Short-term lease is a solution widely used by a number of real estate owners. It is especially notorious in holiday destinations where it constitutes a natural – and often cheaper – alternative to hotels. However, the legal status of real estate leased for a short term is not specifically established. That can change along with new regulations that are currently being drafted, among others, by the local authorities in Cracow and Sopot.
The new regulations is an effect of no supervision
Currently, the law does not specify basic requirements, such as the type of real estate that can be subject to short lease. The local authorities, in whose jurisdictions such real estates are located, have no legal basis for supervising the security level of such apartments. As a result, especially in older buildings “wild hostels” spring up that are not subject to fire safety checks. This is dangerous for both tenants and other residents of the building.Another issue is frequent instances of tax avoidance by the owners. This translates into real losses in municipal budgets. Tax authorities have decided to introduce stricter regulations. The owners are obliged to pay tax at 18% or 32% rate, depending on the profit on lease.Moreover, lack of proper supervision adversely affects residents of the buildings who are often exposed to disturbance of quiet hours and interventions of law enforcement officers.Therefore, the need for regulations results mainly from lack of supervision over the leased premises.
White paper to solve the problem?
The Polish Ministry of Sports and Tourism is currently working on terms and conditions for providing tourist accommodation services. The Ministry plans to introduce new regulations in 2021, which has provoked dissatisfaction among local authorities who deal with lack of regulations on daily basis and therefore request immediate actions.The Ministry of Sports and Tourism proposed to introduce a so-called white paper for regulation of tourism promotion in Poland. It is meant to include, among others, central database of accommodation facilities that will be managed by the communes. The system will list also private rooms, which should significantly reduce the shadow economy in the field. Moreover, the database will enable tourists to search and select proven and registered accommodation options. The Ministry originally planned to publish the white paper in 2019. Chances are that the new regulations will be drafted efficiently and take into consideration interests of all parties – local authorities, owners of real estates, as well as tourists who decide to spend a night in Sopot, Cracow, or Warsaw and are not always sure what to expect.
Predicted outcome of the regulations
The proposed bill has already stirred up controversies in the industry. The Ministry officials ascertain, however, that contrary to the concerns raised by apartment owners, the new legal regulations will not result in limiting the short term lease. The flats registered in the database will be subject to thorough verification and supervision. Another important aspect is also making the owners responsible for behaviour of their guests. In case of any trouble, the owners can be penalized; thus, they will be motivated to control the guests at their own discretion.The new solution will also help the tourists who feel more secure and confident that the accommodation they have chosen is registered and supervised. The residents of buildings that host the leased apartments will surely appreciate the peace.
Or maybe corporate lease is better?
Agata Karolina Lasota, CEO at LBC INVEST, highlights yet another perspective that takes into consideration profits and losses of real estate owners. According to her, short-term lease is a risky business.
In a short term, such a lease scheme generates quick and considerable profits. Yet, we cannot overlook the disadvantages, such as time required for supervising the business and maintaining contacts with quickly rotating guests. On the other hand, when the apartment is managed by an external company, the owner needs to accept that the profits will be shared. After deducting utility charges, the owner is left with 40% of the lease profit. Moreover, the occupancy rates are subject to seasonal changes – for instance, high season at the seaside lasts 3-4 months and even in that period the flats are never rented at 100%. During off-season, the flats are unoccupied, even though the prices are significantly reduced. The market is highly saturated and the competition is fierce, and the owners have trouble finding tenants,– Agata Karolina Lasota explains. She adds: Investors are more willing to allocate their equity in real estate designated for long term lease – this solution in more secure, saves time and money.
Corporate lease can prove attractive to the real estate owners who – irrespective of the legal changes – want to lease their apartments in a secure, legal, and time-saving manner. Under the corporate lease, the premises are leased by proven entities and an expert company handles all paper work related to the leasing process. The tenants are often international corporations and institutions that search for accommodation for their employees.
