MA Short Term Rental Law; $1M Liability Limit Required

By now, anyone who rents their home in the summer in Massachusetts has heard about the new Short Term Rental law, effective July 1, 2019, for all rentals booked after January 1st. This is of particular interest in areas like Cape Cod, where many homeowners make investments in property with the specific intent of renting out their homes through platforms like Airbnb, Homeaway or VRBO.

Short term rental refers to all properties that are:

“…owner-occupied, tenant-occupied, or non-owner-occupied property including, but not limited to, an apartment, house, cottage, condominium or a furnished accommodation …where: (i) at least one room or unit is rented to an occupant or sub-occupant; and (ii) all accommodations are reserved in advance…”

A short-term rental is defined in the law as a rental taking place for less than thirty-one consecutive calendar days. Another key term to understand as outlined in the new law is who is considered an Operator:

“A short-term rental operator can be an owner, lessee, sub lessee, the holder of a mortgage, licensee, or anyone else operating a short-term rental. An operator does not have to be a resident of Massachusetts or a Massachusetts-based business for the short-term rental rules to apply.”

For operators that meet the above criteria there are 3 primary components to be aware of:

1. Every property used for short-term rental must register with the state’s Department of Revenue (DOR).  The next question that comes to mind is how to register? As of today the guidance from the DOR is stated: “All operators must register with the DOR using MassTaxConnect. DOR is currently working on making changes to the registration process due to the new law.”

2. All operators will be responsible for paying the state 5.7% lodging tax and any local city and town taxes imposed on short term rentals.Of note for Cape operators there will be an additional 2.75% Cape Cod and Island Water Protection Fund.

3. Operators are required to maintain $1 million in liability coverage.

Those who rent for less than 14 days can apply for exemption from the tax however will still be required to register with the DOR and carry the required insurance limits. The DOR has a list of FAQ’s that can be found here.

$1 million in liability coverage is offered through Airbnb and other home sharing sites however there are some limitations, so for anyone renting through those sites it is important to review your homeowners policy along with the coverage provided by the home sharing platform to ensure there are no gaps.

Confusion was created in regards to meeting the insurance requirements by the wording:

“An operator shall maintain liability insurance of not less than $1,000,000 to cover each short-term rental unless such short-term rental is offered through a hosting platform that maintains equal or greater coverage. Such coverage shall defend and indemnify the operator and any tenants or owners in the building for bodily injury and property damage arising from the short-term rental.”

This caused confusion as the standard homeowners policy would not provide coverage to the vacation renter. However the Massachusetts Association of Insurance Agents (MAIA) is currently seeking clarification and has expressed that the term tenant is not actually referring to the short term renter, but is referring to “tenants or owners of other units in a condo/apartment building, not to the short-renters who are termed ‘occupants’ in the law.” Clarification has been sought by the Division of Insurance on this important point and  we will be providing updates.

Our understanding of the new law is that until further notice, all operators must carry the $1M in liability coverage. If you are a homeowner who wants to rent their property out on Cape Cod or other area in Massachusetts, we’d be happy to discuss the required steps to ensure you are compliant with the new law but also properly protecting your investment.