Page 9 - New England Condominium December 2019

NEWENGLANDCONDO.COM NEW ENGLAND CONDOMINIUM -DECEMBER 2019 9 185 Devonshire Street, Suite 401, Boston, MA 02110 Quality Representation at Reasonable Rates. (617) 988-0633 Contact Attorney Frank Flynn: FRANK@FLYNNLAW-NE.COM Flynn_E4C.qxp:Layout 1 12/8/14 2:30 PM Page 1 legal short-term rentals in the country: $20,000 for the first violation, $40,000 for the second, $60,000 for the third, $80,000 for the fourth—and a whopping $100,000 for each offense thereafter (at least for now—an October Miami-Dade circuit court ruling struck down the ordinance’s fines as illegal and unenforceable; the city currently is appealing that decision). Fighting a Goliath The homesharing platforms them- selves aren’t going down without a fight, of course. Cities across the country are facing legal and lobbying challenges to their attempts to curb (or at least regu- late) short-term renting. Boston passed an ordinance requiring short-term rent- als to register with the city and pay the same 5.7% state tax imposed on hotels. Airbnb sued, and in that case the parties settled, agreeing to a new requirement that all short-term rental listings display a city-formatted registration number by December 1, 2019, and Airbnb agreeing to share data about listings with the city. (See the accompanying sidebar for more info on Boston’s procedures for register- ing short-term rentals. - Ed .) Elsewhere, a referendum on the No- vember 5 ballot in Jersey City, New Jer- sey put it to voters to decide whether a city ordinance imposing certain restric- tions on short-term renting would stand. Airbnb—which predictably opposed the measure, and has a projected valuation of $38 billion—came ready to fight, plug- ging over $4 million into efforts to sway voters to their side. In spite of Airbnb’s big spend and PR campaign, residents of Jersey City passed the referendum by a large majority: 68.7%. Let’s Be Clear There’s no doubt about it: an ille- gal home share can end up costing you and your neighbors in time, money, and headaches for years to come. So what can a building, association, or management company do to protect itself and its resi- dents from the physical, social, and eco- nomic risks of home-sharing? “The simplest answer,” says Roberts, “is to have a clearly stated policy, either in the house rules or on a policy letter to shareholders, that informs them just what the rules are; if it’s allowed, if there’s a procedure for doing it, and what that procedure is. And if it’s prohibited, share- holders \\\[should be\\\] clear about this.” He cautions that wording is very important. For example, there is standard propri- etary lease language that discusses oc- cupancy by the shareholder that can be followed by and immediate family or or immediate family. “If it says ‘and,’” says Roberts, “it means the shareholder has to be \\\[residing in the apartment with the other occupant(s)\\\]. If it says ‘or,’ it means the shareholder doesn’t have to be there,” leading to all sorts of possible interpreta- tions. “If you have a clear rule,” he con- tinues, “it just makes the rest of the pro- cess so much easier.” Clear rules, clearly worded, communicated clearly. Adds Roberts, “In manufacturing, they call it ‘Six Sigma’: you do your quality control at the front end of the process, not the back end. And the returns are substantially greater.” n Darcey Gerstein is the Associate Editor/ staff writer for New England Condominium. lines of business. Although we are still see- ing many renewal programs with relatively small premium increases, more significant premium increases are likely.” What Are the Causes? As to what might be behind these in- creased costs, Seaman points to several contributing factors, including the chronic underinsurance of many properties, an in- crease in aggressive claims against existing policies, a smaller number of risk-purchas- ing groups (under which many co-ops and condos are insured), and poor loss ratios. John F. Piazza, President of Real Estate Solutions in Wilmington, Massachusetts, is a representative of HUB International as well, and says, “First of all, many large insurance companies have concerns about their profitability. That’s no mystery, be- cause insurance companies are for-profit companies. When they run into problems, they do one of two things: They don’t renew policies where they have incurred losses, or they increase the rate structure. I have seen for the past 12 months an exceptionally challenging marketplace where rates are increasing, terms are harsher, and there’s a harder look at deductible structure. Up- ward movement in rates is inevitable. There is also a re-evaluation of value. There’s no more insuring under replacement cost, and a requirement for adequate insurance to meet underwriting standards.” Seaman sees the undervaluation prob- lem as key to the current jump in pre- miums as well. “Properties have been underinsured for many years,” he says. “In- surance carriers had been accepting valu- ations on fire-resistant high-rise buildings of $200-$250 per square-foot – \\\[but\\\] most of these properties cannot be rebuilt for under $400 or $500 per square-foot. Car- riers are insisting on more accurate insur- able values. While in some cases property rates may not increase, the premiums will likely increase based on higher valuations, providing for higher overall premiums in absolute dollars.” Natural Disasters and Climate Change Another major factor affecting the in- crease in premiums is the added risk of loss resulting from more frequent – and more INSURANCE continued from page 1 catastrophic – weather events, which in In addition, there is the re-insurance fac- turn lead to more claims. Many cases, like tor coming into play. Over the prior seven the hurricanes that regularly deluge Flori- da, or the wildfires consuming California, surance industry – and because during are at least to some extent the result of cli- mate change. Sally Mevers, vice president for Acentria were getting involved with. They’ve fled Insurance in Palm Beach Gardens, Florida, the market as a result \\\[of the less-favorable points to these disasters as a major factor market\\\], causing a scarcity of investor capi- in the expected rate increases, which she tal. We don’t have the inflow of cash we had says are not just a local issue, but a global before. With the cost of re-insurance going one. “In Florida we experienced a lot of up, premiums go up as well.” natural disasters in 2017 and 2018. We’ve had major hurricanes, and there has been (both in terms of the literal climate, and in flooding and fires as well in other parts of terms of investor willingness to underwrite the country. Natural disaster claims are up, additional risk and uncertainty) has made and those claims are driving this increase. years, investors were enamored of the in- those years there were far fewer hurricanes, these investors weren’t clear on what they Clearly, the changing environment continued on page 10