rent their unit out on a short-term basis. Discuss options with the association’s attorney to see if your community can put guidelines in place for short-term rentals. The investigation and discussion are worth the effort.
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