Many people today are looking for additional income, and you’ve probably heard financial gurus like Warren Buffett or the folks on Shark Tank say you need multiple streams of income to be successful. Your idea to rent your property as a short-term vacation rental might make perfect sense to start accomplishing this goal. Not so fast, have you checked your property’s restrictive covenants?
You need to know whether your property has a Homeowner’s or Condominium Owner’s Association and if the property is subject to restrictive covenants, those rules imposed on the use of the land so that the value and enjoyment of adjoining land will be preserved and which allow surrounding property owners to enforce the terms of the covenants in a court of law. If you are considering renting your property as a short-term vacation rental you will want to review those covenants thoroughly and carefully.
Some property owners (“Owners”) in Bay County found out just how difficult it can be to rent their properties in the case of Santa Monica Beach Property Owners Association v. Acord, 219 So. 3d 111 (Fla. 1st DCA 2017). In that case, the Owners owned two properties in a beach community, and the properties were subject to restrictive covenants which provided in pertinent part:
Said land shall be used only for residential purposes…nor shall any building on said land be used…for business…purposes.
Based on this language, the Association sent letters to the Owners stating that “it has been observed that the primary use of your property during 2015 seems to have become VACATION RENTAL,” and the letters asserted that this use violated the restrictive covenants, and further requested that the Owners discontinue the “vacation rental business” on their properties. It is unknown whether the Owners responded to these letters. Thereafter, the Association filed a complaint for declaratory judgment (i.e., a request that the court provide a legal determination of the rights, duties, or obligations of the parties in a civil dispute) alleging that the Owners’ use of their properties violated the restrictive covenants quoted above.
In response, the Owners filed a Motion to Dismiss the complaint arguing that their use of the property as short-term vacation rentals did not violate the restrictive covenants. Specifically, the Owners pointed out that the short-term vacation rentals were residential uses—and not business uses—because the renters were using the properties for residential purposes.
The trial court reasoned that the critical inquiry was not the duration of the tenancy, but the character of the actual use of the property by those residing thereon, and ruled in favor of the Owners. The Association appealed this decision and the specific issue considered on appeal was whether short-term vacation rentals violated restrictive covenants requiring property to be used only for residential purposes and prohibiting its use for business purposes.
Similar to the trial court, the appeals court determined that that the critical issue was whether the renters were using the property for ordinary living purposes such as sleeping and eating, not the duration of the rental. The appeals court then explained that the nature of the property’s use is not transformed from residential to business simply because the owner earns income from the rentals.
Here, the Association did not-and apparently could not-allege that the Owners’ properties were being used by the renters for any nonresidential purpose. Accordingly, the appeals court held that the use of the Owners’ properties as short-term vacation rentals was not prohibited by the applicable restrictive covenants.
In closing, the appeals court cautioned that the need for explicit language in restrictive 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.
Another concern for the would-be short-term vacation rental owner is local zoning issues. Counties and municipalities generally have zoning ordinances as well as business registration and tax requirements that could significantly impact options for short-term vacation rentals.
Barry Miller Law is familiar with all aspects of Homeowners and Condominium Association Law. If you, or someone you know, has legal questions concerning real estate, contact Barry Miller Law for assistance at 407-423-1700 or email us at info@BarryMillerLaw.com for a free consultation.