Define Short Term Rental Agreement
A Short Term Rental Agreement is an agreement in which a person (the tenant) agrees to rent a room, apartment, or home for a short and specific amount of time from a property owner (the landlord). For example, if you traveled to Austin, Texas for a weekend and rented the top floor of someone’s house via Airbnb, the agreement you entered into with that person is a short term rental agreement. Usually, short term rental agreements are for one day up to a month. Typically, a tenant will need to pay the entire rental amount upfront and the benefit to that is that they get to live somewhere in the community on a temporary basis , but more importantly to any landlord, they are receiving a guaranteed rental payment with little risk of not receiving it.
The duration of any given short term rental depends on the needs of the client and the willingness of the landlord. Generally, the duration will not exceed 30 days and it is important to know that the Texas Property Code does not apply to these types of agreements.
What distinguishes a short term rental agreement from a long term lease is the duration. A long term lease will last anywhere from six months to a few years, whereas a short term rental agreement will last no longer than a couple of weeks to a couple of months.
Essential Aspects of a Texas Short Term Rental Agreement
The key elements of a Texas short term rental agreement should include, at a minimum, the following: (1) rental period, (2) rental payment terms, such as the rate, amount, due date, security deposit requirements, nonrefundable fees, and payment methods; (3) cancellation and refund policy, including minimum advanced notice to receive a full or partial refund; (3) listing of property rules and requirements, such as, pets permitted, smoking permitted, a guest maximum occupancy; and check out requirements. A short term rental agreement is not subject to the real estate license act and does not have to be in a particular form.
Texas Short Term Rental Legal Requirements
Texas real estate laws specifically define "short term rental properties" as those properties rented for occupancy of under 30 days. The legalities of short term rental agreements in Texas are often covered by local ordinances, statutes, and state and federal laws.
For instance, in the City of Dallas, short term rental properties must have a permit in order to be rented to guests. Additionally, operators must provide guests with an emergency contact number for the property that answers within four hours, provide an on-site parking plan for the property, and maintain verbal or written communication with guests about the ordinances and applicable laws of the city and state.
In Houston, a municipal law covers short term rentals, which must be operated as a legal business entity (sole proprietorship, partnership, corporation or limited liability company), registered with the Houston Police Department and have a certificate of registration, and pay applicable hotel occupancy taxes.
Many other cities and municipalities across the state have similar rules and regulations governing short term rental properties that impact the landlord, tenant and rental property.
Benefits of Short Term Rentals for Owners
The rising popularity of short term rentals in Texas and across the U.S. can benefit Texas property owners in several ways. Generally speaking, the increased income potential is the driving force behind short term rental ventures. When someone uses the property as a short term rental, the property owner can charge a higher daily rental rate and collect a larger total revenue for the month vs. making the same property available for rent as a long term lease.
With recent and significant shifts within traditional travel and accommodation service providers, a majority of the public has shifted to using home based vacation and rental platforms creating new opportunities for the average Texas property owner.
The ability to decide when the property is used for short term leasing is often an attractive feature , especially for single family homeowners. Your Texas property can be reserved as a rental when you are not using it and freed up for use by yourself if a personal trip to the area is scheduled. As an owner/operator, you still have the option of using the property as a long term lease if you desire.
Notably, owning a short term rental property can also provide tax benefits. Depreciation and improvements may be deductible, and like other rental income, short term rental revenues are reported on a tax return and taxed.
More benefits for Texas short term rental owners can be found at the Texas Association of Realtors short term rentals resource page.
Common Issues with Short Term Rentals
A third potential challenge is with tenant turn-over. The turn-over of tenants between guests needs to be closely monitored. After all, if not done properly, there is the risk that a guest could try to "squat" by remaining at the premises for a longer duration than intended. Moreover, the property may be left in an unsightly condition, which could lead to disputes about the security deposit and/or other damages. A fourth potential challenge is that not all areas of Texas permit short term rentals. Short term rentals are largely driven by local ordinances. Many cities have passed ordinances or regulations that restrict or prohibit short term rentals. Likewise, more and more homeowner associations have sought to prohibit or restrict owners from renting their homes on a short term basis. Thus, while short term rentals can be an attractive investment opportunity, landlords need to ensure they have legal authority to rent their premises short term pursuant to City ordinances and applicable homeowner association rules.
Best Practices for Short Term Rental Agreements
When drafting a short term rental agreement, companies and individuals should keep in mind some best practices that will help them avoid future trouble. First, it is always advisable to consult legal advice when preparing such an agreement in order to ensure it complies with all applicable local, state, and federal law. More importantly, it’s crucial that the agreement is crafted and tailored to fit the specific needs of the company or individual when renting living space for a short period of time . Additionally, it’s important that the terms and conditions be spelled out clearly, so that all parties involved understand what is expected of them. There are many factors that can have a huge impact on an agreement. For example, what fees will you charge for cancellations, additional guests, damage, pets, etc? These fees should be clearly disclosed up front. Additionally, what are the minimum and maximum length stays? It’s always a good idea to specify what will happen if a company overbooks its available units. Each of these is an example of the types of things you should have in mind when crafting your agreement.