How to put Teeth in your Rental Agreement
What does your current rental agreement look like?
Is it the standard form agreement supplied by your state realtor’s association? Is it a lease agreement, or one that has been pasted together from various sources? If so, you are not providing your clients with the best legal protection possible.
Introduction
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.
Although many property managers have access to a form of license agreement through their state associations, the agreements being offered are oftentimes ambiguous. They do not contain liability waivers, nor do they include rules and regulations setting certain expectations of the guests by the owners of the properties. If the agreements currently being used don’t include language (1) which gives the property owner/agent unlimited access to the property during the course of the guests’ stay and (2) don’t clearly state they are a license agreement, they may still be interpreted by the courts as a form of lease.
Benefits of using License Agreements for Short-term Rentals
The license to occupy is very popular where a short, fixed term tenancy agreement is required.
The Agreement can 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 can 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 an owner has the wrong type of insurance coverage on their property or certain amenities are 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 these protections. The renter must specifically agree to be bound by the liability waiver.
Ease of use – Today’s technology affords managers the ability to create license agreements, obtain all signatures, and store them online. These agreements can be created online in minutes, signed by the owner/manager online, signed by the renter online, and stored online. What could be simpler?
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. Cotton.
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.
Create, Sign, and Store your Contract 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.
GuestAgreement.com contracts can be created in a number of minutes. The agreements are signed by both parties online and stored on our website and in your email account. Under federal law, digital signatures are valid and enforceable. While unnecessary, parties are free to print and physically sign the document.
Conclusion
Being able to offer a solution to owners who have been searching for the right type of rental agreement; one that provides legal protections to owners, or alternatively, one that does not contain provisions which can establish rights to guests that the owners did not intend to provide, will give property managers the tool they need to educate and inform their clients on best in class practices in their profession. In particular, the use of an electronic agreement that can be created, signed and distributed to all parties with the mere click of a button gives managers a leg up on their competitors. To purchase an agreement, or for additional information, visit out site at GuestAgreement.com.
About the author:
William(“Bill”) Ballinger is a California attorney with over 30 years of experience with contracts and business matters. He is the Founder of GuestAgreement.com. 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. Bill also sits on the Board of Directors of the Short Term Rental alliance of California (STRACA), a nonprofit organization promoting the use of short term rentals in California. Any questions or comments can be addressed to the author at BBallinger@GuestAgreement.com.