Starting a short term rental business in commercial spaces

2 Replies

Hi everyone, 

I'm in the information gathering phase and considering creating a company. My current employer leases (doesn't own) their commercial space, but occasionally sub rents their space out to other companies and individuals with short term agreements. 

This employer has checked his lease agreement and is able to do this. He also has a license agreement that he has the sub tenants sign, makes sure they have some liability insurance. I've been connecting him with these renters through marketing, and screening them before referring them. If I simply refer the renters, my employer collects payment from the renter and pays me a percentage of the rent as compensation, up to a certain dollar amount. If I take a more active role in regularly scheduling them and handling payment, I receive a regular percentage of the rent without a cap.

The tenants pay him per hour and usually rent for a few hours at a time. I would like to expand this as a service, connecting sub renters with commercial spaces in my network that want to rent out their space. The examples I'd refer to are Airbnb, and https://www.peerspace.com/.  I'd like to start this as a service by hand first, and progress to a web based booking and payment model if the business does well and shows room for growth.

I've been told by a rental attorney in California that I'd have to have my broker's license or work with someone who does because with this model I'd be acting as a broker, but he didn't seem confident in his answer. I'd rather have a business model that doesn't have that layer of complexity.

Question 1) Can anyone provide information, or refer me to someone who can, about whether a short term rental business model similar to Airbnb or Peerspace would require a broker's license? 

Question 2) If a broker's license is required for regularly handling scheduling and payment, would the first method be a possible solution that doesn't require a broker's license? (where I refer the renters but don't handle scheduling/payment, and just receive a fee from the commercial space owner for referral up to a cap). 

If anyone has other feedback or ideas, I'd love to hear them. I'm currently doing all of this for and under the umbrella of my current employer. I really want to expand to further test the model, but want to do it in a way that makes legal and logistical sense. 

Thanks! 

Scott 

This is going to be a really state specific question, because each state's laws on short term tenancy are going to be different, and the requirements for transaction volume without a license are going to be different.

This might be the point where you should call an attorney in California to help you set up the company, as they will discover most of the regulatory compliance issues in the initial research for putting the business together. I know it's not necessarily applicable to your situation, but in Illinois if you did 5 transactions a year for real estate you need to have a real estate license.

I actually think your circumstance is different from Illinois's circumstance.  You're not really creating tenancies, you're licensing the use of the property.  I think if you own the property you can license the occupants of your own property, like basically creating multiple tenancies out of a single front.  I think if you're referring other people as commercial tenants, however, you definitely need a real estate license because you're brokering tenancies in a property you don't own.

I can really only answer question 2 here, and under question 2, I think that is for sure practicing real estate without a license. If you're receiving a thing of value for your services, and those services require licensing to protect the public, you're likely practicing that field once you get paid for the clients. For example, I can't give referral fees to non-lawyers for bringing me clients because I can't have a controlled business arrangement with non-lawyers. I can't get referral fees from my real estate agents because they're not able to have controlled business arrangements with lawyers. I think if you're getting referral kickbacks from bringing in the tenants, even when someone else is writing the lease, I think you're acting as a procuring agent and need to get licensed.

Honestly, just go get a real estate license.  This idea sounds awesome and you couldn't possibly do any worse than WeWork, and they were good enough to make an IPO.

Justin, 

Thanks so much for the thorough reply and vote of confidence! That's super helpful. I was hoping there was some legal workaround, but it sounds like that's not the case. On to the next iteration of this idea then. I'll consult with a few attorneys and agents to get a better idea regarding California law. 

Maybe you'll know the answer to this question in the case of Illinois. One consideration was to follow the WeWork or AirBnb model, create a website that handles the scheduling and payments, and create a corporation to run this through. If I were to do that and hire an agent for the state of Illinois, what work, and how much recurring work would an agent have to do in order to conduct that business legally? 

Thanks for the help!

Scott