Adopting Short Term Rental Restrictions

Q: My homeowners association is struggling with short term rentals in our community as many owners are using online providers to rent their homes for very short periods of time (sometimes nightly).  It is my understanding that the board for a homeowners association can set any non-discriminatory rental policy it wants, including minimum and maximum length of rental.  Is this true in Florida? J.T.

A: The answer to your question is “probably not.”  A review of your governing documents might result in a legal opinion that your board has that power, but that would be the exception to the rule.

Rental restrictions for a homeowners association are most commonly found in the declaration of covenants.  Most declaration of covenants can only be amended by approval of the owners.  Usually the approval of some type of super-majority is required, with either two-thirds or seventy five percent of the owners being the most common thresholds for amendments.

The board is most often granted authority over the administrative details of rentals (such as the right to require use of a specific application or registration form) in those communities where rentals are subject to association regulation.

Q: Can a condominium association in Florida prevent owners from renting their units? L.S.

A: The Florida Supreme Court addressed this issue in the 2002 landmark decision of Woodside Village Condominium Association v. Jahren, which my firm had the privilege of arguing before the Court on behalf of the association.  In that case, a condominium association amended its declaration to severely limit rentals by prohibiting annual and other long term rentals and basically only permitting seasonal rentals.

Certain unit owners complained that they bought their condominium units with the specific intention of leasing them annually, a practice permitted by the declaration when they bought their units.  These owners sued the association on the theory that they had lost vested property rights when the amendment was passed.  The trial judge and an appeals court sided with the investors.  However, the Florida Supreme Court ultimately found in favor of the association, ruling that when condo owners buy their units they are on notice that the contract that spells out their legal rights, the declaration of condominium, can be amended by the vote specified therein.

After this decision, investor groups lobbied the Florida Legislature for a change.  In 2004 the law was amended and now provides that an amendment prohibiting unit owners from renting their units or altering the duration of the rental term or specifying or limiting the number of times unit owners are entitled to rent their units during a specified period applies only to unit owners who consent to the amendment and unit owners who acquire title to their units after the effective date of that amendment.

If your condominium was developed before 2004, there is some room to debate the retroactive effect of the statute.  However, most associations follow the law.

Q: I often hear allegations that my condominium association board of directors has violated the “sunshine laws.”  What does this refer to? D.A.

A: The Florida “sunshine law” applies only to certain governmental entities and agencies.  It is found in Chapter 286 of the Florida Statutes, and with few exceptions, generally prohibits any two members of a covered board or commission from meeting outside of a noticed and public meeting.

On the other hand, the notice and open meeting requirements that apply to community associations are found in specific statutory provisions of the Florida Homeowners’ Association Act, the Florida Condominium Act, and the Florida Cooperative Act.  Many attorneys, managers, and board members use the term “sunshine laws” when referring to these provisions, but really in a more colloquial or “industry slang” manner of speaking.

Section 718.112(2)(c) of the Florida Condominium Act contains all of the “sunshine law” provisions regulating notice and meetings for condominium associations.  You must also check the governing documents of your condominium association because they may contain additional requirements that must be met as well.

Unlike the Florida “sunshine law” which applies to governmental entities, association board members who constitute less than a quorum may meet at any time and discuss association business.  Obviously, without a quorum, formal decisions cannot be made.

When an allegation of “violating the sunshine law” is made in the community association context it usually means that an owner is alleging that a quorum of the board of directors has improperly met without noticing the board meeting and without allowing owners to attend.  That being said, there are two exceptions to the general rule that any time a quorum of the board meets the board meeting must be noticed and owners are permitted to attend.  The first exception is if the board is meeting to discuss personnel matters.  The other exception involves meetings with the association attorney to discuss pending or threatened litigation.  These “closed” board meetings must still be noticed, however, but owners are not permitted to attend.

Originally posted on floridacondohoalawblog.com. Written by Attorney David G. Muller is a shareholder with the law firm of Becker & Poliakoff, P.A., Naples (www.beckerlawyers.com). The information provided herein is for informational purposes only and should not be construed as legal advice. The publication of this column does not create an attorney-client relationship between the reader and Becker & Poliakoff, P.A. or any of our attorneys. Readers should not act or refrain from acting based upon the information contained in this article without first contacting an attorney, if you have questions about any of the issues raised herein. The hiring of an attorney is a decision that should not be based solely on advertisements or this column.

Rental Violations Can Be Frustrating

Q: Our condominium has a three month minimum rental term. However, there seem to be people coming and going all the time, often bringing suitcases like they are checking into a hotel. I know of at least one case where during conversation with a “guest” at the swimming pool, they commented on what a good deal they had gotten on their weekly rental. What can the association do about this? (J.L., via e-mail)

A: Your situation is not uncommon and a good set of condominium documents will put you in a much better position than poor documents. Unfortunately, there is a small segment of people who take the “ask for forgiveness, not permission” approach to condominium ownership. Admittedly, the temptation can be great since short-term rentals in desirable resort areas, especially during the “high season”, can generate substantial income. In all likelihood, many of these people are probably also cheating the government by not paying required bed taxes for these rentals.

There are two aspects to addressing your problem, detection and enforcement. Detection is decidedly more difficult, and this is where the provisions of your condominium documents come into play.

If your condominium documents do not regulate the use of units by non-paying guests staying at the condominium while the owner is away, it is much more difficult to detect rental violations. After all, the “renter” can simply say they are “friends of the family” and the burden is on the association to prove otherwise. While this can be done in legal proceedings, that is an expensive solution. Sometimes, however, it is the only choice.

Although many people buy condominium units with the expectation that they can let friends and family use them when they are not there, your declaration of condominium can regulate or limit that expectation. I have found that, at the least, it is desirable to have a system requiring guests occupying a unit in the absence of the owner to participate in some type of pre-occupancy registration. If, for no other reason, there is a safety factor in the event of some type of calamity, such as a fire.

In my experience, most associations do not attempt to significantly restrict the right of a unit owner to have family members occupy the unit in the owner’s absence, although pre-occupancy registration is still often required. With respect to occupancy by “unrelated” guests in the absence of the owner, I have seen many different approaches. Some associations prohibit such occupancies altogether. Others permit a limited number of unrelated guest occupancies in the absence of the owner, two per year being a common provision.

For associations with an “anything goes” policy regarding guests, you are back at square one in having to prove that the “guest” is really a “renter.” Some people advertise their units for occupancy in violation of the condominium rental regulations on various internet platforms that broker these rentals in some fashion. This advertising can serve as proof of participation in rental activities in violation of the condominium documents. However, the situation can be complicated because some platforms are set up to require nightly rental rates to be displayed. Some associations even have provisions in their condominium documents which make advertising for improper rentals a violation of the condominium documents itself.

When a violation has been confirmed, the owner must receive a “cease and desist” letter before formal legal action can be taken, so the dog gets one free bite, as they say in the law. If violations continue after proper notice, legal proceedings can be commenced to obtain an injunction against impermissible rentals. If the association prevails in that action, it is also entitled to the recovery of its costs and reasonable attorneys’ fees.

Fines and suspension of common area use rights are also another approach, effective in some cases, ineffective in others. Your best bet is to discuss this matter with your association’s legal counsel.

Originally posted on floridacondohoalawblog.com. Written by Joe Adams is an attorney with Becker & Poliakoff, P.A., Fort Myers. Send questions to Joe Adams by e-mail to jadams@beckerlawyers.com

Is it too soon to start talking about the 2018 Hurricane Season?

No! If Hurricane Irma taught us anything it is that adequate preparation before the storm will go a long way towards addressing issues after the storm.

Now is the time for associations to communicate with its owners about insurance- and liability-related issues. One of the often-confusing areas for many is understanding the scope and reach of the association’s insurance coverage versus the insurance coverage obligations of individual unit owners. Generally speaking, the association’s insurance coverage will only address the common elements. It will be up to individual unit owners to secure adequate insurance coverage for their own units.

If there is any confusion associated with insurance-coverage-related issues, the time is now to speak with an insurance agent to ensure that both your community and personal unit are adequately insured.

Speaking of insurance, associations should safely store copies of all of their applicable insurance policies. To the extent digital copies can be arranged for these insurance policies then that should be arranged too. These policies should be stored not just safely but stored in a manner that permits the association to easily gain access to the information contained in those policies after the storm has passed.

In the event that an insurance claim will need to be pursued then it is important to have “before” photos and videos of the property. In other words, take the time now to document, photograph and video your property. This will allow you to compare and contrast the extent of your damage “after” the storm hits. You can then present both “before” and “after” photographs, and videos, to an insurance company in support of your insurance claim.

Associations should also develop a plan to address a catastrophe. Since many associations are not just communities, but also families, these plans should include items such as cell phone communications and even meals. In the event of a lengthy power outage the association may want to take steps to have a generator present to have warm meals prepared for its members. The generator may also serve as a means to permit many individuals to charge their cell phones and other electronics to permit the members of the association to adequately communicate with their loved ones. The point here is that in addition to the traditional hurricane planning associated with many communities that focus on protecting the property, take some time to consider quality-of-life issues for the community in the event of a lengthy power outage or other related issues.

After a hurricane we often see many individuals, and companies, swoop in from out of town and promise many associations millions of dollars in insurance proceeds. But these groups often fail to deliver on those promises. Rather than falling victim to the overzealous, post-storm claim professionals promising riches, the better practice is to put your team in place before the storm hits. That way as soon as the storm passes and it is safe to start working on your insurance claim, your pre-screened professionals can begin the process for you. It would also be just as important to discuss all of these issues with your association’s legal counsel as well.

Addressing these issues now will ensure that your community is prepared for the 2018 hurricane season before it even starts.

 

Written by Hugo Alvarez, ESQ and originally posted to the FL Condo HOA Law Blog

Rental Amendments Require Proper Procedure

 

Q:        My association recently sent out the annual meeting notice materials. There is a proxy question which reads: “Should the minimum rental term be increased to 90 days?” There was no other documents or discussion regarding the amendment included in the meeting materials. Is this legal? (J.P. via e-mail)

A:        Probably not, although this is a somewhat complicated legal issue.

First, if your association is governed by the Florida Condominium Act, proposed amendments to the declaration of condominium (which is usually where rental terms are set) must be presented in a “black-lined” fashion. This means that proposed additions to the declaration are underlined, and proposed deletions are stricken through. There is an exception when the changes are so substantial that the black-lining method would be too confusing.

While there is no requirement in the Act that the text of a proposed amendment be included with the notice of meeting where it will be voted on, many declarations require this to be done. Also, it is universal practice to do so, in order for the owners to know exactly what they are voting on before the day of the meeting.

Further, condominiums are governed by a provision in the statute which states that owners who do not vote to approve additional restrictions on the frequency or duration of leases (by either voting against the measure or not voting at all) are grandfathered from the amendment, though it will be binding on their successors in title.

If you are part of a homeowners’ association, the law is a bit different. There is no legal requirement in the Florida Homeowners’ Association Act for presentation of amendments in black-lined format. Actually, this statute does not really address amendment procedures at all. Most governing documents will contain some guidance on amendment procedure. Again, it is nearly universal practice to include a black-lined text of the amendments (or amendments presented in the “substantial wording” format) so that owners know what they are being asked to vote on. At the very least, the proxy should describe what provision of the governing documents are being amended.

The rental amendment grandfathering law for condominiums does not apply to homeowners’ associations. However, there is an annual effort by vacation/resort interests to apply the same regulations to Homeowners’ Associations. I am told there is a recently filed amendment in the pending legislative session to this effect.

Q:        I read your article “Fining Procedures Confound Board.” I am still confounded. Can the board impose a fine if the fining committee sides with the violator? (M.D. via e-mail)

A:        This column was published on March 26, 2017. All of my previous columns are available on my law firm’s blog at https://www.floridacondohoalawblog.com/about. Please feel free to subscribe.

The answer to your question is no. If the independent committee (which you refer to as the fining committee, which is often the name used) “rejects” a proposed fine or suspension, it cannot be imposed. That is the end of the matter, although this would not preclude enforcement of a violation through court or arbitration if it were of an ongoing nature.

Q:        My window was damaged by Hurricane Irma. It is covered by the association’s insurance policy, but the total damage to our building is well below the deductible. Who pays for my new window? (M.G. via e-mail)

A:        The association. The Florida Condominium Act provides that when an association insures an element of a building, it is required to fix the element after an “insurable event” and assess all unit owners for any shortfalls not covered by insurance, including those because of a deductible. This is the so-called Plaza East Rule of the statute, which was incorporated into the law in 2008.

Writen by Joe Adams and originally posted on the FL Condo HOA Law Blog

The Association Foreclosed On A Delinquent Owner. Is The Mortgagee Entitled To The Rental Income?

Condominium and Homeowner Associations are never anxious to take on properties abandoned by owners.  Yet with the mortgage crisis many properties were left vacant for years.  In the interim, unpaid assessments continued to accrue and the properties were ripe for vagrants and were left to deteriorate, risking damage to the common elements or adjoining property owners.  As a result, many associations were compelled to foreclose, and, in many cases, had to take possession of the property.

 

For the Association, hiring a law firm to handle the foreclosure is often the easiest first step; however, once title transfers to the Association the real work begins for the Board.  While the Association is not financially responsible to the bank for the mortgage payments, the mortgage will continue to encumber the property and prevent the Association from selling the property free and clear of the first mortgage.  As a result, the Association is left with two choices upon taking title: sell the property to an investor “as is” or rent the property.

 

If the Association chooses to retain title and rent the property can it be compelled to turn over the rental income to the bank holding the mortgage before the bank forecloses on its loan?

 

Recently, the Third District Court of Appeal considered just this issue.  See UV Cite III, LLC v. Deutsche Bank National Trust Co., No. 3D16-2341 (Fla. 3d DCA 2017).  In UV Cite III the original borrower had defaulted on the mortgage and abandoned the property in 2008.  The bank filed suit in January of 2016 seeking to foreclose the mortgage.  In the interim, the condominium association had foreclosed on the property for nonpayment of assessments and deeded the property to an investor, UV Cite III, LLC in 2015 who rented the property.

 

Within a few months of filing for foreclosure, the bank filed a Motion to Sequester Rents alleging the owner failed to pay property taxes and that it would be unjust to allow the current owner to continue to collect rents and thereby profit from litigating (i.e., fighting) the bank’s foreclosure action.  The lower court granted the bank’s Motion to Sequester Rents and ordered the tenant to pay its rent directly to the court registry with the money eventually being paid to the bank at the end of its case.  This order was appealed.

 

The Appellate Court reversed holding that “absent an agreement between the parties to assign rents or some form of injunctive relief, a trial court has no authority to order a deposit of money into the registry of the court if the money was not the subject of the litigation.” Id (internal citations omitted).  The Court explained that Deutsche Bank’s foreclosure complaint failed to seek a judgment for rent collected, there was no evidence of an assignment of rents provision in the mortgage, and the bank failed to seek injunctive relief, i.e. seek a receiver of the property.  Note that even if there were an assignment of rents provision, it is likely that the assignment would be limited to rental income received by or on behalf of the borrower and not a new owner of the property who has no contractual relationship with the bank as it pertains to the delinquent mortgage.

 

Although banks tend to learn from their prior judicial missteps only time will tell whether they revise the standard contractual language that makes up the mortgage documents and/or their foreclosure complaints to add additional counts in an effort to divert rental income from the property to their benefit.  Even then, the equities favor the Association more than the bank.  For instance, the Association is essentially preserving the value of the property and the community itself by collecting funds to address the Association’s maintenance repair and replacement of obligations which are both statutory and contractual in nature.  Additionally, the Association as a subordinate lien holder to the first mortgagee is attempting to reduce not just the amounts owed in unpaid maintenance but also in interest, late fees, legal fees, and costs that would otherwise be written off and cripple the Association’s ability to meet its financial obligations. Simply put, the Association is not profiting from the rental income, but rather mitigating its damages and ultimately helping the bank out.

Written by Candace C. Solis and originally posted to the FL Condo HOA Law Blog

The All-In-One or Best-of-Breed Dilemma: Which Technology is Best for Your Property Management Company?

In the property management industry, there is a technology to solve almost every problem.  From paying rent online to managing packages, the industry is bursting with solutions that tackle all the tedious aspects of being a property manager. But first, you have to find the vendor that’s right for your company, and that can be a tough task.

The best way to whittle down your choice of vendors is to determine if you want to use an all-in-one or a best-in-breed solution. You may not be sure which one is the best fit for your business, so we’re here to give you all the pros and cons.

First, let’s take a look at all-in-one solutions. All-in-one providers catering to the property management industry offer a combination of management, investment, marketing, leasing, and resident tools.

All-In-One Pros

An all-in-one solution can be an easy sell for some property management companies. The idea of a single platform being able to solve multiple challenges at once sounds very appealing, especially if you have limited internal resources. The IT requirements required to use an all-in-one provider may be reduced when a single vendor is used because there are fewer programs to maintain.

If your team is not particularly tech savvy, only having to learn one platform can help avoid confusion among users of the software and shorten the learning curve. Plus, users will only need a single login to manage each application.

Only having one technology vendor to juggle can be convenient, too. You’ll only have one vendor to make payments to, and call when problems arise.

All-In-One Cons

One suite, one purchase, one vendor to work with. It’s a powerful case, so what are the drawbacks?

The most widespread complaint property managers have about all-in-one solutions is that each product in the suite lacks in-depth functionality needed to do a particular job well.  Essentially a Swiss Army knife for property managers, you’ll get several tools compiled into one offering, most of which have limited capabilities compared to a standalone version of that service.

If you’d like to enhance the functionality that’s offered, don’t count on being able to customize features with an all-in-one solution.  All-in-one solutions tend to be more rigid in the functionality, and therefore offer little to no ability for customization. If you have specific requirements, you are probably better off with a best-in-breed solution.

You’ll likely also have access to tools you don’t need or don’t want, and in most cases, this makes all-in-one providers more expensive. Software to manage your business shouldn’t always come down to price. But when you compare dollar for dollar what you get out of an all-in-one solution and the adaptability it has, some find it hard to justify the cost for what you get back.

You may also find that components of an all-in-one solution don’t integrate as seamlessly as you’d expect. That’s because all-in-one providers often fill gaps in their product offerings by acquiring companies, then rebranding those products as their own. Getting the two components to “talk” to each other can be just as challenging as selecting software from different vendors.

Adding new products through acquisition also affects the support you receive. Support teams for all-in-one platforms won’t have as much in-depth knowledge about each specific part of their offering like best-of-breed providers have. The result of this is that it could in fact take more, not less time to identify and resolve the issue.

Now let’s take a look at best-in-breed providers for property management companies. They eat, live, and breathe their area of expertise and only focus on a handful of specialized services.

Best-in-Breed Pros

Companies opt for best-of-breed solutions because they offer power-packed systems that address a specific issue. The features offered are more extensive than what is offered through an all-in-one, but can also usually be tailored to the client’s needs. While assembling a best-of-breed technology stack means dealing with several providers, it also means upgrades are much easier, and the company has a unique system that is at the top of its industry.

If your goal is to reduce costs, choosing best-of-breed solutions will be the way to go. Because you can pick and choose which solutions your company needs, you are able to save by opting for best-of-breed software versus unified solutions.

Another advantage of using a best-of-breed over an all-in-one, is that it prevents companies from “putting all their eggs in one basket.” Using numerous products from a single vendor tightly locks you into their system. Breaking away from a unified solution can be a painful transition, something most all-in-one providers count on. If you become unsatisfied with a best-of-breed platform, there’s more leverage to negotiate a solution to the problem. And if you choose to move to another vendor, the transition will be less complicated without several aspects of your business tied to one provider.

Best-of-breed vendors usually deliver a shorter implementation time, particularly if you are using a web-based solution. With faster implementation and ease of adoption, you can achieve a quicker ROI by selecting a best-in-breed solution.

Best-In-Breed Cons

As you’d expect, picking best-of-breed solutions means you have more vendor relationships to manage.

While best-of-breed vendors work tirelessly to strengthen their integrations, some may not provide a flawless experience. If you choose vendors who do not have strong partnerships with one another, integration with your property management software may not always be the best.

Best-of-breed solutions are not a one-size-fits-all technology. Therefore, you will need to have a good idea about the kinds of features you want, and be vocal about your needs. The end result will be a solution that is tailored to your business’ specific needs.

At the end of the day, implementing any kind of technology is meant to help you streamline your processes, better run daily operations and make your team’s job easier. All-in-one and best-in-breed solutions each have their own unique value propositions so it’s important to evaluate your company’s needs, not only today, but as you will grow in the future.

 

Written by Jennifer Stahlman and originally posted on PayLease

Let Them Pay For Their Own Long Hot Showers: How Property Manager’s are Lowering Their Property’s Utility Expenses

Do you include utilities in your rent? Whether you do or you don’t, the million dollar question is why? Why not include it?

The answer is rent growth. To elaborate, operators are realizing that with rapid rent growth comes a growth in supply. However, coupled with stagnant wage growth, there is a hesitancy these days as operators are starting to wonder if the good times are coming to an end. If they are, how do you as an operator grow your property’s NOI if raising the price of rent is no longer an option?

Sadly, rent growth is no longer moving up and to the right. Over the entire country we are now starting to see rent growth decrease. Hopefully this is not a trend that continues, but it is scary to compare the supply hitting the market with the fact that wage growth has not increased in quite a while. We all know that you typically look for three times the amount of monthly rent in an applicant’s income. Therefore if incomes don’t rise, and supply continues to grow, it will be tough to continue lean on rent revenue to increase NOI.

Don’t fret! There is another way to recoup costs that is currently being overlooked by management companies all over the country. Why not turn your focus on expense management? Think of it this way, when early engineers built the Transcontinental Railroad or dug the tunnel for the English Channel, they didn’t start from one point without considering the other end. They worked from both sides and met in the middle.

In the past decade we’ve seen a huge focus on the revenue side of property management, particularly when you consider revenue management systems like The Rainmaker Group or YieldStar. Obviously, the revenue side of the house is the primary concern, but the expense side is curiously out of focus. It’s not that operators don’t recognize the importance of expense management, it’s just that the revenue side is more… sexy. The expense side is like Marla Hooch from A League of Their Own. She’s overlooked because she’s not pretty, which (in this case) makes PayLease Geena Davis. We are calling Marla (expense management) out and saying ‘hey, this girl can actually play ball!’

In other words, let’s focus on expense and revenue if we’re trying to drive NOI.

Can you relate to this next scenario? You’re traveling for work, and the first thing you do once you enter your hotel room is crank the AC because (guess what?) you’re not paying the electric bill. While you’re at it, you go ahead and take a nice long shower because you’re not paying for the water bill either. Which brings us to an important question – why do properties include utilities in the price of rent?

One reason, some might say, is the cost of water. Why not include it? After all, water is not that expensive compared to gas and electricity, except that in recent years the cost of water has been drastically rising. This may be obvious in states like California where we experienced that biblical drought that had us swapping our green grassy lawns for desert rocks and cacti.

What’s surprising though, is that we’re also seeing a 130% increase in the cost of water over the past four years in states like Georgia where there’s no hint of a drought.

Moral of the story is, even if your property is in a state with an abundance of readily available cheap water, if you’re including it in your rent, then we can guarantee your residents are using more than they should. Hello! That means it’s affecting your bottom line.

Including utilities in the rent is like giving your residents access to an all-you-can-eat buffet. It is wise to consider switching to a consumption-based billing method instead. You might be thinking, ‘but residents prefer the all-you-can-eat method, I’ll lose them if I switch.’ For many years this was true, but recently consumers’ mindsets have started to shift. Every year, more and more organizations are adopting these sustainable strategies not only to reduce expenses, but because consumers are aligning themselves with products and services that have adopted such initiatives.

Just look at the following stats from SolarCity:

  • 72% consumers want to learn more about corporate sustainability initiatives
  • 75% of consumers would be more likely to buy a product or service if the company is making an effort to be sustainable
  • 82% of consumers are more likely to purchase a product that represents Corporate Social Responsibility than one that does not
  • 93% of Americans have done something to conserve energy in the past two years

What does all this mean? It means sustainability is the tie-breaker. They won’t choose your property because you’re conserving, but if a potential tenant is debating between two properties that are very similar except for the fact that one is ‘green’ and the other is not, conservation will win the battle.

From an NOI standpoint, it makes more sense to separate the utilities so that you can use more of your rent revenue towards the bottom line of your property as opposed to paying off high utility bills.

Let’s say property ‘A’ includes water in the rent price, and the residents of this property have a leaky faucet, or their toilet is running. They decide not to report it because, why would they? They’re not paying for the wasted water, they don’t want the maintenance guy coming into their apartment, and they don’t own this property, so they just don’t care. Because of that, property ‘A’ is giving (on average) an extra $100 a month from their rent revenue to the water company. To make up for some of the cost, property ‘A’ decides to increase the rent by $50.

Property ‘B’ installs sub-meters and decides to charge each unit for their individual usage. So instead of increasing the rent, they keep the rent price as is and charge the resident back for the utilities they actually use. Because the residents in property ‘B’ are now conscious of this, they start using less water, gas, and electricity and pay around $50 a month out of their own pocket for their personal utility bills.

Because of the $50 rent increase at property ‘A’ and the $50 utility charges at property ‘B,’ the total out-of-pocket expense for both residents is about the same. However, the owner of property ‘A’ is still handing money over to the water company every month, while the manager at property ‘B’ is using those recouped costs to increase their NOI.

When you take the utilities out of the rent and don’t increase the rent price, three things happen. One, the resident will use less electricity, less gas, and less water, saving the planet little by little. Two, the resident will be happy their rent was not raised, and will consider this when the time comes to renew their lease again. Make your property sticky, people! Three, you are no longer paying the utility bills, which will result in a higher NOI for your property. It’s a win-win-win!

Hopefully now you are at least entertaining the idea of billing back your utilities to your residents, and if that’s the case, then the next question is, ‘how do I get started?’

Click here to learn the two different ways you can bill back utilities to your residents, and find out which is right for your property.

 

Written by Victoria Ress and originally posted on PayLease

Infographic: Fun Facts about Recouping Rent, HOA Dues and Utilities

We’re so excited about the upcoming release of our annual Market Survey, that we couldn’t keep quiet about the results. This year, 1,300 HOA, multifamily and single family firms participated in our survey, answering questions about resident payments, utility billing, utility expense management, and Accounts Payable. We’ll soon be releasing the results in a white paper called, A Property Manager’s Guide to Payments, Billing and Utility Management.

Until then, we rounded up some juicy tidbits from the survey that you can see in this infographic.

 

Written by Jennifer Stahlman and originally posted on PayLease

 

Utility Meters 101: How Your Property Management Company Can Recoup Utility Expenses

One of the top questions a prospective resident wants to know when they are interested in your property is, “Will I have to put any utilities in my name?”

The answer is largely determined by how your property is metered, and ultimately, how you can recoup those utility expenses from residents. There are several ways a property manager can recoup utility expenses, so let me give you a breakdown of all the scenarios that are possible.

In order to calculate what is owed for each utility, a reading must be obtained from your community’s applicable utility meter. Your property is metered in one of two ways:

Direct metered: This means that there is one meter per utility type, per residential unit. Each meter is read by the utility provider. The utility provider is responsible for calculating those usage charges and billing them directly to your resident. In most cases, the property management company is only responsible for utility charges when the unit is vacant.

Master metered: In master metered communities, there is one meter per utility type, per building. The utility charges for that community are billed directly to the property owner by the utility provider. From there, it is up to the property owner to determine how they wish to recoup those costs. Here’s how that can be done:

  • Submeter Reads: In this instance, individual meters for each residential unit are installed behind the master meter. Those meters are monitored by the owners or the submeter vendor rather than the utility provider. The readings obtained from submeters show precisely the utility consumption for each unit. Either the property management company or a third-party billing provider invoices residents for what they owe.
  • RUBS: RUBS stands for Ratio Utility Billing System. It is a method of calculating a resident’s utility charges that is proportionately based on the number of occupants per unit, square footage or other factors. Either the property management company or a third-party billing company performs the RUBS calculations and bills the corresponding charges to residents.
  • Utilities Included: Some property owners inflate the price of rent to account for monthly utility costs. With this method, property managers must factor in the possibility of rising utility rates, variance of utility usage per season, and local rental rates.

If your community is master metered, you may be wondering which of the above options is best for recouping utility expenses. Our answer: Submeters, if it is structurally and economically feasible for your property. Submeters are a win-win for both the resident and the property owner. Residents benefit because submetering provides them with a precise picture of their utility usage, enabling them to have more control over their future consumption, and if they wish, save money by conserving. Submetering also protects property owners from unbudgeted utility expenses, giving them higher net operating margins. Also, by effectively reducing property expenses, property managers can increase their property value.

When submetering is not a practical option, RUBS is great and fair alternative for calculating utility consumption. The drawback can be the process of making the calculations. This can be complex and time consuming for a property management company, which is why some prefer to outsource this task, along with billing residents, to a third party.

Lastly, there’s including utilities in the price of rent. We recommend avoiding this practice like the plague. For one, you’ll either end up undercharging your residents (meaning you have to pay the difference every month) or overcharging them, which is illegal in some states. Including utilities in the rent also means that your property’s utility bills are going to be much higher than if the residents were paying it themselves. When residents are not the ones held responsible for paying the bill, they tend to consume more. Pair that with having to charge a higher price for rent in an already competitive market, and a “utilities included” model can be quite damaging to a property manager’s bottom line.

If you need any guidance about the best way for your property to recoup its utility expenses, feel free to contact us. We’ll evaluate your current meter setup and go over some personalized options for you to effectively recoup your properties’ utility expenses.

Written by Jennifer Stahlman and originally posted on PayLease

Wildlife Dangers Create Association Liability Concerns in Florida Communities

Question: We live in a gated community with a golf course. There are a number of lakes and ponds. Alligators seem to come and go, but are spotted frequently. In light of the recent tragedy that has been widely reported in the news, there has been discussion about posting warning signs. What are your thoughts on this? (A.L. via e-mail)

Answer: The association, as the owner of property, can be held liable if someone is injured on the property due to the association’s negligence. Negligence includes allowing licensees or invitees to enter an area of the owner’s property where risk of injury by a dangerous condition is foreseeable, but not readily apparent, and not warning the licensees or invitees of the danger.  The property owner has a duty to maintain the property in a reasonably safe condition and a duty to prevent injury through the issuance of adequate warnings of known, but hidden, dangers.

In 1996, Florida’s Second District Court of Appeal found that, generally speaking, the law does not require the owner or possessor of land to anticipate the presence of or guard an invitee against harm from animals ferae naturae (natural wild animals) unless such owner or possessor has reduced the animals to possession, harbors such animals, or has introduced onto his premises wild animals not indigenous to the locality. In the absence of reasonable foreseeability of the danger, the court found in this case that there was no duty on the part of a city to guard an invitee against a shark attack, or to warn of the possibility of such an occurrence.

In a 2004 decision, the Second District ruled that a landowner owes two duties to a business invitee: (1) to use reasonable care in maintaining its premises in a reasonably safe condition, and (2) to give the invitee warning of concealed perils that are or should be known to the landowner and that are unknown to the invitee and cannot be discovered through the exercise of due care. The court found that a hospital did not violate its duty of ordinary care to maintain the hospital in a reasonably safe condition, even though a patient was bitten by a black widow spider in the emergency room. The evidence showed that the hospital had maintained the facility in a reasonable manner, did not know that a black widow spider was on its premises, and had no previous incidents with black widow spiders.

The precedent most directly on point is a 1986 decision from Florida’s First District Court of Appeal. This case involved a University of Florida student bitten by an alligator while swimming in Lake Wauberg, a recreational facility operated by the University. In a split decision, the court found that the injured swimmer disregarded clear warning signs on the premises which warned of the dangers of alligators. The court also emphasized that the student ignored a “No Swimming” sign where the attack occurred. Thus, the University was found not to be liable for the injuries.

If your association knows of alligators on the premises, reasonable precautions should be taken in concert with advice from the association’s legal counsel and its insurers. Reasonable precautions might include, among other things, the posting of signs warning of the possible presence of alligators. Consideration might also be given to addressing other dangerous animals that might inhabit the property, such as poisonous snakes.

In addition, your association can contact the Florida Fish & Wildlife Conservation Commission’s nuisance alligator program for removal of alligators that might constitute a nuisance or pose a threat. The nuisance alligator hotline can be reached at 866-FWC-GATOR (866-392-4286), and more information about the program is available online at www.myfwc.com.

 

Originally posted on Florida Condo HOA Law Blog