Lemons or Lemonade: The Airbnb Dilemma

We’ve all heard it:  “When life gives you lemons, make lemonade.”  This old and admittedly hackneyed adage is ever-applicable in the world of business, particularly when it comes to real estate.  Own an old factory building downtown?  Turn it into mix-used lofts.  Own an old theatre?  Turn it into a restaurant.  

      The key is recognizing just what kind of lemons you have been handed, finding the recipe to turn those lemons into lemonade, and figuring out who is buying the sweet and sour goodness.

      Airbnb is the latest crop of lemons to hit the real estate market.  It is a site where property owners and tenants can list their property as a vacation rental for eager tourists looking for a unique, day-in-the-life, traveling experience or frankly, to save a couple bucks on a hotel.  This means that if a property owner or tenant has a furnished place in a decent part of town, they could fetch anywhere from fifty to three hundred dollars a night or more. 

      So what’s the catch?  If you aren’t doing it, then chances are, your tenants are doing it and the risks could be exponential.  I received a call from a landlord the other day (lets call him “L”) with regard to one of his tenants who  sublets his quaint West Hollywood bungalow on Airbnb.  L told me that his other tenants were complaining of parties lasting long into the night, unfamiliar faces walking the complex grounds and questionable activities that would make any grandmother shake her head in disgust.   

      L was faced with a quandary – he could either evict this one tenant in a spiteful act to show him who is boss or he could keep the tenant there and push his other tenants out.   To bring back our friendly figure of speech – should he throw out the lemon or make the lemonade?

      Remedies are available to the landlord who chooses to rid himself of the Airbnb user.  The most direct remedy would be to begin an eviction using a Three Day Notice to Cure or Quit.  Basically, you tell the tenant that their activity is unacceptable under the lease and that it is time to either stop listing the property or get out.   It is important when using this remedy that you consult an attorney to make sure all necessary bullet proof language is present to really get your tenant packing.  

      A second remedy would be to use a Three Day Notice to Quit that hinges upon the violation of a specific municipal law.  In San Francisco for example, the municipal law prohibits short-term rentals that are less than 30 days.  San Franciscan landlords have taken advantage of this law to push out tenants more quickly because it allows them to simply say, “You broke the law, now get out.”  Again, it is important to consult with an attorney to determine whether this remedy is available to you in your jurisdiction.

      Finally, some landlords have taken to paying relocation fees to tenants who use Airbnb to evict said tenants while bypassing the legal system.  This is always an option, but it is important to understand the guidelines for relocation fees in your jurisdiction and to also draft a solid release agreement so tenants cannot combat your kindness with affirmative actions.

      But, if you want to turn this proverbial lemon into lemonade, there is definitely a way.   Some landlords have struck deals with their Airbnb wielding tenants to skim a percentage off of the revenue earned from subletting their unit.  These same landlords will also put in place requirements that the unit is kept clean, certain activities be prohibited and certain screening processes be used before opening the door to tourists. 

      Choosing the right remedy is totally contingent upon the individual landlord making that decision.  However, whichever option you choose, it is recommended that you speak with an attorney to maximize the efficacy of your remedy and shore up any possible pitfalls. 

      The attorneys at The Rad Firm, APC have the legal wherewithal and entrepreneurial spark to help guide you through the decision making process.  Contact us for a consultation.