Build Case Against Residents Profiteering from Short-Term Rentals

Some of your households may be tempted to rent out their apartments ahead of the holidays to earn some extra income. Booking platforms such as Airbnb, VRBO, and Booking.com have made listing apartments to allow residents to become short-term landlords increasingly easier. However, letting low-income households sublet units at a tax credit site could lead to noncompliance and can endanger tax credits.

The tax credit law prohibits a LIHTC unit from being used on a “transient basis.” This is the reason the IRS requires a lease term of at least six months and many state credit agencies require initial lease terms of 12 months. In addition, tax credit law requires a low-income unit when under tenancy to be “continuously occupied.” In other words, the resident must always be in possession of the low-income unit. If a low-income unit is subleased on a short-term basis by a profiteering resident running a rental business, your state housing agency may raise this continuous residency requirement to cite your site for noncompliance and put the owner’s tax credits at risk.

If you discover that a low-income household is subletting its unit, it’s important to take action immediately. This way, you’ll increase the chances that you can fix the problem before your state housing agency visits your site. And your quick response to resolving compliance issues you discover on your own will help show your state housing agency that you’re proactive when it comes to tax credit compliance.

One way to show the state agency that you are acting promptly is to deliver a warning notice demanding removal of unauthorized occupants as soon as you can. However, when a profiteering resident isn’t responsive to your warning notices, you need to build an eviction case against the non-cooperating household. We’ll go over some tactics to help build your case.

Basis for Eviction

If you suspect a tenant of running a business of renting out the apartment, you should consult an attorney about the best way to proceed. Although there are no required leases issued by the IRS you must use, your site’s leases most likely prohibit “assignment and subletting.” For example, it may state that “Resident may not sublet or advertise the unit on a hospitality exchange service, such as, but not limited to, Airbnb, VRBO, Booking.com, Couchsurfing, and Craigslist.”

Leases that prohibit the apartment from being used by any person on a transient basis will likely be your best rationale for an eviction. If you're able to prove that a rental business that goes against the residential requirements of the lease has been established, a judge will likely rule in your favor.

How to Build a Case

When you suspect a resident of profiteering, you should start gathering evidence that the resident is engaging in the business of short-term rentals. In addition to the threat to your site’s tax credits, you should be vigilant for short-term rentals at your site due to the increased liability concerns. A resident running a short-term rental business compromises the security of the building and the safety of the other tenants. A profiteering resident’s actions prevent you from screening the backgrounds of these guests as your site might do for all prospective residents. This is especially important as the owner bears the ultimate legal responsibility for third-party criminal activity and maintaining the building in a safe manner.

Once preliminary evidence is gathered, you can bring the documentation to your attorney, who can help assess the strength of your potential eviction case. Strong cases will show that money is being made and that the resident named on the lease is profiting. The following are some tactics that may be helpful when building a case against these residents:

Get staff and neighbor testimony. To bolster you case, you can record testimony from your manager and other staff on how they became aware of the profiteering household. It may be that the manager fielded complaints from neighboring residents that strangers with suitcases were coming and going from the resident’s apartment. Or the manager may have noticed a housekeeper was coming to the subject apartment on a weekly basis. The manager may have also uncovered an advertisement posted on the Airbnb website that included pictures of the apartment.

Utilize surveillance systems. If residents have complained of strangers in your building and if you suspect that one of your apartments is being used as a hostel, you might consider installing a camera to document the number of visitors and the duration of their stay. Common areas are places that any resident at your site could pass through. Common areas might also refer to areas such as front doors, stairwells, lobbies, and parking lots that most people could gain access to without a key. And these areas are generally valid for placing cameras.

Private areas, on the other hand, are areas in which a tenant would reasonably expect privacy. Anywhere in an apartment unit once the door is shut would fall on this list, such as bathrooms, living rooms, and bedrooms. The well-established rule is that individuals retain a reasonable expectation of privacy within private areas of living space—not necessarily in public spaces, such as the common areas like hallways and lobbies of residential buildings.

Print out customer reviews from website. Beyond printing out ads and listings of the apartment on sites such as Airbnb, you can also gather “customer reviews” of the resident’s apartment to submit into evidence.

Book apartment online. Another way to bolster your case is to go through the process of booking a room from a profiteering tenant. By doing so, you can expect a booking confirmation by email, which can then be admitted into evidence at trial. After receipt of the booking confirmation, you can cancel your stay.

Inspect apartment. You may also consider conducting a legal inspection of the apartment and look for signs that the apartment is being used for short-term rental purposes. There may be no personal effects in the rooms and bathroom. And there may be items commonly provided by a typical hotel to facilitate a guest’s stay, such as complimentary soap, WiFi password information, rules for check-in and check-out procedures, a local map, and information on local entertainment venues. These are signs that guests are charged either a nightly or weekly rate.