Posted in Business & Corporate Law,Real Estate Law

Recent legal developments have once again drawn attention to an area that has experienced heated debate and spurred litigation: vacation rentals.  “Vacation rentals” are defined by statute as “any unit or group of units in a condominium or cooperative or any individually or collectively owned single-family, two-family, three-family, or four-family house or dwelling unit that is also a transient public lodging establishment but that is not a timeshare project.”  Also, a “transient public lodging establishment” is defined as “any unit, group of units, dwelling, building, or group of buildings within a single complex of buildings which is rented to guests more than three times in a calendar year for periods of less than 30 days or 1 calendar month, whichever is less, or which is advertised or held out to the public as a place regularly rented to guests.”  In other words, and as the terminology implies, vacation rentals are condominium units or homes frequently rented on a short-term basis to people looking for vacation lodging.

Although Florida’s foreclosure crisis has resulted in many unfortunate circumstances for former homeowners who were unable to pay their mortgages, it has also provided opportunity for investors who purchase homes or condominium units at foreclosure sales.  Such investors often have one of two goals: (1) renovate the property to sell it to an ordinary purchaser for a profit; or (2) transform the property to accommodate as many guests as possible and rent it on a short term basis to generate income.  While many agree that the first option generally benefits all interested parties, the second option is the subject of much controversy.

Investors generally argue that the vacation rental market results in an economic benefit through job creation, increased tax revenue, and increased consumer traffic to local businesses. Opponents argue that vacation rentals have a negative impact on parking, noise, garbage collection, and the residential character of certain neighborhoods generally.  Community associations in particular are often troubled by the lack of concern that short-term renters have for the community’s common areas, such as clubhouses, recreation rooms, and swimming pools.  In addition, other interested parties argue that the lack of regulation of vacation rentals creates an unfair business advantage over traditional transient lodging establishments (hotels), which are subject to higher regulatory standards.  In response to the competing interests, Florida lawmakers have struggled to strike an appropriate regulatory balance.  Further, Florida lawmakers have struggled to determine whether any regulation of vacation rentals should be enacted by the state or be reserved to local governing bodies.

Prior to 2011, local governments (counties and cities) were free to regulate vacation rentals and some even prohibited them altogether in residential neighborhoods.  However, in 2011 the Florida Legislature passed House Bill 883 which precluded local governments from “regulating, restricting, or prohibiting” vacation rentals, thereby preempting vacation rental regulation.  Although HB 883 prevented local governments from regulating vacation rentals, the law contained a “grandfather” clause which allowed any local governments’ regulations adopted on or before June 1, 2011 to remain in effect.  However, even with the grandfather clause, local governments were hesitant to revisit any prior regulations for fear of invalidating them.

After enacting HB 883 and preempting local regulation, the Florida Legislature did not appear to specifically address any of the competing interests discussed above through further lawmaking.  To be fair, the apparent intent of HB 883 was to delegate the state’s regulatory authority to the Department of Business and Professional Regulation (“DBPR”), an administrative agency with which many community associations are familiar.  However, after being delegated that authority, the DBPR did not actually promulgate any regulations pertaining to vacation rentals, which left them largely unregulated.  A cynical-though-plausible view is that this was the intent all along.

Fairly recently, the Florida Legislature revisited the issue of vacation rentals.  House Bill 307 and its companion Senate Bill 356 made their way through various committees and the former was ultimately passed and approved by the governor on June 13, 2014, with an effective date of July 1, 2014.  In an likapparent effort to strike a balance among the various interested parties, the intended effect of SB 356 was to restore some authority of local governments to regulate certain aspects of vacation rentals (often called “home rule”) while not allowing them to prohibit them altogether.  While local governments may not prohibit or regulate the duration or frequency of vacation rentals, the new law does not prohibit local governments from regulating other aspects and treating them differently than other residential properties.  Some of the areas that are likely open for home-rule regulation include: noise, parking, signage, and registration.  However, one area that is of particular controversy and has already spurred litigation is whether local governments have the authority to regulate the number of guests that are permitted to simultaneously occupy a vacation rental.

Whether the Legislature has finally reached an appropriate regulatory balance regarding vacation rentals is a matter of perspective.  However, what is certain is that local governments will continue to be challenged with lawsuits as they pass ordinances that affect the vacation rental industry. Vacation rental lawsuits not only challenge the particular ordinances at issue but also raise foundational governmental policy concerns, such as how much authority lawmakers in Tallahassee should have to regulate matters that may have a different impact depending on geographic location within the state.  What may be of particular interest in the community association context is whether a vacation rental company might attempt to challenge rental restrictions in a community association’s governing document as an impermissible “local law, ordinance, or regulation” under the new law.  Given the economic incentives, such a challenge would appear to be inevitable.