What Hamptons Homeowners Need To Consider Before Renting Out a House

For homeowners who would like to rent out their South Fork houses but don’t want to run afoul of the law or their insurance carrier, Douglas Elliman associate broker Patrick McLaughlin hosted “Navigating New Rental Legislation” on February 8 at LTV Studios in Wainscott with a panel of local experts on the law, zoning and insurance.

Rental registries, deposits, short-term rentals, Airbnb and how to prepare a house to be rented were among the topics covered by the five panelists, with a special focus on avoiding costly pitfalls.

New York State Assemblyman Fred W. Thiele Jr. said towns and villages will trend toward rental registries for the sake of public safety to protect against substandard housing conditions. Municipalities also find registries to be useful tools to enforce zoning codes, he added.

Prior to 2019, maybe 75 percent of towns and villages already had some form of rental registry, but in 2019 the State of New York enacted the Housing Stability and Tenant Protection Act, Thiele said.

The sweeping housing reform capped how much security a landlord could require of a tenant at one month’s rent. Demanding that a tenant put down a “double security” or “first, last and security” is no longer permitted. The new law also meant that landlords offering seasonal rentals could no longer insist that tenants pay for the entire summer upfront, as had been common practice on the South Fork.

Thiele explained that the 2019 law was intended to protect people who are renting homes for primary use — and not seasonal renters of vacation homes. He sought an exemption from the law for seasonal housing, and he got it, but the state required that the seasonal rental be registered with its local municipality.

Many people wanted to be able to take advantage of getting their money upfront, Thiele said, so now most, if not all, towns and villages on the East End have registries.

Registering also gives landlords of summer rentals the ability to require as much money as they want for a security deposit — though security deposits are still prohibited by state law from being commingled with other funds. Security deposits must be kept in a bank account that is separate from the landlord’s own money. Landlords must return the security deposit within 14 days of a tenant moving out, minus any deductions for damages, which must be itemized on a receipt.

“Each town and village, their rental registries are different,” Thiele said. “Some just register seasonal rentals. Some are year-round. Some have more regulations and conditions than others, but it is a registration requirement. It’s largely a paperwork requirement.”

He said the process of registering is not particularly cumbersome and doesn’t involve going to a planning board or zoning board. But the rules are different from one place to the next, and that’s the confusing part, he noted.

Land-use attorney Carl Benincasa of The Benincasa Group in Water Mill noted that signing up for a registry is a much less burdensome process than obtaining a rental permit.

Southampton Town, for example, requires a rental permit that is good for two years and costs $350 at the standard fee and $750 if expedited. Floor plans, a survey, a certificate of occupancy, a smoke detector affidavit, certification of code compliance and a refuse removal affidavit are all required.

Southampton Village has a seasonal rental registry with a $125 filing fee. It requires a smoke and carbon monoxide affidavit and a tenant affidavit.

Michael Sendlenski, a former East Hampton Town attorney who is now in private practice, said East Hampton Town’s rental registry arose as there was a tremendous amount of investor activity in Springs, with investors buying housing and turning them into Airbnb rentals. He said the rental registry checklist is a front-and-back-page document that he whittled down from a first draft that was six pages. It addresses serious health, safety and welfare issues, he said.

East Hampton Town registrants must publish their rental registry number in all advertisements for the rental, and each time a new tenant moves in, the landlord must inform the building inspector. Landlords are only permitted two short-term rentals — of two weeks or less — per six months.

Sag Harbor Village adopted a seasonal rental registry in December last year.

Insuring a Rental Property

Dermot Dolan, the principal of Hamptons Risk Management Insurance Agency, said if prospective landlords don’t have a conversation with their brokers about what they intend to with their homes, they run the risk of having no insurance protection when a tragic incident occurs.

“Each company has different rules,” Dolan said. “Some will allow you to rent for a specific period of time. Many companies will allow you to rent out your primary home for only 12 weeks. Some other carriers will totally prohibit renting your home at all.”

In the seasonal, secondary-home market, many carriers will not write policies for a home that’s listed on Airbnb or Vrbo, according to Dolan.

“You’re sitting there with no protection,” he said. “Your homeowners policy will not respond to either a first-party or third-party claim, first-party being there’s physical damage to your property, third-party being somebody gets injured on the property and there is a suit that arises.”

Increases to insurance premiums are significant this year, he noted, and many carriers are moving out of the area. “A way in which carriers can start to limit their exposure is to become even more stringent in what they allow to occur on a property and what they don’t allow to occur,” he said.

Dolan advised always being forthright with an insurance broker.

“Our legal obligation, our first obligation is to our clients,” he said. “So they’re always going to be on your side in terms of advising. However, if they don’t know what you’re doing or what you plan to do with your property, we really can’t give you the advice you need.”

Airbnb does offer homeowners some insurance coverage, Dolan said, but he emphasized that it’s actually not from Airbnb directly but from third-party insurance companies. “The absolute limit of coverage is $1 million, and that’s not insignificant, however when we consider the value of our homes out here and people’s net worth, if you’ve only got $1 million worth of protection and there is a tragic event in the pool while that home is rented, you could be looking at a vastly greater exposure than that.”

How To Prepare a House
For Renting

Anything to do with life safety should be the priority when preparing a house to be rented, said Roy Dalene, the co-founder of builder Telemark Inc. and vice chair of the East Hampton Town Zoning Board of Appeals.

This includes making sure there are smoke and carbon monoxide detectors up to the current building code. The same thing with pool enclosures, fencing, latches and child alarms, Dalene said.

Then come the “common sense” items, as he described them. Photograph the existing conditions in the house before renting it. Lock personal items away.

He continued: “If you have a tenant in your home, you should require them to have cleaning services in your home,” and make it your own cleaning person you normally use. “The cleaning person is going to notify you if there are any strange things going on.”

The Effect of Transient 
Rentals on Neighborhoods

Thiele said how municipalities treat Airbnb rentals is a land-use discussion. Residential zones are for residential uses, but Airbnb is transient, he noted. “What is the impact on the character of residential neighborhoods?” he asked.

One way transient rentals impact neighborhoods is taking over homes that were previously used by locals.

“Workforce housing, affordable housing on the East End is an important, and probably one of the biggest issues,” Thiele said. “It seems like whatever other issue you talk about, whether it’s traffic or emergency services, it always seems to come around back to the availability of workforce housing and affordable housing for people that want to live here year round. And Airbnb and those kinds of services eat up a lot of the inventory and a lot of the supply of affordable housing.”

Thiele said he hears from hotel and motel owners that the playing field is not always level with Airbnbs because Airbnbs are not always paying the same taxes as hotels and motels. He added that chambers of commerce have told him that Airbnbs have an adverse impact on Main Street businesses compared to the history of season-long rentals.

“Somebody rents a house for the month or they rent it for the season, they’re in town for that period, they go out, they go to the hardware store, or home goods store,” he explained. “They buy things on Main Street, and it helps the local economy. Where with Airbnb, unless you’re running an ice cream shop, a T-shirt shop or maybe a restaurant, the rest of Main Street businesses don’t necessarily see the benefits of that.”