Why Landlords Stand to Lose on Tenant Sublets

by Chris on April 25, 2016

“Somewhat uncomfortable.” That’s how one landlord responded when she discovered pictures of her furnished rental condo on Airbnb, an online vacation rental website. The listing included reviews of her property from the several tenants who had lived there. All this, despite the fact that the landlord had never given permission.

tenant screeningVancouver’s City Council is currently studying what impact this popular craze of tenants subletting their apartments overnight may have on the rental housing market. Lawmakers are feeling a sense of urgency.

Tenants argue that because rents are so high, marketing the property as a nightly vacation rental is the only way to make ends meet. But that doesn’t account for the fact that the property being placed into service does not belong to the tenant. Landlords must pay interest on security deposit funds because that money belongs to the tenant. Why then, should the tenant be allowed to sublet the landlord’s property and then keep the profits?

In an interesting twist, one tenant reports that he lives exclusively in Airbnb rentals across Canada, because it saves him the trouble of applying for a rental, and he saves money by not paying for utilities or other amenities, like use of fitness centers.

Other tenants, however, are not so laissez-faire when it comes to encountering strangers who are enjoying unrestricted use of common areas like gyms, laundry rooms, or elevators. The revolving door policy adopted by some of the more successful tenant/hosts causes problems ranging from noise complaints to increased crime. Even hosts have reported getting ripped off by their guests.

Why do landlords stand to lose? Because tenants seem to believe that a short-term guest cannot cause long-term damage to the rental property. Time after time, they’ve been proven wrong.

Landlords across North America are struggling to adapt to the controversial practice. So far, strategies have included everything from banning the sublets to authorizing them and taking a cut of the profits. Because properties are not listed by address, and a host’s identity is protected, many landlords are unaware that their property is being sublet — until they see it online, or have to deal with the damage done by international guests on a weekend party binge. Other landlords simply accept the practice. But do they accept the risks that come from renting to tenants who have not been screened?

Like Vancouver, New York City has reacted to the sheer volume of unlicensed lodging options that take rental properties out of service for permanent residents, and also compete with hotels and standard bed and breakfast inns that generate tax revenues. Vancouver lawmakers are quick to point out that tax revenue is not the issue, but rather the impact on the availability of long-term rental housing.

Vancouver Councillor Geoff Meggs, who has expressed concern about the loss of an estimated 3,000-5,000 city rental units to short-term profiteers, shared comments he has received from local residents whose neighbours sublet nightly to guests. Drunken brawls, higher maintenance costs from increased traffic, and loss of quiet enjoyment are some of the common complaints shared. One resident says, “I love it, but ban it,” citing a shortage of available rental units for permanent residents.

Because landlords are vulnerable to income loss, including property damage, increased maintenance costs, and increased liabilities, it may be time to have a talk with your legal counsel. Does your tenancy agreement address short-term vacation rentals? Could you evict your tenants for running vacation sublets, or make them pay for damage to your property?

This post is provided by Tenant Verification Service, Inc., helping landlords reduce the risks of renting with fraud prevention tools that include Tenant Screening, Tenant Background Checks, (U.S. and Canada), as well as Criminal Background Checks, and Eviction Reports (U.S. only).

Click Here to Receive Landlord Credit Reports.

Disclaimer: The information provided in this post in not intended to be construed as legal advice, nor should it be considered a substitute for obtaining individual legal counsel or consulting your local, state, federal or provincial tenancy laws.

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