Coliving, shared housing, or flat sharing has become popular in urban areas. This arrangement is popular primarily because it offers residents affordable housing options compared to renting or owning their own private homes, not to mention the availability of short-term leases, flexibility, social advantages, and sustainability it promotes.
For property owners, investing in coliving spaces attracts a more modern and diverse group of tenants, addressing the high demand for modern mobility of flexible workers and maximizing your profits with an optimized coliving space.
However, the legal landscape of coliving arrangements is not always as simple as it sounds for both the tenant and the property owner. Here are some important legal aspects you need to consider when planning a coliving arrangement rental property:
Zoning laws and permits
Zoning is a method by which a local or federal government divides a piece of land into zones and specifies the rules and regulations for each zone within a community. These help regulatory bodies ensure the efficient use of land, which benefits society socially and economically.
“Zoning laws have become challenging for property owners planning to turn their properties into coliving arrangements. Traditional zoning laws limit the use of a property as a coliving space, as residential zoning can restrict the type of housing that can be built in an area. Low residential density limits and off-street parking requirements are some challenges coliving properties experience with zoning regulations,” says David Haskins, CEO at WrongfulDeathLawyer.com.
Coliving arrangements generally do not fall under a specific zoning law category, so it is essential to check with your local authorities to see if there are specific laws, like those in Hawaii and Washington, that permit them and how they fit into local zoning regulations.
Operating a coliving space requires abiding by zoning laws and securing necessary permits, such as business, occupancy, and fire permits. You must also ensure zoning variances or special permits for coliving arrangements in your area. For example, Australia requires a minimum of six private rooms for any kind of coliving housing to be built, according to a recent policy.
Building codes
Prioritizing your tenant’s security is of utmost importance when operating a coliving arrangement, and this starts abiding by building codes and regulations.
Building codes set the standard heating, ventilation, plumbing, air conditioning, and structural systems requirements. This ensures that structures meet the minimum standards to keep occupants secure and the structure free from damage.
For structures like coliving spaces, property owners must make sure that the property complies with local fire regulations, including:
- Smoke detectors, fire extinguishers, fire alarms, and sprinklers in all rooms and common areas;
- Fire signs, including signs to designated fire exits;
According to Lev Peker, CEO at CARiD, “Some local fire stations even conduct fire drills in large establishments before issuing fire permits. This policy ensures that management and occupants know how fire equipment works and how to follow and identify fire signs in an emergency.”
Liability and insurance
There is always a risk when you rent your property to a third party — and even more so when renting it out to multiple unrelated individuals who share common spaces.
Gary Hemming, Owner & Finance Director at ABC Finance, says, “Liability and damages are, and will always be, present in any kind of rental business. Being unprepared for these emergencies can significantly hurt your financials, especially with the rising cost of raw materials and labor services.”
Property owners can best protect themselves when risk is present by getting the right insurance for the situation or business they’re entering. Here are some of the best insurances to get as a property owner for a coliving arrangement property:
- Landlord insurance: This type of insurance covers damages to a home, even if the property owner does not reside in the property. This can also cover liability insurance for injury to a tenant caused, for example, by a broken window or flooring.
- Homeowners insurance: A protection to your property in the event of damages due to disasters, theft, and accidents caused by your tenants or external parties.
Grant Aldrich, Founder of Preppy, says, “Just as there is a risk for property owners, there are risks for tenants’ personal properties in a coliving space. You can ask your tenants to get renters insurance for their peace of mind in a coliving space. With renters insurance, their personal belongings are insured in case of theft, accidents, or disasters while living in a rented space.”
Coliving lease agreements and contracts
Once all your technical requirements and permits are set up, drafting a clear and concise coliving lease agreement is essential to ensuring that you and your tenants know each other’s roles and responsibilities in this living arrangement.
Chris Aubeeluck, Head of Sales and Marketing at Osbornes Law, says, “A well-drafted agreement will allow your tenants to set proper expectations about how coliving arrangements are unique compared to other private living arrangements, reducing potential misunderstandings and legal issues.”
A clear and concise coliving lease agreement should include the following:
- Limitations on the number of guests: The agreement should stipulate the number, instance, time, and date (if applicable) that any tenant in a coliving space can invite guest(s) over to the property.
- Maintenance and cleanliness: The agreement must outline each tenant’s responsibility for keeping shared spaces clean and in good condition. Any destruction (intentional or unintentional) will result in applicable fines.
- Sharing utility costs: This should include a detailed computation or identification of how shared utilities like electricity, water, and gas will be allocated to each tenant.
- Maintenance and repair costs: Indicate clauses stating who will shoulder the expenses for maintaining and repairing common spaces, whether they are destroyed intentionally or damaged through wear and tear.
- Termination of contract: Most coliving tenants are typically short-term tenants, so it is essential to indicate the end-of-contract date or any mutual agreement termination clause, if applicable.
Jeffrey Zhou, CEO and Founder of Fig Loans, says, “Many factors determine how much tenants pay for shared utilities, including square footage, number of people living, and the number of bathrooms or bedrooms tenants occupy.”
He adds, “Making this computation clear and concise in all lease agreements ensures that all parties are aware of and agree on the method by which the utilities are distributed and that they are charged as fairly and equally as possible.”
Platforms like PadSplit make it easy for property owners to control what happens in their homes. These platforms offer software and tools for seamless end-to-end property management and customer concern resolution.
Privacy and security
Privacy and security are common concerns among tenants, and unsurprisingly so, given that despite the financial burden it lifts, it exposes them and their personal properties to strangers.
As a property owner, it is your responsibility to ensure that your tenants feel secure in your shared living space by:
- Initiating proper tenant screening for your coliving space, like running credit and background checks, verifying employment details, and examining the tenant’s previous tenancy history.
- Draft a clear and concise coliving arrangement agreement, including clauses on boundaries among tenants’ personal properties and house rules within living quarters, like PadSplit, which clearly lays out membership rules like quiet times and proper house conduct.
- Install CCTV cameras in public spaces, abiding by federal law regulations.
Conclusion
The key goal of coliving arrangements is to balance affordable housing with privacy and security. While more property owners are exploring coliving arrangements to help address the housing crisis and generate more profit through mid-term arrangements, it is essential to consider the legal considerations of these arrangements compared to usual lease arrangements.
By studying specific zoning and local laws, building codes, and landlord’s insurance, drafting clear and concise coliving agreements, and developing privacy and security measures for coliving spaces, property owners can offer their tenants a better coliving experience while generating better real estate returns.
The information provided in this blog post is for general informational purposes only. It should not be construed as legal, financial, or professional advice. The content is intended to provide general guidance and should not be relied upon for making specific decisions.
PadSplit strongly recommends consulting with qualified legal counsel, licensed financial advisors, tax professionals, or other relevant experts for advice concerning your specific situation and investment needs. PadSplit makes no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, or suitability of the information contained in this post.
