Rhode Island Real Estate Lawyer Blog

Short-term rentals offer a way for investors and homeowners to generate an income by renting out their property for a period of less than one month. Rhode Island short-term rentals can include vacation homes managed by the owner or an agency, as well as homes or parts of homes that are rented through Airbnb or a similar service. A recent policy analysis published by a real estate industry group discusses some of the regulations that apply to short-term rentals as well as issues that are relevant to all property owners and residents who may seek to rent their property as a short-term rental or are affected by other’s decision to do so.

Sales Tax Requirements for Short Term Rentals

Property owners interested in renting out a property as a short-term rental may not be aware that the Rhode Island legislature expanded the hotel sales tax requirement to include the short-term rental of residential properties in 2015. Property owners who use a rental agency or online booking system like Airbnb will not have to worry about collecting or paying the sales tax on their rental property, as the agencies are responsible for including the tax in the rent that they collect from the short-term tenants. However, property owners who independently advertise and rent out their property as a short-term rental must collect and pay the sales tax themselves. Owners who rent out an entire home as a short term rental must collect and pay a seven percent sales tax and a one percent local hotel tax on any income from the short term rental. Owners who rent out a single room or portion of a home must collect and pay the seven percent sales tax, the one percent local hotel tax, as well as a five percent state hotel tax on all proceeds from their rental.

Community Issues with Short Term Rentals in Rhode Island

The analysis acknowledges that the increase in the short-term rental market has many positive effects on local economies and property owners in recent years. However, several issues arise as a result of the increased amount of short-term rentals on the market. A primary issue within a community is the nuisance caused by an increase in short-term rental properties. Neighbors complain of loud noise, traffic issues, and increased trash, among other problems. Increased regulations and the diversion of tax revenues to address these problems may alleviate the nuisance complaints caused by short-term rentals.

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The state and federal guidelines and regulations that have been established to protect Rhode Island tenants from eviction during a global pandemic have worked well to prevent homelessness among vulnerable populations and prevent the spread of Covid-19 that could be worsened by housing insecurity. Although the eviction moratoriums and other tenant protections were established to protect financially unstable residents from becoming homeless as a result of the economic effects of the pandemic response, these protections have also served to make it more difficult for landlords to evict tenants for reasons other than the simple inability to pay rent. A local news article discusses one such case, where a problematic tenant was eventually ordered to vacate a leased property after a long legal battle.

The tenant referenced in the recently published article had entered into a short term lease with the owner of a waterfront condominium in Newport during the winter and spring of 2019-2020. Although the lease expired on April 30 and the tenant stopped making payments after the lease term ended, she refused to move out of the condominium. The landlord could not pursue an eviction case against the tenant for her failure to leave until July 1st, as a moratorium on evictions was placed into effect because of the Covid-19 pandemic. The landlord was especially prejudiced by the moratorium in this case, as the value of the waterfront property varies significantly based on the season, and the tenant’s refusal to leave before the summer was especially harmful.

After the Rhode Island eviction moratorium expired in July, the landlord filed a case to evict the tenant. However, the tenant successfully delayed the eviction several times because of an alleged Covid-19 diagnosis. Eventually, in late September, a superior court judge finally heard the landlord’s claim, and ordered the tenant to vacate the property and pay over $30,000 in past-due rents and penalties. It is important to note that while eviction moratoriums and other protections for tenants may prevent them from being removed from a property, their contractual obligations to pay a fair value for the property do not cease. Thus, once a case is sorted out, the tenant can be held responsible for all that they owe, as well as additional fees for nonpayment and violation of other lease terms.

The federal Fair Housing Act, originally passed in 1964 and amended several times since its passage, protects Rhode Island home buyers and renters from certain types of discrimination based on race, ethnicity, national origin, religion, sex, familial status, disability, marital status, sexual orientation, and age, among other protected statuses. Real estate agents, developers, property owners, landlords, banks, insurance providers, and other organizations must all meet the Fair Housing Act requirements when advertising, selling, or renting a home to the public, or they may face significant legal penalties.

Housing discrimination can take many forms, and it is not always obvious whether a practice is discriminatory. Some types of discrimination that are illegal under federal law include advertising property in a way that reveals a preference for or exclusion of people of a protected class. This prohibition on discriminatory advertising extends to realtors, who are forbidden from discouraging or denying members of a protected class the ability to view or purchase property. Furthermore, realtors may not steer members of a protected class into properties in a certain neighborhood that reflects the ethnic makeup of the prospective buyers or renters.

Housing discrimination protections extend into the banking and mortgage market as well. While mortgage lenders are permitted to consider a borrower’s ability to pay a mortgage payment and their credit history, a lender may not refuse a borrower’s loan because they are a member of a protected class. In addition to prohibitions on the outright refusal of a loan, lenders also may not try to steer people into certain types of loans or offer them different terms and conditions for a loan based on the borrower’s membership in a protected class.

As communities in New England continue to grow at a rapid rate, businesses and property developers may plan Rhode Island construction projects that require the rerouting or elimination of public roads. Occasionally, other residents or businesses who oppose eliminating or changing a public road for a private purpose may object to the construction plans. In these cases, the municipality must decide whether to allow the development or not. This issue was addressed in a recently published decision by the New Hampshire Supreme Court, where a neighboring business challenged a town’s decision to allow construction of a development that required a public road to be discontinued and replaced by a private boulevard.

In the recently decided case, the plaintiffs are the owners of a hotel that is adjacent to a business development owned by another party. According to the facts discussed in the court’s opinion, the adjoining property owners sought to expand their business development with new construction on an adjacent lot, which they also owned. To complete their construction, a public road, which was one of three accesses to the plaintiff’s hotel, would need to be eliminated and reconstructed as a private road that would be in the middle of the newly-proposed development. The town ultimately approved the developers’ plan, with the condition that the discontinued road would be replaced by a road that was open to the public and allowed the same access to the plaintiff’s property as the current road.

After the development plan was approved, the plaintiffs challenged the decision, ultimately taking their case to the state supreme court. The plaintiffs argued that the replacement of a public road with a private one infringed on their rights and threatened their business interests. The high court evaluated the balancing test applied by the town in making its decision, and ruled that the town followed the law and was within its discretion to determine that approving the proposed development was in the town’s best interest. The town properly determined that discontinuing the public road did not substantially affect the plaintiff’s rights because the developers would be required to maintain the private road and grant an easement to the plaintiffs. As a result of the high court decision, the developers will continue the construction of their proposed development, and the public road will be discontinued.

The real estate market in Rhode Island is active, as many homes that would have been listed earlier in the year are being listed and sold now as a result of the Covid-19 pandemic. In a market like this, homes are often sold quickly after they are listed, and anyone interested in buying a property in Rhode Island should be prepared to move quickly if they wish to make a purchase. A recently published article by a professional association discusses the basic steps and players in a real estate transaction.

The article notes that in addition to the buyer and seller, there may also be real estate agents, attorneys, and other professionals involved in a Rhode Island real estate transaction. Although both parties can hire a real estate broker, the majority of brokers work for the seller of a property, and are essentially salespersons. Buyers should be cautious and use discretion when evaluating the claims of real estate brokers. While brokers are not permitted to misrepresent material facts concerning a piece of real estate or a transaction, they have an incentive to make a sale, and are often not held to as high of a standard as a real estate attorney.

The purchaser of a home can best protect their rights and interests in a real estate transaction by retaining a Rhode Island real estate attorney. An attorney can represent a home buyer through all phases of a real estate transaction, helping them ensure, with the help of other experts, that the property being purchased is free of encumbrances or other defects, and that all documents are prepared and executed properly to protect the buyer’s rights and ownership interest.

In accordance with a federal order recently filed by the U.S. Centers for Disease Control and Prevention (CDC), Rhode Island district courts have extended an existing moratorium on residential evictions until the end of the year. The CDC has ordered courts in all 50 states to forbid landlords from evicting their residential tenants for nonpayment of rent to prevent the spread of COVID-19. As described in the state and federal administrative orders themselves, as well as a news report discussing the implications of the extension, tenants who are unable to afford rent should be able to remain in their homes until at least January of 2021 if they meet the requirements of the moratorium.

In order for a delinquent tenant to invoke the federal protections of the moratorium and prevent their landlord from evicting them, the tenant must meet certain requirements and file a declaration with the landlord including sworn statements that: the tenant is unable to pay their full amount of rent due to financial hardship, that the tenant’s income falls below a certain threshold, that the tenant has used best efforts to obtain government assistance for rent or housing, that the tenant is using their best efforts to make partial rent payments when possible, that if the tenant were evicted they would be at risk of becoming homeless or forced to live in close quarters with other people, that the tenant understands they will still be responsible for all rents due under the lease agreements, including possible fees and interest, and that the tenant understands that the total amount of rent and other fees may become due immediately upon the expiration of the moratorium on January 1, 2021.

If a tenant delivers a valid declaration to their landlord at any time during an eviction proceeding, the case will not be heard by the courts until after the moratorium expires. Rhode Island residential evictions that are currently pending in the courts can continue unless and until the tenant delivers a declaration to the landlord, at which point the landlord is responsible for notifying the court that a declaration has been filed and the case will be reassigned to be heard next year.

International economic and public health crises are bound to have some effect on real estate markets worldwide. The COVID-19 pandemic represents a public health and an economic crisis. Consequently, the pandemic has certainly had a significant effect on the Rhode Island real estate market. Earlier this month, a popular newspaper interviewed five Rhode Island real estate agents to discuss their experiences and observations surrounding the effect of the pandemic to the statewide residential real estate market.

The Initial Pause of Real Estate Markets

During the beginning of the pandemic, the northeastern United States was hit especially hard by the virus. Public health officials instituted a strict lockdown in early March and most Rhode Island commercial activity was seriously affected. According to the realtors interviewed for the recently published article, the Rhode Island residential real estate market suffered a severe slowdown as a result of the lockdown and other worries surrounding COVID-19. Listings were cut drastically. However, the market did not shut down entirely, as deals already in the pipeline could still go through and remote technology allowed ambitious buyers and sellers to proceed with listings and transactions if they desired.

The Opening of the Floodgates

After the initial slowdown and pandemic fears subsided, public health officials managed to get the virus under control, and the Rhode Island residential real estate market saw a large bump in listings and sales. It was as if all of the homes that would have been sold during the lockdown period went on the market as soon as it appeared safe to do so. Because of this, the summer of 2020 has actually seen a 50% increase in homes that are under contract compared to the same time in 2019. Most if not all of this increase can be attributed to the homes that would have been sold during the spring if not for the pandemic and government response.

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