Why and How to use Contracts

By William May
Published: 07/15/05 Topics: Comments: 0

Some days I sound like a broken record. To question after question from well-meaning members I answer simply by starting another question: "What does your contract say?"

I am still amazed at how many owners and managers will allow a complete stranger - someone they've never known - to occupy their very expensive second homes that are often hundreds or thousands of miles from their primary residence without requiring that person to sign a comprehensive and enforceable contract.

Sure, some folks send out a piece of paper as a confirmation. Smarter owners send out a piece of paper and ask the guest to sign it. Unfortunately, pieces of paper are not necessarily contracts. Unless you are a lawyer or a professional manager you may not be aware of the pitfalls that incomplete, inaccurate or illegal contracts can cause you.

I don't know which amazes me more, owners who don't use a contract or those who use a short, incomplete document. Both carry significant risks.

EXAMPLE MINEFIELDS

Did you know that should the foundation of a dispute come down to a paragraph, sentence or clause that is "ambiguous," the court will rule against the person who wrote the contract? How could they do otherwise? The person who wrote the contract had the chance to do it correctly, but if they failed to be clear and the court must reach some kind of conclusion then they need a basis on which to conclude an undecidable manner. Their decision? Judges will rule against the person who wrote the document. There is really no other way to reach a conclusion and, when you think about it, there is really no other way to complete the matter other than to use a rule most owners have never heard about.

Here is another tiny detail that could easily sink your ship. What is the difference between the legal term CANCEL and TERMINATE? Like most laymen, I used to think those were pretty much the same thing. Alas, they are not. Terminating an agreement stops the agreement at some juncture during the relationship. For example, if a guest was to stay a week and asked to leave after the fourth day (due to a family emergency, say) the guest would still be obligated to pay for the first four days - if you allowed a termination.

Cancellation, on the other hand, means to wipe-out the agreement, putting each party back to where they started before the agreement. If that same guest asked to "Cancel" the agreement after four days he is really asking to leave and get ALL his money back. You could argue the impossibility of refunding four day's worth of rent which might convince a judge. Then again, if it's not present in the contract, it might not.

Ultimately, the best route is to understand and use terminology correctly; don't agree to a cancellation if you really intended to allow a termination.

FAMOUS QUESTIONS

Q: A guest stayed in my house and broke a window. Can I charge them for it?

A: It depends on what your contract says. If you have a well written damage clause you can probably withhold it from the damage deposit.

Q: My last guest called frantically to apologize. (Never a good sign) They told me they backed into the garage door, denting it so severely it won't open. Is it fair to charge them?

A: It depends on what your contract says. Your paperwork should make it clear the guest is responsible for any and all damage and it must say it is your right to determine the damage and costs of repair.

Q: The guest wants me to get three bids for denting the garage door. But I need to get it fixed before the next guest. Can I do that?

A: It depends on what your contract says. The guest should have no right to dictate your behavior when it's his actions that caused the problem.

Q: A guest booked last minute and after they left, their check bounced. What should I do?

A: It depends on what your contract says. Is there a provision that allows you to charge fees for NSF checks and to collect in court if necessary or to turn the matter over to a collection agency? Does you agreement allow you to check their credit?

Q: The guest was supposed to do the dishes and laundry. I know these are small things but can I charge them for extra cleaning?

A: It depends on what your contract says. Does the guest pay a set cleaning fee or a "normal and usual" fee with extra charges for not following requirements?

Q: The neighbors say my guests are too loud and have sued me for the last group. Can I recover my legal fees from the guest?

A: It depends on what your contract says. Is the Guest liable for costs they cause you to incur? They should be. You simply must require guests to be liable for costs they cause you to incur. What if those legal fees run into the thousands of dollars? What if you have to defend against a city or county citation? The person who causes the problem must pay the damages. You'll be able to shift that burden to the guest if it's in your agreement.

Q: My current guest said it was just husband, wife and two children. Now I find out they have two other couples and six more children in the house. What can I do?

A: It depends on what your contract says. Does it specify exactly how many adults and how many children?

Q: One guest had a party at my house but said they were only there for a few hours. Because they didn't spend the night he says they are not technically guests and he shouldn't have to pay extra. Is that right?

A: It depends on what your contract says. How does it define a guest? Does it say anyone who comes to the house at any time, for any length of time is an occupant? Does it say that only registered guests are allowed on the property? If you are clear, the guest is obligated to pay for extra occupants.

Q: The guests showed up two hours early just as my housekeepers were finishing. How do I stop them from doing that?

A: It depends on what your contract says. Your guests will argue the house was ready, so they should be able to move in. You shouldn't need to argue. If your contract spells out fees for early check-in or late checkout you can deduct them from the guest's deposit. It won't stop the next guest from trying the same trick, but at least you'll be compensated for the inconvenience.

Q: Recent guests left SEVEN cans of garbage behind. Can I charge them for hauling and dumping the excess?

A: It depends on what your contract says. If you defined how much garbage they can have or if you have a nice sign on the wall in the garage instructing them how to and quantity to dump and if your contract requires them to follow posted rules then you'd have every right to charge them.

Q: My rental is full of white, French provincial furniture so I worry about allowing dirty children in the home. Can I require guests be over a certain age?

A: It depends on what your contract says - at least to some extent. Most contracts require the responsible party to be a certain age. In many jurisdictions nightly rentals are specifically exempt from landlord/tenant law as that might prohibit restrictions on age. Even the appearance of a no-children clause might subject you to claims of discrimination. Ask a local attorney and then form your contract to their instructions.

Q: Hurricane Dennis is bearing down on us and a dozen guests have called to cancel. Do I have to allow that? Even those that are months in the future?

A: It depends on what your contract says. Is it cancelable - especially for natural disasters? How far in advance can they cancel? A long-term landlord wouldn't let tenants out of a lease, so why should you? You'll still have to pay the mortgage won't you?

Q: Charging guests cancellation fees sounds so scrooge-like. Can I just charge them a cancellation fee rather than the entire amount?

A: It depends on what your contract says. Do you have a cancellation policy in your paperwork? Is it clear on dates and fees? If so you'll be on firm footing.

Q: I'm selling my home and the buyer doesn't want to rent it out. I hate to inconvenience the guest but I stand to make a lot of money on the sale. Can I cancel the guest?

A: It depends on what your contract says. Without clarity the Guest could require you pay damages for his inconvenience. No owner can plan their life far into the future. But if the agreement allows you to cancel (even if the guest can not cancel) then you should have the right to cancel the agreement without penalty.

Q: The guest has been rude but didn't really do anything wrong. How can I stop that?

A: On this one, it doesn't matter what your contract says. There's really no way to charge people for being difficult. But I hope you submit their names to the VROA "Unwelcome Guest List."

OTHER SOLUTIONS

By now you've probably very tired of hearing that so many problems are governed by your contract, but in this litigation-centric society, it is required. The idea of using a well-crafted guest contract is a fantastic and time, money and hassle-saving idea. In fact, it's really a requirement for any well run rental and knowledgeable owner.

But don't despair if you haven't been careful with paperwork, there are a few other routes that can offer some protection. For example, most jurisdictions have laws spelling out the rules for lodging operators and guests alike. Unlike landlord/tenant laws, a lodging law provides good support for the operators of lodging facilities. This is because an operator has obligations to parties other than himself and guests. Other guests and neighbors, for instance, must be considered when offering lodging.

Under state or local laws, guests who intentionally violate the conditions of the lodging law may be guilty of defrauding an Innkeeper (or similar specific terms depending on the jurisdiction). Guests are not allowed run out with all your towels, or fail to pay the rent or for damage they cause. Their conduct and behavior is usually subject to the standards you set especially if those are in writing and approved by both parties prior to occupancy. Any violation of the standards such as theft, noise, over occupancy etc. may allow you to immediately evict a violator.

You've probably heard the horror stories landlords have when trying to evict long-term tenants. But with short-term rentals the owner's ability to intercede and resolve problems must be swift and clear. If you see activities that are contrary to law (such as under-age drinking, violation of parking or noise rules, etc.) you have the ability to call the police and have them escort the guest off the premises immediately.

SAMPLES ON LINE

To put together a comprehensive guest agreement, you don't have to start from scratch. Members can log on to (VROA.org)VROA.org for sample agreements. We recommend using a "Booking Confirmation" and "Terms and Conditions" sheet. It's short and succinct and packed with the rights and privileges of both Owner and Guest alike.

Author: William May – Volunteer, Vacation Rental Association
Blog #: 0064 – 07/15/05