GUEST POST: Short-Term Rentals Are More Complex Than You Think. Are They Right for You?

This is a guest post by Atty. Jennifer M. Hayden of Petrie + Pettit S.C.

With the rise of short-term rental (STR) sites like Airbnb, Homeaway, and VRBO, you may be wondering if turning your home or rental property into a short-term rental is the way to go.  There are many benefits to short-term rentals including an increased income stream and as a result, many are considering making the switch.  However, before jumping on board the STR bandwagon, be aware that you will need to address issues such as licensing, local ordinances, taxes, insurance and more if you want to rent your property for the short-term.

Licensing

According to the Wisconsin Department of Agriculture, Trade and Consumer Protection (“DACTP”) if you are charging rent to a tourist or transient occupant for any amount of time then you are operating a tourist rooming house” and are required to purchase a license through the state.  Wisconsin defines a  “tourist or transient occupant” as a person who travels to a location away from his or her permanent address for a short period of time for vacation, pleasure, recreation, culture, business or employment. 

Your local municipality (village, town, city or county) may also require you to be licensed through the municipality as well and may have different code requirements for properties engaged in commercial activity. 

Local Ordinances

Cities, villages, towns and counties may impose additional regulations on your short-term rental such as limiting the total number of days that the property can be rented, prohibiting rentals for less than a certain number of days, requiring registration fees, imposing inspections or nuisance regulations, or limiting the number of occupants based on bedrooms.

Taxes

With limited exceptions, you will need a seller’s permit from the Wisconsin Department of Revenue if you are operating a short-term rental.  You will need to collect and remit state sales and use taxes and, additionally, any applicable county sales tax, municipal room tax, local exposition tax, special district tax or premier resort area tax. 

Insurance Coverage

Even if you are planning on renting your home out for only a single occasion, you should check with your insurance company in advance regarding coverage.  Once you rent all or part of your home out, most insurance companies will consider this a business use and your general homeowner’s policy will likely deny coverage for any incident related to the business use.  Without insurance coverage, liability may fall to you, personally. 

Short-Term Lodging Marketplaces

If you want to market your short-term rental you will most likely use a short-term lodging marketplace.  A lodging marketplace provides a platform through which an unaffiliated third party offers to rent your short-term rental to a person and collects the rent from that person.  If you list your property for rent through a lodging marketplace that marketplace is required to register with the Department of Revenue for a license and is responsible for collecting state-imposed taxes. 

Additional Requirements

You may be prohibited from renting your property on a short-term basis.  Your Condominium Association Bylaws, Homeowner’s Association, Subdivision Covenants, Tenant’s Organization, or Lease may prohibit short-term rentals entirely or impose additional requirements. 

While short-term rentals offer many benefits, there are many issues that must be addressed prior to listing your STR on Airbnb, Homeaway, or VRBO.  If you would like to discuss whether short-term rentals are right for you, please give us a call.

Earnest Money Deposits . . . A Trap for the Uneducated Landlord

An earnest money deposit is defined as "the total of any payments or deposits . . . given by a prospective tenant to a landlord in return for the option of entering into a rental agreement in the future, or for having a rental agreement considered by a landlord."

The applicable section of the Administrative Code that deals with earnest money is ATCP 134.05 (1) and (2) and (3).

I personally am not a big fan of collecting earnest money deposits from rental applicants.

The main reason is because ATCP 134.05 puts too many restrictions on these deposits in order to eliminate potential abuse by landlords. Failure to abide by the timelines regarding earnest money deposits opens a landlord up to being sued by the applicant for double damages (double the amount of the earnest money deposit) and attorney's fees.

A second reason I do not prefer earnest money deposits is because -- for a part-time landlord like myself -- it forces me to rush through the screening process. ATCP 134.05(2)(a)3 requires me to approve a person's rental application by the 3rd business day after taking an earnest money deposit (or else jump through a bunch of hoops and get written consent from the applicant to hold the earnest money deposit for a longer period of time).

It's not that I intentionally want to hold onto an applicant's earnest money deposit if I am not going to approve them, but rather sometime things happen that prevent me from completing the screening process within 3 days . . . say an emergency at my full-time job, a personal emergency, or the applicant's past landlord reference failing to return my call timely.

I just do not want to be on the wrong side of a lawsuit for double damages and attorney's fees because I couldn't keep up with a government prescribed timeline of when I should be able to complete the screening process.

Additionally, even if you approve an applicant, and offer them a lease, and the tenant changes his mind and opts not to sign the lease -- that doesn't mean you can automatically keep the earnest money deposit . . . . watch the video and you will learn what I mean.

Earnest money deposits are a tricky "animal" with little "upside" (in my opinion) and lots of "downside." If you require applicants to make an earnest money deposit or are thinking about it -- make sure you educate yourself -- or else you shouldn't be accepting them.

P.S. - No, a credit check fee is not considered to be an earnest money deposit.

The Consequences of A Landlord Violating Wisconsin's Residential Rental Practices (ATCP 134)

The Residential Landlord Tenant relationship is controlled by two main areas of law: (1) Chapter 704 of the Wisconsin Statutes, and (2) the Wisconsin Administrative Code, Chapter ATCP 134 entitled "Residential Rental Practices."

ATCP 134 sets forth 21 regulations that a landlord must follow in a residential landlord tenant context. ATCP 134, under its orginal name "Agriculture 134," was first introduced in May of 1980. "Ag 134" was then renamed ATCP (Agriculture, Trade and Consumer Protection) 134 in 1993. In 1999 there was a complete overhaul of ATCP 134 which resulted in the 21 regulations that we have today.

If you are a landlord and are not familiar with ATCP 134 please take the time to read the chapter -- it is only 5 pages long and is relatively easy to understand -- it must have been drafted by someone other than a lawyer or government employee : )

The main remedy available to a tenant that is damaged by a landlord violating ATCP is what is referred to as the "private attorney general" provision. Essentially, the Wisconsin Statutes allow a party who is injured by a violation of ATCP 134 to "step into the shoes" of the State Attorney General to privately prosecute such violations.

This private attorney general provision, specifically sec. 100.20(5), allows an injured tenant to recover double damages and reimbursement of their actual attorney's fees against a landlord that has violated ATCP 134.

The State has enumerated several public policy reasons for allowing the private attorney general provision in the residential landlord tenant context, such as:

1. It encourages an injured tenant to enforce his/her rights even if the amount of damage is small and the aggrieved tenant does not have the "means" to pay for their own attorney.

2. A tenant who sues for a violation of ATCP, while clearly enforcing his/her rights, will also be enforcing the public's rights.

3. By allowing a tenant the ability to more easily pursue such claims against his/her landlord, it will deter impermissable conduct by landlords and thus strengthen the bargaining power of tenants.

4. It provides a necessary backup to the State, as the State does not have the time or resources to pursue lawsuits against all landlords who violate the regulations of ATCP 134.

Whatever your thoughts are about the above-reasoning, it is imperative that you become knowledgable about the 21 regulations contained in ATCP 134. During the course of consulting with landlords and property managers in my job as an attorney, I am always surprised by the number of landlords that have never heard of ATCP 134.

Pursuing a Money Judgement Against An Ex-Tenant . . . Should You Even Bother?

Once you have evicted a tenant and have your property returned to you, you are confronted with the decision of whether to invest the time and money to pursue the ex-tenant for money damages or not.

Some of my landlord clients always pursue the ex-tenant for money judgments. Of that segment of landlords, some will obtain their judgment, docket the judgment, and then sit on it hoping that the tenant will eventually pay it off (plus 12% interest) when they need to obtain a loan to purchase a home. Other landlords that I work with will not only obtain the judgment against the tenant but they will also proactively attempt to collect on that judgment via garnishment actions.

On the opposite end of the spectrum, are landlords that never seek a money judgment against a tenant as they consider it to be a waste of time and would merely result in "throwing good money after bad" because the tenant is not collectible. Still other landlords opt to try and collect from past tenants via alternative means such as using the service of Rent Recovery Services --- which allows you to report the ex-tenant's debt to the 3 credit bureaus without the need to obtain a judgment.

There are many options for a landlord to choose from when it comes to collecting against an ex-tenant. There is not one correct option for all situations and for all landlords. The correct option depends on many factors. I will sift through all of the information (or the lack thereof) that my client has about the tenant that could assist in the collection process. Sometimes a discussion regarding the client's financial situation is needed. Determining my client's ultimate goal is a must.

It is my personal opinion that time should be taken up front to discuss these matters with a client so that there are no false illusions going forward. Many landlords are astonished to learn that once they obtain a judgment that they must spend more time and money to collect on that judgment. It is important to remember that a judgment is merely a piece of paper saying that your ex-tenant owes you money, it does not mean that you will get paid. Collecting on a judgment is a whole different ballgame . . . . and a different blog post.

A De Novo Hearing Is A "Second Kick at the Cat"

Under Wisconsin law, a Court Commissioner cannot decide a contested eviction action -- that must be decided by a judge. However a court commissioner can preside over and decide a hearing on a landlord's 2nd and 3rd causes for action for money damages. Typically this includes claims for past due rent, physical damages to the rental property or holdover damages.

In Milwaukee County, due to the large number of cases, if a tenant diputes the landlord's claims for damages, the matter must first be heard by a Court Commissioner. The Court Commissioner will issue a determination based on the evidence presented. If either the landlord or the tenant does not agree with the decision of the Court Commissioner, either party has the aoutomatic right to request a de novo hearing before the circuit court judge.

De novo literally translates to "anew;" "afresh;" or "a second time."

A de novo hearing is essentially a "do over" -- the parties have the opportunity to present their evidence over again to the judge. They are not restricted to the evidence that they presented in the prior hearing before the court commissioner. New evidence can be presented or old evidence can be removed.

De novo hearings are often referred to incorrectly as "appeals." A de novo hearing is an opportunity to redo your case. An appeal is a review of a lower court's decision for error.

A de novo hearing is a "second kick at the cat," if you will.

NOTE: I currently own a cat. I have had cats as pets in the past. I love cats. By using the above phrase "a second kick at the cat" I am not suggesting or condoning the hurting of a cat. No cat's were harmed in the writing of this blog post.

Above is a video clip from a seminar that I presented last year about de novo hearings.

BED BUGS: Everything That You Wanted To Know . . . and More

If you have not heard -- bed bugs are making a comeback. Bed bugs are wreaking havoc on hotels, apartment complexes, and anywhere else where people congregate. I have even been told that 75% of all of the hotels in Las Vegas are infested with bed bugs - I don't know if that is true or not - but with the influx of people entering and exiting that city daily, it would not surprise me, since bed bugs are the ultimate hitchhiker. Unlike roaches or other varmits, bed bugs are attracted to people - not dirty living conditions, so you can have a perfectly clean apartment that still may be infested with bed bugs. In the past very strong chemicals (DDT) kept the bed bug population at bay, but with many pesticides now outlawed, bed bugs have made a comeback, much to the dismay of the rental community.

The pesky bed bug has appeared at more than a few of my client's rental complexes and trsut me when I tell you they are expensive and difficult to indicate. The best way to eliminate bed bugs is to prevent them from even showing up in the first place. But prevention is difficult since they hitch rides on furniture, clothing and other personal belongings.

Whereas, bed bugs used to be the specialty of exterminators who would spray chemicals around the infested rooms to kill them and their eggs, there are now other contractors that have entered the field. There are bed bug sniffing dogs that can be rented to sniff around your rental unit and alert you to any possible infestation and other companies that are killing bed bugs by different means then chemicals - such as heat treatment.

Because of the huge increase of bed bugs being found in rental housing lately, the AASEW's June membership meeting included a presentation on this "itchy" subject by AASEW business member, Giertsen Company of Wisconsin. Giertsen Co. is primarily a remediation company (wind, water and fire damage) however they have learned that the heating equipmen that is used to dry out a water damages property also can be used to kill the pesky bed bug.

Below is the PowerPoint presentation that Patrick Meyer of Giertsen Co. shared with the AASEW on June 21, 2010.

The old saying that my parents would tell me prior to going to bed when I was a kid -- "Don't let the bed bugs bite" -- has a whole new context for me after viewing this presentation.

Giertsen Bed Bug Blog

View more presentations from Petrie Stocking.