The Best of the Legal Hotline

With more companies providing platforms for property owners to rent their homes for a short period of time, it’s no surprise that REALTORS^® have questions about short-term rentals (STRs) and the laws surrounding STRs. The following questions and answers review some common topics that are received by the hotline about STRs.

What are the laws regarding STRs? What is the right to rent law? 
Wisconsin’s right to rent law balances the rights of property owners to rent their homes and the rights of their neighbors to use and enjoy their property.

The law was passed in response to a growing number of communities banning the rental of residential dwellings for any period of time shorter than 30 days. Rather than regulating the behavior of the occupants of STRs like any other property to ensure compliance with noise, parking and other local ordinances, these communities placed blanket prohibitions on rentals less than a month.

The law encourages local governments to regulate STR activity in a fair and reasonable manner. The top five things to know about the law:

1. Local governments can regulate, but not prohibit, STRs of seven days or longer. Local governments — which include counties, cities, villages and towns — cannot ban the rental of a residential dwelling for a period of time of seven consecutive days or more. Homeowners associations (HOAs) and condominiums fall outside of the law.
2. Local permits are allowed. The local permit cannot be overly restrictive, resulting in a de facto prohibition on STRs. Such local permits should be more administrative in nature and contain objective and reasonable standards.
3. There is a six-month cap. Under the law, local governments are allowed to place a six-month/180-day cap on the amount of time property owners can rent out their home during any 365-day period. Moreover, the law allows but does not require local governments to require the 180 days to be continuous. In communities that have adopted a six-month cap, property owners are allowed to choose which six-month period the dwelling is rented.
4. There is a state licensing and inspection requirement. While not a new requirement, most STRs are required to obtain a “tourist rooming house” license from the Wisconsin Department of Agriculture, Trade and Consumer Protection (DATCP). Such a license is required for vacation homes, cabins and cottages that are rented out to tourists and transients for more than 10 nights in a 12-month period.
5. The collection of state sales and local room taxes applies to STR properties. The law requires owners of STRs and lodging marketplaces to collect state sales and use tax, which are 5%, and any room tax owed from the person renting the residential dwelling.

Does the right to rent law apply to condominium associations? Can a condominium association limit or prohibit STRs? 
The right to rent law applies to local units of governments, such as counties, towns, cities and villages. Therefore, since condominium associations and HOAs are not forms of local units of government, the right to rent law does not apply to them. 

Condominiums set up their own rules and regulations regarding the number of rentals in the building or whether rentals are allowed. These rules and regulations can also be changed provided the condominium association follows the proper process for setting rules and/or later amending them.

Is a broker’s license required to manage STR properties owned by a third party?
The first determination to be made is what services are being offered and whether a real estate license is required because the term “property management” may include a vast array of services. Activity may include services that require a real estate license or may be services such as housekeeping, which would not require a license. Therefore, depending on the business model, property managers generally are expected to handle not only procurement of tenants and execution of leases, but also most, if not all, aspects of the day-to-day operations of the rental property. This will often include responsibility for lawn care, snow removal, repairs, general maintenance, tenancy complaints and terminations, on-site staff and bookkeeping for the entire property or complex. 

Persons who are paid or otherwise compensated to rent property, negotiate and sign leases for the owner fall within the definition of a broker under Wis. Stat. § 452.01(2). These would be brokerage services. This statute states that a broker includes “any person who for another, and for commission, money or other thing of value, negotiates or offers or attempts to negotiate a sale, exchange, purchase or rental of an interest or estate in real estate.” This definition includes persons negotiating the terms of a rental interest in real estate. If the negotiation of lease terms or the drafting and signing of leases for another is involved, licensure is required. A property manager who signs or negotiates leases on behalf of a property owner must either be a licensed broker or be a licensed salesperson associated with a firm. Firms also must have proper agency authority via an agency agreement — typically a Property Management Agreement, a WB-37 Residential Listing Contract — Exclusive Right to Rent or an Exclusive Listing Contract Right to Rent Commercial Property — to provide property management services and to be compensated for the same.

No license, however, is required for the custodian, employee, rental agent or property manager who merely coordinates maintenance services, shows residential rental units to prospective tenants, gives out basic information, takes rental applications, accepts rental deposit checks (but not cash) and facilitates the owner’s and tenant’s execution of a rental agreement or lease. Wis. Stat. § 452.01(3)(e) provides that a broker does not include, “Any custodian, janitor, employee or agent of the owner or manager of a residential building who exhibits a residential unit therein to prospective tenants, accepts applications for leases and furnishes such prospective tenants with information relative to the rental of such unit, terms and conditions of leases required by the owner or manager, and similar information.”

There is nothing under Wisconsin law that distinguishes between STR management vs. traditional long-term leasing.

The firm has a property management agreement with the owner of an STR property. The owner is selling the STR property. Does the property management agreement extend to the new owner when the property is sold?
Agency agreements and property management agreements are personal service contracts. If the property is bought by someone else, another contract would need to be entered into by the firm and the new owner.

An STR property is being sold. There are some existing STR reservations scheduled for after the closing date. Does the new owner have to honor these reservations? Would these reservations constitute a leasehold interest?
Depending on the length of rentals, the Wisconsin landlord tenant rules and residential rental practice rules may not apply. If the rentals are short term, they may be exempt from the Wis. Admin. Code Chapter ATCP 134 rules if it is “a dwelling unit, such as a dwelling unit in a hotel, motel or boarding house, that is being rented only by tourist or transient occupants.” “Tourist or transient occupants” means tourists or other persons who occupy a dwelling unit for less than 60 days while traveling away from their permanent place of residence.

The seller and licensee should review the terms of the STR platform or program being used by the seller. The policies of the platform or program may contemplate what happens to rentals after the sale of the property. The seller may wish to consult private legal counsel regarding the terms and conditions of the STR platform or program.