The regulation of vacation rentals continues to be a hot button issue as companies like Airbnb.com and Vrbo.com are taking their fight to Florida’s courts and legislature seeking to open up Florida markets to their share economy businesses.

The vacation rental companies scored a victory in April when the Florida house passed HB 425 by a relatively narrow 63-56 vote.  The legislation cuts to the heart of local governments attempts to limit short-term rentals based on the displeasure of year-round residents in some neighborhoods. Pundits expected pro-business and pro-property rights legislators to push the bill across the finish line. However, the bill died on the senate calendar. We expect the industry to push this legislation again next year.

Of greater impact to community associations; however, is the recent ruling out of the First District Court of Appeal. In Santa Monica Beach P.O.A. v. Acord, Case No. 1D16-4782, (Fla. 1st DCA, April 28, 2017), the Court addressed the homeowners’ listing of their homes for short term rentals on Vacation Rentals By Owner (“VRBO”). Seeking to enjoin the listings, the property owners association (“POA”) filed suit arguing the owners were violating the POA’s covenants restricting use of the property to only non-business and residential purposes. The covenants read as follows:

Said land shall be used only for residential purposes, and not more than one detached single family dwelling house and the usual outhouses thereof, such as garage, servants’ house and the like, shall be allowed to occupy any residential lot as platted at any one time; 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. (Emphasis added).

Supporting its position that the rentals violated the no business purpose restriction, the POA asserted the owners obtained transient rental licenses, advertised transient accommodations, and paid sales and bed taxes. Unpersuaded, the trial court dismissed the case ruling the rental use was residential.

On appeal, the Court was asked to address “whether short-term vacation rentals violate restrictive covenants requiring property to be used only for residential purposes and prohibiting its use for business purposes …” Focusing on the use of the property instead of the duration of the rental, the Court held for-profit rentals alone do not transform a home’s use from residential to business. Absent some other evidence of a business purpose, the short term rentals were not a violation of the POA’s restrictions.

The ruling deals a serious blow to communities wishing to restrict short term rentals if they do not have specific covenants addressing the issue.  These communities usually relied on the frequency-based test used by other courts to determine whether short term rental use of a residence qualifies as residential.  That avenue of enforcement may now be closed.

Community associations need to take note and carefully review their options for restricting short term rentals. They may need to amend their restrictions to specifically limit short term rentals, address who can own homes in the community, and how many they can own. Adding requirements for registration of guests and prohibitions against advertising on vacation rental websites may also be advisable. Associations may also want to analyze whether the specific rentals are violating their nuisance provisions. Finally, if municipal ordinances restrict short term rentals, the association may be able to enlist the help of code enforcement.