Renter concerned about risk in entering into a lease agreement

Member since 2018 · 12 posts · 2 votes

I want to lease residential property in Washington state to use for a business, not a personal residence. I want to minimize my personal liability and risk. Although I'd like to enter into the contract as owner of my LLC, landlords don't like this. I'm hoping I can convince the landlord to enter into the contract with my LLC and then have me as guarantor. I don't mind personally guaranteeing that the rent will be paid, but I'm hoping having me as a guarantor on the lease with the owner doesn't increase my personal liability against lawsuits such as someone falling on the property and suing me, rather than the LLC. I'd appreciate any advice or other ideas for me!

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JD MartinBusiness Member

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Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes

Have you done this before or is this your first attempt at this? I guess if you looked long enough you'd find a LL that would be willing to let you AirBnb their property, but I think you're going to have to look pretty hard.

Either way, as best as I can tell what you are trying to do is shield yourself from personal liability if an AirBnb guest that you book gets hurt or decides to sue for some other reason. Your insurance, adding the property owner as an insured party, should cover this for the most part - but I can't think of a good reason for the property owner to let you do this. Let's say you somehow manage to sign a lease as an LLC, and during the course of AirBnb someone manages to have some big claim that they sue for and get a judgement beyond that of insurance. In this case, you walk into the sunset because your LLC has no assets, while the property owner loses his/her property and maybe faces their own liability if they don't have enough supplemental insurance?

Again, I don't see the property owner's insurance allowing this to take place. To answer your question, I suppose in theory it's possible if you find a dupe of a landlord to allow you to do this. In my house, I would give you the boot in 2.2.

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JD MartinBusiness Member
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Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
8y
I don't know a lot of landlords that will rent residential property to you for commercial purposes, and I would think those that did will require commercial insurance from you with the property owner as insured. I know my landlord insurance prohibits tenants from using the property as anything but a residence.
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Barb Lee
OP
Member since 2018 · 12 posts · 2 votes
8y
Good point. I will be carrying liability insurance. My business is to rent out the property as short term rentals, so it's not commercial purposes, but rather guests staying there under 30 days.
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David O.
Investor · Leawood & Manhattan, KS · Member since 2017 · 41 posts · 56 votes
8y
You will most likely find that in most, if not all, of the leases that you look at you will be prohibited from subletting the property, Which is what you want to do. And, it would be grounds for lease termination and possible eviction. So, you might want to be very upfront with any potential landlord about your intent. Could save you a lot of headache later on.
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Barb Lee
OP
Member since 2018 · 12 posts · 2 votes
8y
My research indicated that under 30 days was not considered subletting. I would be upfront with the landlord and provide an addendum to the lease.
My question was regarding limiting my liability. if I could convince the landlord to sign with the LLC with me as guarantor instead of with me directly, would my being a guarantor (to insure that he gets paid) affect my personal liability regarding a lawsuit from some other party on the property.
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JD MartinBusiness Member
Moderator
Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
8y
Have you done this before or is this your first attempt at this? I guess if you looked long enough you'd find a LL that would be willing to let you AirBnb their property, but I think you're going to have to look pretty hard.
Either way, as best as I can tell what you are trying to do is shield yourself from personal liability if an AirBnb guest that you book gets hurt or decides to sue for some other reason. Your insurance, adding the property owner as an insured party, should cover this for the most part - but I can't think of a good reason for the property owner to let you do this. Let's say you somehow manage to sign a lease as an LLC, and during the course of AirBnb someone manages to have some big claim that they sue for and get a judgement beyond that of insurance. In this case, you walk into the sunset because your LLC has no assets, while the property owner loses his/her property and maybe faces their own liability if they don't have enough supplemental insurance?
Again, I don't see the property owner's insurance allowing this to take place. To answer your question, I suppose in theory it's possible if you find a dupe of a landlord to allow you to do this. In my house, I would give you the boot in 2.2.
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Barb Lee
OP
Member since 2018 · 12 posts · 2 votes
8y
Yes to everything you said and I really appreciate your feedback. I need to think about this some more as to how to make it work for everyone.
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Kyle J.
Rental Property Investor · Northern, CA · Member since 2012 · 5k+ posts · 5k+ votes
8y
Originally posted by @Barb Lee:

My research indicated that under 30 days was not considered subletting.
Not sure how you came up with that, but that’s not accurate and may be contributing to why you’re having problems renting a place.
If you’re renting a place and you, in turn, rent it out to someone else who is not on the lease, you’re subletting and most landlords/leases prohibit this.
I commend you for being upfront about your intentions. You might also offer to pay a premium on the rent to help convince the landlord.
Here’s some more reading on the topic that might be helpful: https://www.nolo.com/legal-encyclopedia/tenants-how-make-airbnb-work-you-your-landlord.html
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Barb Lee
OP
Member since 2018 · 12 posts · 2 votes
8y
I love nolo.com! Always looking for good, free advice. :) Thanks so much for the link.
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Barb Lee
OP
Member since 2018 · 12 posts · 2 votes
8y
Perhaps a solution to solve the concern about the landlord's vulnerability is for him/her to do business as an LLC. That's what I would do in his/her shoes.
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John Barrett
Rental Property Investor · Everett, WA · Member since 2015 · 457 posts · 386 votes
8y
Hi Barb, Standard leases from any reputable landlord association clearly state that operating a business out of the residence is strictly prohibited. Ours have had this provision prior to Airbnb taking off, it’s just longer now. As others have stated, we would never allow our rentals to be used in this manner as we want to tightly control who’s in our units as well as limiting wear and tear on the unit. Additionally, our existing tenants in the cases of multifamily would not be likely to stay if there’s a lot of in and out traffic in the neighboring unit. As for liability, it makes no sense for a landlord to sign up to this. I believe all standard policies now prohibit units being used as short term rentals. So best case the landlord would have to switch insurance policy worst case they would be find out they have no coverage after an incident. I would suggest figuring out how to purchase a property, transfer the property into you own LLC and then use it as an short term rental. Best of luck.
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Randy E.
Rental Property Investor · Durham, NC · Member since 2014 · 1k+ posts · 1k+ votes
8y
Originally posted by @Barb Lee:

Perhaps a solution to solve the concern about the landlord's vulnerability is for him/her to do business as an LLC. That's what I would do in his/her shoes.
If an applicant came to me as a landlord and suggested I call a lawyer and alter the way I hold my properties in order to make it possible for that one specific tenant to make money off my investment ... well, let's just say that change is not going to happen.
It seems to me that your best option is to buy a property in the area where you wish to operate, and run your STR from the property that you yourself then own. And you can own it under an LLC if you think that will protect your other assets.
Good luck.
5 Reply
Barb Lee
OP
Member since 2018 · 12 posts · 2 votes
8y
I agree with you Randy. I'm trying to see things from the landlord's perspective, and if I were a landlord (which I'm not) I'd want to run my business under an LLC. Regardless of who I was renting to.
That having been said, I've heard it's more difficult to get mortgages as a company rather than an individul , (higher interest rates, etc.) so there's that to consider as well...
0 Reply
Matthew Paul
Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes
8y
As a landlord , no way in hell would I let someone sign a lease with a LLC . let alone use if for Airbnb .
1 Reply
Barb Lee
OP
Member since 2018 · 12 posts · 2 votes
8y
I'd like to make this work so I'm doing my due diligence of this prospective business up front - haven't entered into any contracts yet. I've heard there's resistance from landlords, like you've expressed, Matthew Paul. I'm curious, though, would you (or do you think there may be reasonable landlords that would) consider it under the following conditions:
-I would be a personal guarantor on the lease (to guarantee rent payments) paying rent on-time through ACH
and get all utilities in my name,
-I would carry a $2million liability vacation rental property insurance naming the landlord as an additional insured,
-The occupants would be pre-screened by Airbnb,
-The unit would be cleaned and inspected after each guest,
-Hassle-free management - I would perform minor repairs immediately and keep the unit in tip-top shape,
-We could have a month-to-month lease (with 60 day notice to let future bookings play out) if landlord wanted to,
-I won't break any HOA or local renting rules/laws,
And if the above isn't sufficient:
-I would be willing to share profits, leave a higher security deposit and/or pay higher rent.

Any other objections? I appreciate honest, matter-of-fact feedback.
1 Reply
Tracey Smythe
Investor · Orlando, FL · Member since 2017 · 18 posts · 16 votes
8y
Most HOA's have a clause in their covenant that only allow rentals of a certain length. All three of mine do not allow rentals under 1 year. In one of my HOA's I know that they have evicted tenants when Airbnb was occurring. Some cities and jurisdictions require a similar minimum rental time as well. Just something else to think about. If you break these rules, you could put the owner at risk of big fines or civil action by the HOA or local municipality.
I would never allow any sublet or Airbnb of my rentals, no matter what the circumstances. They are my rentals, I paid my dues to get them, and if someone wants to Airbnb or vacation rent they can buy their own home.
2 Reply
Wesley W.
Rental Property Investor · The Vampire State · Member since 2013 · 2k+ posts · 2k+ votes
8y
Originally posted by @Barb Lee:

That having been said, I've heard it's more difficult to get mortgages as a company rather than an individul , (higher interest rates, etc.) so there's that to consider as well...
Well, if you are willing to personally guarantee the lease, why not do the same for a mortgage and buy it in your personal name? A commercial umbrella policy might mitigate any liability concerns, and they are pretty inexpensive for the coverage offered.
2 Reply
Barb Lee
OP
Member since 2018 · 12 posts · 2 votes
8y
That would work if I just wanted one property, but I want to do this with several, so it's only affordable for me to rent. And the reason I want to avoid buying in my personal name is to further reduce the risk to my personal assets if there's a lawsuit that is greater than the liability insurance.
0 Reply
Matthew Paul
Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes
8y
@Barb Lee heres the problem , even though you would get all this insurance , if there is a lawsuit they are going after the landlord first . And since he knew , he would have to have a commercial insurance policy . When there is a problem , you can cut and run and the landlord is stuck with the problem .
You want to sign a lease in a LLC , so if there is a problem it becomes the landlords problem
1 Reply
Barb Lee
OP
Member since 2018 · 12 posts · 2 votes
8y
Yeah, you summarized it well, Matthew Paul. So where can I find landlords that are already set up as companies/corporations that have residential property that would be interested in leasing to my LLC to host Airbnb? :)
0 Reply
David O.
Investor · Leawood & Manhattan, KS · Member since 2017 · 41 posts · 56 votes
8y
You probably won't find any landlords set up the way you would like that are willing to lease to you and your LLC in order for you to offer short term rentals. And, if they are set up the way you are proposing, it is most likely because they are already using their properties to do what you would like to do (using their properties).
0 Reply
Barb Lee
OP
Member since 2018 · 12 posts · 2 votes
8y
Hmmmm. I think I'll ask again anyway. I just think they're out there somewhere I just need to find them...
0 Reply
JM I.
Pompano Beach, FL · Member since 2016 · 19 posts · 4 votes
8y
You need to market this towards landlords who want a boost in rental income and you should be willing to cut them in on some of the profits. You might have better luck that way.
Has anyone ever toyed with the idea of doing this Airbnb thing with timeshares - those $1 timeshares that people want to get rid of because of the annual maintenance fee?
1 Reply
Kellen King
Real Estate Agent · Phoenix, AZ · Member since 2014 · 130 posts · 53 votes
8y
People are running this business model all over the world now. Keep brainstorming and come up with a way to get it done. There are many benefits of this arrangement to the landlord.
-less use of appliances and water
-cleaning service after every visit
-guaranteed rent
Also, you can add supplemental str insurance and even pay a premium over the asking rental rate or pay the landlord a cut of your Airbnb profits. Even consider offering to do minor maintenance when small maintenance issues arise. If you can convince a landlord that they no longer need a property manager then you have something. Real estate investing is all about being creative. Good luck.
1 Reply
Barb Lee
OP
Member since 2018 · 12 posts · 2 votes
8y
Kellen, that's exactly what I was thinking, thanks for the encouragement and tips!
JM, I have a timeshare and they very much strictly prohibit such things. It's supposed to be for your personal use or, say, a family member, but never someone you don't know. I imagine people do it anyway, but it's against the contract. I don't know what resellers might be able to do with them but I would think they'd need to abide by the original contract. Thanks for helping me think out of the box!
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Matthew Paul
Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes
8y
Originally posted by @Barb Lee:

Yeah, you summarized it well, Matthew Paul. So where can I find landlords that are already set up as companies/corporations that have residential property that would be interested in leasing to my LLC to host Airbnb? :)
I doubt you will . There is no upside to the landlord .
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