As a short-term rental property owner, you must be careful not to include any confusing language in your documents, property descriptions, and ads or treat a guest in a way that might suggest that the occupant of your short-term rental is a tenant instead of a guest. Let’s dig into what the differences are between a tenant and a guest and more about the use of your property.
A tenant is given exclusive legal possession and control of the property. A guest simply has a right to the use of the premises—not possession or control. To determine if your occupant is a guest or a tenant, you must look at the totality of the circumstances, including the description of the relationship assumed by the parties, the payment for use of the premises (whether daily, weekly, monthly), the type of the accommodations and whether or not the occupant has another residence they deem permanent and whether or not the occupant intends to reside at the premises temporarily or for an indefinite time period.
Here are some questions that a judge might ask when determining whether or not your occupant is a guest or a tenant:
Is the occupant a citizen of the city/village/township where the property is located?
Was a licensing agreement or a lease agreement used?
Was a tenancy established?
How is the property referred to in your descriptions/ads/promotions, etc.?
Does the occupant have use of the entire premises and property?
Is your short-term rental a commercial or residential use?
How does your occupant intend to use the property? Are they local?
If the potential occupant communicates that they will be using your space as a home while they look for another place to live or for a few weeks until they find a job somewhere else, etc. Be wary. This occupant is probably looking for a rental unit that establishes a tenancy—not a short-term rental. Be especially wary of a local person/family seeking a short-term rental unit. An implied tenancy could be created simply by the occupant not understanding that there is a difference between a lease and a license. If challenged, you and/or your attorney will argue that a tenancy was never implied but judges often side with the occupant when communications get muddled or where language isn’t clear and easily understood.
How Could All This Play Out to Create a Landlord-Tenant Relationship Tenancy?
If you mistakenly use wording such as lease or rental agreement in your documents instead of the correct wording, licensing agreement; or your documents refer to the occupant as a tenant instead of a guest; or, you use a standard lease or rental agreement form available from various sources that are used for creating a landlord-tenant tenancy—you could have a problem. Boilerplate forms are great—just make sure you are using the correct ones. It is also important to note that Courts have said the title on the top of the agreement is not conclusive, i.e., just stating “Licensing Agreement” at the top of the page is not enough to make it so. However, the use of this title does help show intent of the parties involved. Members of the Short Term Rental Association (STRA) can find a legit licensing agreement for use here: (Add link to the license agreement.)
When Is a Tenancy Created?
A tenancy refers to the actual property right a tenant receives under a lease (not a license agreement). The owner conveys to the lessee/tenant interest in the property for a term (weekly, monthly, six-months, yearly) for valuable consideration (rent) whereby the tenant has use and “enjoyment” of the property during the stipulated period. There are three types of tenancies in Michigan: fixed-term (like a year lease), periodic/tenancy at will (like a month to month) and tenancy at sufferance/holdover (like where a tenant remains in possession beyond their legal right to do so). Leases can be verbal (if less than one year) and must be in writing if one year or longer.
Obviously, you do not want to create any of these types of tenancies if you are doing short-term rentals intended to be used much like a hotel or bed and breakfast. What is enjoyment? This is often referred to more specifically as “quiet enjoyment.” Quiet enjoyment means the tenant has a right to enjoy their rental without substantial interference from the landlord…often this is translated into layman’s terms as the right of the tenant to enjoy their rental as their home and personal residence.
How Do You Refer to Your Property in Your Promotions?
Be careful with how you describe your property and its uses in your ads, descriptions (including those online) and promotions. Are you calling the premises a hotel, AirBnB, short-term rental, bed and breakfast? Or, are you calling it an apartment, condo, residence, rental unit or home? The latter ones would typically be used to describe a premises where the owner intends to create a tenancy…which, of course, you are not doing.
Does the Occupant Have Use of the Entire Premises and Property?
This one is a little tricky. Many short-term rentals are described as “you have the whole place to yourself” or “the whole property.” Use is different than possession and quiet enjoyment thereof. So be sure to avoid using terms in your agreements and descriptions, etc. that might suggest something more than “use.” Avoid using words such as: quiet enjoyment; you’ll be in possession of a perfect space; your home away from home; the whole property, etc. Perhaps the better test question is: does the occupant have EXCLUSIVE use and control of the entire property. Meaning does the owner retain rights to access the property? In a regular rental tenancy, the owner subordinates his or her rights to the tenant who gains exclusive access to the property, while in a licensing agreement, the owner retains access to the property. This is the key factor in making the determination.
Is Your Short-Term Rental a Commercial or Residential Use?
While most short-term rental owners do not see their properties as “hotels” or “bed and breakfast,” owners need to be aware of State and local laws. This is one of the gray areas under current law in Michigan regarding the business, i.e., there really isn’t anything in State law about short-term rentals. So, what are short-term rentals? As of the date of this article, the Michigan REALTORS Association, STRA and other advocates for the short-term rental industry argue that short-term rentals are a residential use.
The argument stems from how the advocates believe short-term rentals should be treated under Michigan zoning laws. Is a short-term rental a residential use or a commercial use like a hotel? The argument states that simply because a residential unit (1 – 4 units built for residential use in a non-commercially zoned area) is offered on a short-term basis (for use by guests) does not make the property a commercial property. In other words, allowing the occupant to stay for time periods of less than 30 days does not, somehow, magically change the property into something else. We recommend that you confer with your attorney in this area to make sure you are not violating a current local ordinance or using documents or language in promotions that somehow muddles the status of your property.
More About Tenancies and Local Ordinances
As implied above, local municipalities are implementing ordinances that either out right ban short-term rentals (offering a unit for less than 30 days). Within the context of this article, the point here is that if you are offering a short-term unit for 30 days or more, the locality (and the local courts) will likely view your license agreement as a lease creating a tenancy. Also, be aware that if you are operating your short-term rental in a way that is not in compliance with local licensing and/or ordinances, the locality and the courts are also likely to see your unit as being used for a tenancy—since it isn’t in compliance for a short-term rental use.
With all that said…always…if in doubt about anything discussed above, run it by your attorney or the Short Term Rental Association’s free limited advice attorney.