Article by Nicole Kurtz in Today’s Daily Business Review: “Short-Term Rentals Not a Violation of Rules Against Business, Non-Residential Uses”

Nicole-Kurtz-2014-thumb-120x180-87971The firm’s Nicole R. Kurtz authored an article that appeared as a “Board of Contributors” guest column in today’s edition of the Daily Business Review, South Florida’s exclusive business daily and official court newspaper.  The article, which was titled “Short-Term Rentals Not a Violation of Rules Against Business, Non-Residential Uses,” focuses on the ramifications of a recent ruling by the First District Court of Appeal that found short-term rentals do not constitute a violation of association rules prohibiting business uses of residences.  Her article reads:

In the case of Santa Monica Beach Property Owners Association v. David Acord, the association appealed a lower court’s order dismissing its action against the homeowners who rented their homes on a short-term basis. The association’s argument in both the lower court and the appellate court was that such short-term rentals constituted a violation of the community’s occupancy restrictions, which required that the homes be used for residential, non-business uses. Specifically, the association’s argument hinged on the community’s occupancy restrictions, which provided that the plots “shall be used only for residential purposes … nor shall any building on said land be used as a hospital, tenement house, sanitarium, charitable institution, or for business or manufacturing purposes nor as a dance hall or other place of public assemblage.”

The association’s complaint for declaratory judgment alleged that the Acords’ two homes in the beachfront community were being used for a “business purpose” not permitted by the association’s occupancy restrictions, as the owners offered the homes for rent on the home-sharing site VRBO.com, received income for renting the properties on a short-term basis, were required to collect and remit state and local sales and bed taxes, and had obtained a license to operate their properties as transient public lodging establishments under the name “Acord Rental.”

The Acords responded by contending that the association’s complaint failed to state a cause of action, and that the short-term rental use of the homes did not violate the restrictive covenants. They argued that because the short-term tenants were using the homes for residential purposes, regardless of the fact that they were paying for their stays, the homes were being used in accordance with the community’s occupancy restrictions.

dbr-logo-300x57The trial court agreed with the Acords and dismissed the association’s complaint. It reasoned that the proper focus in making a determination as to whether the short-term rental of the homes was in violation of the association’s occupancy restrictions was to determine the actual use undertaken at the properties. The trial court found that the nature of the homes’ use was not transformed from residential to business simply because the owners were subject to regulations that required licensure and they earned rental income. The court also noted that because the restrictive covenants were silent on the issue of short-term rentals, and failed to provide for a minimum lease term, any ambiguity as to whether short-term use was permitted must be resolved in favor of the homeowners’ free and unencumbered use of their properties.

Nicole’s article concludes:

In the association’s subsequent appeal, the appellate panel found that courts in a number of other states had considered this same issue and had almost uniformly held that short-term vacation rentals did not violate restrictive occupancy covenants nearly identical to those of the association in this case. In its review of those decisions, the appellate court found that the determination as to whether short-term vacation rentals constituted “residential use” were based on whether the renters were using the properties for ordinary living purposes, such as sleeping and eating, regardless of the duration of the rental. The panel also noted that these decisions further clarified that the nature of a property’s use is not transformed from residential to business simply because it may generate rental income.

Florida’s First District Court of Appeal agreed with the analysis of the courts from other states in those decisions. The appellate panel concluded that the Santa Monica Beach association had not, and apparently could not, argue that the homeowners’ properties were being used by the short-term renters for any non-residential purposes. Accordingly, the unanimous opinion held that the use of homes for short-term vacation rentals was residential in nature, and as such it was not prohibited by the community’s occupancy restrictions.

The ruling also states that even if the covenants could be interpreted to preclude short-term vacation rentals, the omission of an explicit prohibition for that use would be considered fatal to the association’s position. The First DCA found “to impute such a restriction would cut against the principle that such restraints ‘are not favored and are to be strictly construed in favor of the free and unrestricted use of real property [citation omitted].’ Indeed, the need for explicit language in the covenants is particularly important where the use in question is common and predictable, as is the case with short-term rentals of houses near the beach to vacationers.”

This ruling sends a clear message to Florida associations, especially those located within vacation hotspots, that the typical occupancy restrictions prohibiting nonresidential or business uses of dwellings will likely be considered by the courts as insufficient to prohibit short-term rentals. Associations without specific restrictions addressing the invalidity of short-term rentals should consider adopting amendments to limit the number of nights that the residences may be rented. In addition, even those associations with governing documents that clearly prohibit these types of rentals would be well advised to implement a clear fining policy, which may also entail the adoption of a new rule or restriction in which the fines and fining procedure are delineated.

Our firm salutes Nicole for sharing her insights into the ramifications of this ruling with the readers of the Daily Business ReviewClick here to read the complete article in the newspaper’s website.