Hey everyone, David here

If you're a property manager in New York, New Jersey, Connecticut, or Pennsylvania, you already know how common it is for tenants to secretly rent out units on Airbnb, Vrbo, Booking.com, or other short-term platforms.

And every time this happens, managers ask me the same thing:

“If something goes wrong during an illegal short-term rental, am I still covered?”

Let’s break it down in plain English.

1. Illegal Short-Term Rentals Can Trigger Serious Insurance Problems

If your building is zoned for residential use only, or if your lease prohibits subletting, a tenant who hosts Airbnb guests is technically violating the lease.

Insurance companies consider this a "change in occupancy" — and if they didn’t know about it, they may question coverage after a claim.

This doesn’t mean they’ll deny everything, but it does create risk, especially for big losses.

2. What If an Airbnb Guest Causes Damage?

If a short-term guest:

Starts a fire
Damages the interior
Floods the bathroom
Breaks building property

Your property insurance typically still responds first — because the building itself must be protected regardless of who caused the damage.

But here’s the twist:
The carrier may try to subrogate against the tenant or even the short-term rental platform, depending on the situation.

If the insurer believes the building was being operated like a hotel, they may raise questions about whether the risk was misrepresented.

3. What About Liability Claims?

If a short-term guest:

Falls in the hallway
Injures themselves in the unit
Claims the building was unsafe

…and files a lawsuit, your General Liability policy usually steps in.

But again — if the tenant was running an unauthorized “hotel business” in your building, the carrier may investigate whether the building was being used outside its insured purpose.

The claim may still be covered, but it can become complicated and slow-moving.

4. Loss of Rents Coverage?

If a fire or water loss caused by an Airbnb guest forces tenants to move out:

Your Loss of Rents/Business Income coverage should apply
As long as the loss was from a covered peril
Even if the cause was a short-term guest

The key is whether the carrier believes you knowingly allowed hotel-type occupancy. If you did not, you're usually in the clear.

5. How to Protect Your Building

To avoid headaches later:

✔ Add an explicit “No Short-Term Rentals” clause in every lease
✔ Require tenants to sign that they understand it
✔ Perform periodic online checks (Airbnb, Vrbo) for your address
✔ Install building access controls (fobs, cameras, visitor logs)
✔ Require tenant renters insurance
✔ Tell your broker if you do allow short-term rentals in certain units

A 10-minute policy review now can save you months of claim disputes later.

Final Thoughts

Unauthorized short-term rentals are becoming one of the biggest blind spots in property management insurance.

You don’t want to find out during a fire or liability lawsuit that your carrier has questions about how the building is being used.

If you’d like us to review your policy and make sure you’re protected, call us at (718) 841-7358 or submit a quote request here:
👉 https://www.thesarricagroup.com/business-quote