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5 Legal and Regulatory Considerations for Short-Term Rentals

Published on Jul 13, 2017


As short-term rentals have grown beyond a cottage industry, regulators are playing catch-up. Spurred by complaints from neighboring residents and the traditional hotel industry, cities are enacting laws to regulate short-term rentals across the nation. Below are answers to five commonly asked questions about the laws and regulations that govern short-term rental businesses.

View the legal and regulatory considerations business owners should review for listing short term rentalsShort-term rental business opportunities such as Airbnb, HomeAway, and VRBO are a great way for homeowners to earn money. Whether you’re looking to subsidize your income or defray the costs of owning a second home or vacation property, it’s a hot market. According to Research and Markets, the global vacation rental market will reach $169.7 billion by 2019.

But as short-term rentals have grown beyond a cottage industry, regulators are playing catch-up. Spurred by complaints from neighboring residents and the traditional hotel industry, cities are enacting laws to regulate short-term rentals across the nation. The fines for non-compliance can be substantial. Last year, the city of Miami Beach, FL, issued fines of $1.59 million from the period March through August alone, with fines for a first violation starting at $20,000.

With such costly and ever-evolving regulatory dynamics, it’s important that property owners understand the legal considerations for short-term rentals:

1. What’s the Definition of a Short-Term Rental?

Sounds straightforward, right? You rent a room or your entire property to a guest for a short period of time. However, it’s not quite that simple. The definition of a short-term rental can vary based on two key factors:

  • The Type of Structure

    Each city or county has varying definitions of what constitutes a “short-term rental property”.

    In Nashville, TN, for example, a short-term rental property (STRP) is defined as “a residential dwelling unit, containing more than four sleeping rooms, that is used and/or advertised through an online marketplace for rent for transient occupancy by guests.”

    However, head on over to the Rockies where in Denver, CO you’ll come across a different definition of a short-term rental: “the rental of a shared room, a single room, multiple rooms or an entire property for a period ranging from 1-29 days.”

    The definition is important because it doesn’t just impact how you rent out your space, but also the types of licenses and permits you need and other laws that may apply. Check with your city or county website to find out more.

  • Length of Stay 

    How long you open your property to renters is also key in defining it as a short-term rental or not.

    In the Nashville example above, the length of stay must be limited to a period between 1-29 days. However, in Santa Monica, CA, short-term rental regulations are much stricter and prohibit the rental of an entire unit for less than 30 days. Similarly, in New Jersey, the state government recently moved to regulate short-term rentals to require a minimum stay of 30 consecutive days so as to avoid a negative impact on the quality of life in residential neighborhoods. 

2. What Are the Legal Restrictions for Short-Term Rentals?

In addition to regulating the type of structure and length of stay, there are several other legal restrictions that short-stay rental businesses are subject to. Again, these vary by city and/or state.

Here are just some of the common restrictions:

  • Prohibition of Short-Term Rental – Some cities completely prohibit short-term rentals. In California, the City of Santa Barbara defines short-term rentals as “hotels” that can only operate in designated zones and then only if all necessary approvals are obtained. In San Diego, short-term rentals are prohibited in any zone.

  • Limits to the Number of Rental Properties in a Location – Large cities and tourist destinations tend to have strict rules, such as placing limits on the number of short-term rentals in any given zone. For example, New Orleans, LA, bans short-term rentals in the French Quarter, except for certain areas. The city even has the cooperation of Airbnb and city enforcement officers to track down violations and complaints.

  • Multiple Dwelling Laws – New York City has some of the toughest restrictions on short-term lets. To prevent disruption to residents and help prop up its hotel industry, New York’s Multiple Dwelling Law (MDL) only permits rentals of less than 30-days in “Class A” multiple dwellings (buildings with three or more families living independently) if a permanent resident is present. Violations are up to $2,500 a day. Another law makes it illegal to advertise a rental that is prohibited by the MDL.

Be sure to check the laws in your city or state. If you intend to rent condo or co-op space, consult your association rules to see if anything limits your ability to rent space as well as HOA bylaws or timeshare ownership rules. If you rent your property from a landlord, be sure to get his ok too.

3. What Licenses and Permits are Required?

Here’s a checklist of what licenses or permits you may need to obtain:

  • A General Business License. If you’re operating any sort of a business, including renting property, your city or county will likely require you to obtain a license or permit. 
  • Short-Term Rental License – You may also need a short-term rental license or permit. Applications typically require you to attest that the property meets health and safety requirements (such as smoke detectors and fire extinguishers), is up to code, compliant with zoning laws and that adjoining properties have been notified. Proof may also be required that the unit being rented is your primary or secondary residence.

Check your local government website for details or refer to the “Getting Started” information through your online rental company (Airbnb, VRBO, etc.) for license and permit requirements in your area.

4. What About Zoning Rules?

We’ve mentioned zoning laws already, don’t skip this important step in your business planning. If your property is not zoned for short-term rentals, your options are very limited. Don’t take the risk, all it takes is a complaint from a disgruntled neighbor to trigger a cease and desist notice from the zoning department.

5. How to Pay Taxes on Short-Term Rentals

Taxes are a critical part of regulatory compliance. In addition to paying income tax and self-employment taxes, some local governments impose a short-term rental occupancy tax (lodging or hotel tax). It’s a good idea to consult your tax advisor to see which tax deductions you can claim. For example, the IRS lets you claim rental expenses for property and rooms rented (such as rental fees charged by short-term rental companies) if you meet certain criteria. Be sure to keep thorough records of all rental periods and any expense incurred throughout the year.


The laws and regulations that govern the short-term rental market are constantly changing. As demand grows, more and more cities and vacation destinations are taking steps to protect residential neighborhoods and guests alike.

It’s a fluid situation and many state and local lawmakers are trying to ease regulations. In Texas, senators are working to prevent Texas cities from banning short-term rentals of less than 30-days and bring state-wide uniformity to laws. As short-term renting becomes mainstream, expect other states to follow suit.

For now, be sure to check your city’s ordinances and state laws before getting started and revisit them often as regulations can change at any time.

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