What landlords need to know about tenants cashing in on Airbnb

Your investment property could be at serious risk of damage with a new trend of tenants holiday letting rooms or the entire property through Airbnb on a per night basis. This can significantly increase the risk of damage and security of your property without the extra reward for you as the landlord.In other words your tenant could be making extra income from your property but you are wearing the risk.Legislation governing tenancy agreements is outdated as most of it was written before Airbnb existed.So you need to be proactive and start protecting yourself.Quick disclaimer first. I am not a lawyer so please seek professional advice before acting.Earlier this month a landmark supreme court case overruled VCAT (Tribunal) to evict tenants for ‘subletting’ the property through Airbnb. I’ll go through how that affects you and provide a Special Condition you should start inserting into every new lease agreement.Airbnb is for short term holiday letting. Anyone (including tenants) can list an entire property or just a room to be let to strangers from anywhere around the world looking for a place to crash for the night or holiday. It’s becoming big business.The chances of your tenant listing your property on short term rental accommodation websites like Airbnb is becoming alarmingly high especially in the inner suburbs of capital cities.According to a recent survey by Learn Airbnb about 35% of hosts who list properties on Airbnb are in fact tenants.The below graph shows 23% of hosts rent all the properties they list on Airbnb (wow) and 12.1% rent and own a mixture of the properties they list on Airbnb.

Get a copy of the full 122 page report in the bonus section at the end of this article.A spokesperson from Airbnb said they have more than 8,000 listings across Victoria alone, double the number from 2014 – and predicts it will double again in 2016.Fairfax Media found there were 1500 listings in Melbourne's inner suburbs earlier this year.If your property is in the inner suburbs of any capital city in Australia you are at serious risk.

Supreme court case

Earlier this month (June 2016) a Melbourne landlord won the right to evict her tenants after they were found subletting the apartment on Airbnb.The landlord Ms Swan originally took the matter to VCAT (tribunal) in February 2016 however the decision fell in favour of the tenants.The VCAT tribunal member ruled the tenants were not subletting the property rather they were providing their guests a ‘licence to occupy’ the apartment. Therefore the tenant was not subletting and was able to stay in the property.But Ms Swan appealed to the Supreme Court where her lawyer argued listing an entire apartment was effectively leasing it (subletting). The court overruled the original decision from VCAT and ordered for the tenancy to be ended.If you want to know more read this original story after tribunal and the update report after the Supreme Court ruling.

How to avoid Airbnb tenants

We can now be confident that if a tenant is letting the entire property out on Airbnb they are giving exclusive rights to their guests and therefore they are subletting.If the tenant rents out only part of the house (one room) on Airbnb it is still unclear if this is subletting because they are not giving exclusive possession to the Airbnb guest so the tenant could argue it’s like having family or a friend stay.Use this Special Condition to make it clear you do not agree to subletting through Airbnb:

“The tenants are aware and agree to not rent, sublet or grant anyone a licence to occupy part or whole of the rented premises without prior written consent from the landlord. For example the tenant cannot list the property on Airbnb due to the extra damage and security risks imposed on the landlord and property.”

Current legislation says tenants cannot sublet the property however in some states the landlord cannot unreasonably refuse subletting. That’s why I added the bit about extra damage and security risks which I believe is reasonable enough.All in all if you make it clear renting on Airbnb is not permitted in your lease agreement you should avoid your tenants renting your place on Airbnb in the first instance.The other thing I would do is make it clear in the lease agreement the full names of the people permitted to live in the property. Depending on your lease agreement you may need to put their names in the Special Conditions:

“The Landlord is aware and agrees to the following occupants living in the property:”

Landlord insurance

Most landlord insurance policies do not cover subletting. Therefore if your property gets damaged in some way you probably will not be covered by your landlord insurance.However Sharon Fox-Slater the Executive General Manager of EBM Insurance said

“it isn’t that straightforward, reason being if the landlord didn’t know about the subletting then our policy would actually respond to damage caused as the policy covers tenants and their invitees.”

So if you didn’t know about the tenant subletting the property on Airbnb and damages occur you should be fine to make a successful claim on your landlord insurance.

The other option

The other school of thought is to charge a bit of extra rent to mitigate the risk and allow your tenants to rent the property on Airbnb upon request. Minimal extra work on your side but earn some extra cash.The main problem I have with this is claiming insurance if something goes wrong as most landlord insurance policies don’t cover subletting.However Airbnb do have a Host Guarantee that will reimburse eligible hosts (your tenant) for damages of up to $1,000,000. The main issue is that the claim is out of your hands as the tenant is the one with the agreement with Airbnb.

Final thoughts

Personally I would not take the risk on any new tenants renting my property on Airbnb. After they have proved themselves as responsible people I may consider it but on the condition of a fair rent increase to cover my risk.