By William W. Ballinger
Attorney at Law
What does your current vacation rental agreement look like? Is it a lease agreement, or one that has been pasted together from various online sources? If so, you are putting yourself and your property at risk.
The short-term vacation rental business is growing by leaps and bounds. The industry has expanded to include not only professional vacation managers, but private homeowners who recognize the benefits of renting out their second homes or rooms in their residences to create additional income for themselves.
Regardless of whether you are a vacation manager or an owner, it is important to consider the legal issues surrounding short-term vacation rentals. Many owners and managers are not aware of the legal protections they can avail themselves of by using a properly worded license agreement each time a property is rented out. They also don’t realize that by using the wrong type of agreement, it can be more harmful than helpful. Because they are not aware of the legal implications, some owners and agents currently use lease agreements. However, these agreements should not be used because they can impose legal obligations on the owner and give rights to short-term renters that were not anticipated by either party. Here is how you can teeth in your rental agreement
- USE A LICENSE, NOT A LEASE
License-to-occupy agreements are the perfect contracts for short-term rentals. These agreements can be specifically tailored to accurately describe the relationship of the parties, allow owners or agents to evict problem guests without the need for lengthy and costly court proceedings and protect the owners from legal liability resulting from property damage caused by guests or injuries to guests while using the property. However, there are certain legal requirements necessary to create a valid license agreement.
If the agreements currently being used doesn’t: (1) include language which gives the property owner/agent unlimited access to the property during the course of the guests’ stay and (2) clearly state that it is a license agreement, the agreement will likely be interpreted by the courts as a form of lease.
Benefits Of Using License Agreements For Short-Term Rentals
A license to occupy is the perfect agreement to use a short- term tenancy.
- The Agreement should clearly describe the relationship of the parties as a temporary license to occupy, with no intention to create tenants’ rights. The Owner’s right to immediately terminate the contract and remove the renters from the property must be clearly stated in the agreement. This prevents a court from interpreting the contract as a lease and granting rights to guests that are not intended by the parties.
- The agreement should include “property specific” legal liability waivers. If your rental property includes a pool and spa, liability waivers can be included in the contract that absolve the owner of legal liability if a guest is injured while using these amenities. Even if the owner has the proper type of insurance coverage on their property, certain amenities may be excluded from the policy. The owner can still be legally protected, however, the owner must have a written agreement signed by the guest each time the property is rented in order to obtain this protection. The renter must specifically agree to be bound by the liability waivers.
- Ease of use – Today’s technology affords owners and managers the ability to create license agreements online, obtain all signatures online, and store the agreements online
Legal Precedent Regarding The Use Of License Agreements For Residential Tenancies
License agreements have been used for residential purposes in England for over 30 years. The 1985 landmark case of Street vs. Mountford, and subsequent cases, including Westminster City Council v Clarke  2 AC 288 House of Lords and Bruton v London and Quadrant Housing Trust  UKHL 26. contain discussions about what elements are necessary to create a residential license–to-occupy.
At present, real estate license agreements are utilized primarily by owners of properties licensed to short-term users: college dormitories, office space, laundry rooms, certain types of storage spaces, kiosks in shopping malls, etc. They are also used by hotels and motels all over the world.
Whether an agreement will be construed to be a real estate license and not a lease will depend on the presence or absence of the three essential characteristics:
1) A clause allowing the licensor to revoke the agreement “at will;”
2) The retention by the licensor of absolute control over the premises; and
3) The licensor’s supplying to the licensee all of the essential services required for the licensee’s permitted use of the premises.
Additional characteristics of real estate license agreements:
4) Leases can usually be transferred; licenses may not.
5) Typical term of a license is less than 90 days.
6) Both licenses and leases can contain liability waivers.
GuestAgreement.com provides an agreement that meets all of these legal requirements.
- INCLUDE LIABILITY WAIVERS THAT ARE SPECIFIC TO THE PROPERTY BEING RENTED
Make sure your rental agreement includes liability waivers that are enforceable. GuestAgreement.com provides an easy to use questionnaire that the owner or manager completes online. It asks for information about the booking and what amenities are provided at the property. If the owner checks certain types of amenities, like a swimming pool, a specific liability waiver for use of the pool is automatically attached to the agreement.
Insurance companies like our agreement because it protects owners from liability in areas that insurance can’t cover or that exceed policy limits. There are no negative impacts to the owner for using our agreement.
Are Liability Waivers Enforceable?
The following discussion is excerpted from the article “The ABCs of Liability Waivers”
By Dr. Doyice J. Cotten.
What is a Waiver?
A waiver is a contract between a service provider (property owner) and a participant [guest] signed prior to participation by which the participant agrees to absolve the provider of any fault or liability for injuries resulting from the ordinary negligence of the provider, its employees or its agents.
Waiver law is based on state law. Thus, the answer to the question “Do waivers work?” depends on which state you are in. In at least 46 states, (excluding Louisiana, Montana, Virginia and Rhode Island) a well-written, properly administered waiver, voluntarily signed by an adult, can protect service providers from liability for injuries resulting from the ordinary negligence of the provider, its employees and its agents.
What are the limitations of waivers?
Language Requirements: The most common reason waivers fail is because they are poorly written. Courts in all states require that the waiver language be clear and unambiguous. In addition, many states require specific language for the waiver to be enforceable. For instance, New York courts (and the courts in a number of other states) require that the waiver include language specifying the “negligence” of the provider. Failure to use the word “negligence” in those states causes an otherwise-enforceable waiver to fail.
Gross Negligence: In most states, courts will not enforce waivers intended to protect the owner against liability for gross negligence, reckless conduct, willful/wanton conduct or intentional acts. Ordinary negligence is defined as the failure to take the care that a reasonable, prudent professional would take under the circumstances; gross negligence is an extreme form of negligence in which the party fails to take the care that even a careless person would take under the circumstances.
Non-Signing Spouses: In some states a waiver signed by one spouse protects the owner from litigation by the non-signing spouse in the event of injury or death of the signing spouse. In other states, a waiver has no effect on the right of the non-signing spouse to bring suit. In this case, the owner will find itself lacking the expected protection of the waiver.
Minor Clients: A significant limitation that is very important to many service providers is the restriction on enforcing waivers signed by minor clients or signed by the parents of minor clients (parental waivers). Until recent years, the general rule was that neither waivers signed by minors nor parental waivers were enforceable. In the past few years, courts in a number of states have begun to enforce parental waivers. Additionally, two states (Alaska and Colorado) have passed statutes enabling the enforcement of such agreements.
Recommendations for using waivers
In spite of their limitations, waivers are still the best single risk-management tool available to service providers, other than the prevention of the injury.
Here are some suggestions to maximize waiver effectiveness and protection:
Use waivers in all states for two reasons: First, waiver law in any state is always subject to change. Even though waivers were not enforced in the past, a new court or a new set of circumstances can result in their enforcement. Second, well-written waivers will include a discussion of the inherent risks of the activity, so even if the waiver is not enforced, the court may use the waiver as evidence that the signer knew and assumed the inherent risks.
Use parental waivers with minor clients in all states. There is no downside—if the waiver is not enforced, you are no worse off. In the past 15 years, courts or legislatures in 10 states have either enforced such waivers for the first time or passed legislation to that effect.
Use the stand-alone format. This simply means the waiver should be a document of its own. It should not be contained in a contract such as an application or in an agreement signed by a group of people. Although waivers in other formats are generally enforceable, they are not as strong, and courts have expressed a preference for the stand-alone waiver agreement.
Update from Dr. Cotten: Since this article was written, there are now two states that do not allow enforcement of waivers — Louisiana and Virginia. In addition, Courts/statutes in Hawaii, Wisconsin, and Connecticut make it highly unlikely that a waiver will be enforced. Also, currently about a dozen or so states now enforce parental waivers (signed by parent for a minor). You should check the laws in your state.
GuestAgreement.com agreements include waivers that are enforceable in all states that currently recognize liability waivers.
- CREATE, SIGN AND STORE YOUR AGREEMENT ONLINE
To lock your guests in right away you need to send them a contract and have them complete it when the reservation is made. It is important to use an agreement that is customized to the property and contains the correct liability waivers to address the condition of the property and protect the owner.
The easiest way to do this is to create a customized agreement online. Once the agreement has been created and e-signed by the Owner or manager, it should be sent to the guest for signature. By federal law, this is a valid and enforceable signature. The guest should e-sign the agreement and email it back to you and stored on your computer.
At GuestAgreement.com our agreement is: (1) created online; (2) customized to your property; (3) signed by the owner online; (4) emailed to the guest to sign online; and (5) returned to the owner and our website, where it is stored online under the owner’s account.
Without a signed rental agreement, the owner is at risk of not being able to remove a difficult or holdover guest and subjects themselves to liability is a guest is injured on their property. However, if the right type of agreement is used, the owner can protect themselves from these risks.
At our website you will find an agreement that addresses all of the issues discussed in this article. For more information or to create an agreement, visit GuestAgreement.com
About the author:
William(“Bill”) Ballinger is a California business attorney with over 30 years of experience. He is the Founder of GuestAgreement.com, a website dedicated to agreements specifically designed for short-term vacation rentals. Bill is a member of the Business Law Section of the California State Bar and the California Business Alliance For a Green Economy. He is also a member of the California Center For Cooperative Development, a supporter of the Sustainable Economy Law Center, and the owner of Collaborative Legal Solutions, Inc. Any questions or comments can be addressed to the author at [email protected].
Dr. Cotten ([email protected]) and his wife Mary co-author the book Waivers & Releases of Liability (2016, 9th edition), have a free website on waiver law (Sportwaiver.com), and write liability waivers for sport and recreation businesses.
Photo Credit: Thanks to Selamat Made at Flickr.