As Super Bowl LII approaches, several community association unit owners are interested in and asking their boards of directors about the possibility of renting out their units for this event. This is a complicated topic, so we are providing a little guidenace on that issue that associations should consider.
As with any decision a board makes, there are both fiscal and fiduciary considerations. For community association boards, an overriding factor in their decision-making process should be maximizing the long-term value of the property. There could be an adverse effect on market values at the association if the association receives any negatively publicity due to an incident arising out of allowing such short-term rentals. Care should be taken when evaluating the potential risk versus the individual unit owners’ reward
If you deem the potential reward to be worth the risk, the next step is to research your association’s governing documents to determine if the short-term rentals are even allowed. If not, the board has two options:
- Follow the documents and not allow short-term rentals, or
- Change the documents to allow short-term rentals. This option will cost the association some time and money.
Consulting your attorney is suggested before pursuing any course of action that affects the safety and well-being of the majority of the owners.
From purely an insurance underwriting perspective, insurance companies generally do not look favorably on rentals at community associations, especially short-term rentals. With this being noted, the anticipated demand for short-term rentals caused by the upcoming Super Bowl could be a short-lived exposure, and insurers may provide greater latitude to their standards. Once we, at MMA, are given an estimate of the short-term rental exposure, we will work through the underwriting issues for each association on a case-by-case basis.
An additional potential insurance concern for the board and its members is the lack of coverage under the members’ personal insurance coverage. Personal homeowner’s policies have traditionally done a poor job responding to “business activities” and it should be anticipated that the association members will have to adjust their individual coverage to respond to the activities created by renting units out for profit.
Lasty, from a risk management perspective, a board may want their attorney to draw up a hold harmless agreement and mandate its use in all rentals. This document would state that the renter(s) would hold the association harmless in all matters related to the rental of any individual units.