New Massachusetts Law Requires $1 Million Liability Limit for Short-term Rentals

On December 31, 2018, Governor Baker signed the first in the nation statute to require registration and taxation of the short-term use of residential property through websites like Airbnb.

Law requires registration and taxation of short-term rentals

A quick thumbnail of the new law is that it defines a “short-term rental,” in pertinent part, as:

…an owner-occupied, tenant-occupied or non-owner-occupied property including, but not limited to, an apartment, house, cottage, condominium or a furnished accommodation …where: (i) at least one room or unit is rented to an occupant or sub-occupant; and (ii) all accommodations are reserved in advance…

However, the short-term rental must be a period of less than thirty-one consecutive calendar days.

Based on this definition, anyone who operates a short-term rental become an “Operator” who must comply with the statute. These obligations include the short-term rental operator:

registering every property used for short-term rental with the state’s Department of Revenue (DOR);
imposing and collecting the 5.7 percent state lodging tax and any local city and town taxes now allowed on short-term rentals;
maintaining the statutorily required liability insurance for the short-term rental property

Persons who do no more than fourteen days of short-term rentals in a calendar year can file for an exemption with the DOR. However, they are still liable to register and maintain the required liability insurance.

The law also defines a “Hosting Platform” to include those companies, like Airbnb, providing advertising, rent collection, and insurance services for operators of short-term rentals.

Homeowners and other doing short-term rentals need a $1 million liability policy

The new law adds a new section to Massachusetts General Laws Chapter 175: Section 4E. Section 4E provides several rules for operators of short-term rentals. A provision that directly affects homeowners or renters is that they must notify their insurers of their intent to do a short-term rental. The statute states:

An operator who intends to operate a short-term rental shall provide notice to any insurer that writes a homeowners or renters insurance policy for the property where such short-term rental is to be located of the operator’s intent to operate such short-term rental.

Also, §4E requires a $1 million liability policy that can be a policy issued by the hosting platform:

An operator shall maintain liability insurance of not less than $1,000,000 to cover each short-term rental unless such short-term rental is offered through a hosting platform that maintains equal or greater coverage. Such coverage shall defend and indemnify the operator and any tenants or owners in the building for bodily injury and property damage arising from the short-term rental.”

One gap noted in the free liability coverage offered by Airbnb and, possibly other hosting platforms, is that there is no personal injury coverage.

Section 4E does have a provision requiring the hosting company to notify the operator of the short-term rental that these types of rentals may be excluded. The provision states:

Prior to an operator offering a short-term rental through the use of a hosting platform, the hosting platform shall provide notice to the operator that standard homeowners or renters insurance may not cover property damage or bodily injury to a third party arising from the short-term rental.”

Section 4E has a specific reference to insurers excluding liability arising out of a short-term rental. This provision restates what most homeowner policies already exclude under an ISO mandatory endorsement. The statement in §4E is:

Insurers that write homeowners and renters insurance may exclude any and all coverage afforded under the policy issued to a homeowner or lessee for any claim resulting from the rental of any accommodation under chapter 64G. Insurers that exclude the coverage described in this section shall not have a duty to defend or indemnify any claim expressly excluded by a policy.”

The provisions of §4E also state, however, that “Nothing under this section shall preclude an insurer from providing coverage for short-term rentals.” Although if an insurer or a hosting company intends to provide coverage, they must file the forms with the division of insurance as per the statute’s directive:

Any policy or policy form intended to cover operators of short-term rentals from liabilities, whether the policy or policy form is provided by a hosting platform or an operator itself, shall be filed according to instructions provided by the division of insurance.”