Judge Rules Mostly in Favor of Flagler County Authority to Regulate Vacation Rentals

Just five days after hearing arguments, a circuit judge today ruled against an attempt to stop Flagler County government restrictions of the short-term vacation rental industry from taking effect. But the ruling also found the ordinance unconstitutional if applied to vacation rental contracts that predate the day the ordinance was passed in February.

The swift and unambiguous ruling, by Judge Michael Orfinger, is largely a victory for county government in its drive to regulate a narrow but booming industry in the Hammock—lucrative to some, a nuisance to others. The ruling is also significant for other counties, who are looking at Flagler for the resolution of an issue with similar application elsewhere.

“This is the gate that would either allow them, if the gate were open, to regulate,” County Attorney Al Hadeed said this morning, “or the gate be closed, which would forbid them from regulation, and essentially what the court stated was, it was very clear in the 2014 legislation, that the Legislature did intend to give us regulatory authority, provided that we do not prohibit vacation rentals—which he found our ordinance did not—and did not regulate the duration or the frequency of rentals of vacation rentals.”

But the matter is not done with. Hadeed expects it to be appealed and to likely and finally to be settled only by the Florida Supreme Court. Today’s decision is only an interim order, and it does not stop the parties from moving on to a trial phase. “It’s really uncertain to know what the next step is,” Hadeed told the county commission. “Our next step is, we’re going to continue to prepare the case for a trial.”

The county commission passed the regulations in February in response to persistent opposition to short-term rentals in the Hammock from a segment of residents there. It was not balance enough for the owner of a vacation rental on Cinnamon Way, and for Steven Milo, who runs Vacation Rental Property Management, which between 70 and 80 single-family homes as short-term rental properties in Flagler, and many more in counties along the coast. The two parties are seeking to prevent the county from having much of a regulatory say at all, arguing that state law prevents it.

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A decision that may resonate across Florida–and possibly all the way to the Supreme Court.

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Opponents of the ordinance argued that state law “preempts” Flagler County from enacting its regulatory ordinance, that the ordinance applies unfairly to properties on the east side of the county and not its western side, that the deadline to apply for short-term rental certificates is arbitrary, and that the ordinance would impair contracts the rental companies signed with customers before the ordinance passed.

Orfinger ruled against the opponents in every instance except in the case of contracts signed before Feb. 19, 2015, when the county passed its ordinance. The county may not apply its regulations retroactively to those contracts. That would be unconstitutional, Orfinger ruled. But it may apply them by grandfathering existing properties, in the months and years ahead.

The key issue in the case was preemption—whether Flagler County government could regulate short-term rentals without violating state law, and to what extent. That question appeared to have been answered by the Legislature last year when it passed an amendment to a law explicitly repealing that preemption. But the amended law had never been tested. That’s what the vacation-rental proponents were doing in this case.

Between 2011 and 2015, the state forbade the county from regulating those properties. It enacted that prohibition—or preemption, in the state’s technical term—on the assumption that easing short-term rentals in the state would help property owners carrying outsized mortgages to keep their homes and get back on their feet. But the provision also was a boon to the short-term rental market and its derivatives, among them rental mangers like Milo. Short-term rentals in the Hammock grew fast, sundering the community between those benefiting from the market and those suffering its collateral clutter: noise, visual pollution, spikes in traffic or parking chaos. Rentals could accommodate up to 24 people at a tim, creating what their opponents dubbed mini-hotels that were incompatible with a residential setting.

Last year the Legislature, after two years’ lobbying from Flagler, amended its 2011 law to return some regulations to local governments.

The average household size in the county was under 3 people in the last full census. Renting a house to as many as 24 people was beyond the sort of norms the county was willing to accept, even for short-term rentals.

In February, the county commission unanimously approved the short-term rental regulation ordinance. It applied to rentals east of U.S. Highway 1 only. Owners running their home as a short-term rental would have to apply for a certificate from the county and a business tax receipt. They’d have to submit interior drawings of the property and other documentation, and submit to an inspection.  (Owners who live at their short-term rental property are exempt from the regulations.)

Rentals are to be limited to 10 people at a time in single-family homes, and 16 in multi-family homes. Grandfathering applies in various ways, with properties given until Dec. 1, 2015, to come into compliance, and a phased-in occupancy allowance for larger homes of 14 through February 2018, and 12 until 2021. After that, the 10-person limit applies. That’s assuming the house isn’t sold. Those grandfathering allowances—or “vesting rights”—are erased the moment a house is sold.

Three weeks after the ordinance passed, Milo filed a suit to stop its enactment. He argued that state law preempts the county from enacting short-term rental regulations. “This court does not agree,” Orfinger wrote. “The Legislature removed the language prohibiting local governments from restricting the use of vacation rentals or regulating vacation rentals. It instead substituted a prohibition only against regulating the duration or frequency of rental of vacation rentals.”

Orfinger also found it unobjectionable that the county would apply the ordinance only to properties east of U.S.1, since that’s where the majority of vacation rental properties are concentrated. And based on the evidence he heard last week, he ruled that “it is not impossible” for vacation rental managers to comply with a June 1 certificate application deadline.

The only matter in which the opponents of regulations prevailed is regarding contracts that pre-date February 19—a limited number of contracts, making that victory one with an expiration date. Nevertheless, those contracts are exempt from the ordinance regardless of when the property is to be occupied in coming months or years.

“The court did handle this under an expedited schedule,” Hadeed said of Orfinger’s ruling. “To take four hours out of the judge’s hearing time is—I don’t want to use the word extraordinary—but it reflects the court’s dedication to its responsibilities to handle a very complex case, because of all the various issues, constitutional, statutory and otherwise, and to address them in a timely way, and to commit itself that it would do so.”

“I know that all counties around the state are looking at this and watching this, and so we’ve got the lead ordinance that many people will look to,” Commissioner Barbara Revels said. “I’m fairly proud of that,” she said, thanking the county staff.

Judge Orfinger Vacation Rental Ruling (2015)

Click to access 30-Cinnamon-Beach-Way-v.-Flagler-Co.-Order-re-Prelim-Inj-1.pdf