The rise of the resort-rental market has created a set of homeowner’s association rules that have shifted the traditional power of its board to entities that represent the interests of developer, property manager and even the country club. The legal arrangements are novel on their own and unique in their combinations.
In this business model, everything is built for the renter, including the amenities. Homes are constructed not for owner occupancy, but a short-term guest seeking the amenities of a hotel and the comforts of a private home. Entire developments are being devoted to leisure and business travelers.
Based on how they position the real estate product, business partners occupying this economic model avoid a lot of the development-related governmental restrictions and governing issues that traditional players experience.
Sometimes, attorneys for resort developers seek single-family home zoning. More often, lawyers seek hotel zoning, representing the product as a hotel because occupants are temporary dwellers with no homeowner rights.
Where there is an HOA, attorneys draft documents so that it is never turned over to a board of homeowners. Similarly, the club is kept private rather than being folded into the HOA or an entity governed by members.
In some communities, the residential association is turned over to a homeowners’ board. That creates a unique legal relationship with the club because it remains in the hands of business partners. While they collaborate with HOA, attorneys put into the documents that the HOA has no say on anything that would adversely impact the club’s financials. If a proposed HOA resolution or change to its bylaws would reduce the rental value of residences or hurt club revenue, the documents give the business partners the right to block the HOA’s planned actions. Their lawyers would explain to the HOA board and its attorney how the contemplated action would affect the rationale so that legal differences do not arise.
Conflicts between a club and the HOA have arisen in traditional communities, but rarely in a configuration of a private club.
Our company Rentyl Resorts plans for these situations and the conditions are disclosed upfront in the purchase-and-sale documents given to owners. The buyer acknowledges that the community is built as a vacation rental. The homeowners are mandatory members of the community’s club. They may enjoy benefits such as members-only parties, but for the most part, their club access is pretty much the same as those of the renters. We try to work closely with all of our buyers and renters to create a cohesive well-managed community for all.
If a buyer does not want to participate in the approved rental program, additional legal documents prohibit them from marketing the resort’s amenities and services. If they list those benefits online, they could face civil lawsuits for trademark and intellectual property infringement. Meanwhile, their renters have access to the home, but that’s about it.
Owners are also bound by what might seem like tight rules. To stay in their homes, they must make reservations that are subject to availability. Renters take precedent. If adamant about staying on property on certain dates, they may be booked into someone else’s home.
Why are homeowners OK with these requirements and restrictions?
As investors in Rentyl Resort properties, they are less concerned with what their neighbors are up to because they are rarely or never there. They do not want to run for the HOA board or deal with approving architectural design changes and chasing down violators. They are content to leave the headaches to the resort owner.
Second, the club produces new revenue streams such as resort fees and mandatory membership dues. The latter may seem like an unwanted expense, but that applies largely to clubs in owner-occupied developments.
In the resort-rental model that Rentyl works under, investors are buying into a community with enhanced amenities that comes from the business partners putting millions of dollars more into a club than a residential developer would.
Our Encore Resort in Florida, for example, has a full waterpark with a 60-foot-slide tower, a children’s water playground, and an adult pool with cabanas with food-and-beverage service. Guests can order in-home spa treatments, 24-hour room service including the services of private chef, and other luxuries that are rarely offered in traditional communities.
At Ranches in Belt Creek in Montana, guests can hunt, fish, snowmobile, ride horses and go skeet shooting at the sporting club. Those activities are rarely found in most developments. Rentyl’s resort-style amenities make the residences more enticing to guests than owner-rented homes with no community benefits. That appeal translates into higher rents and resale value. Buyers looking for a second home or a pure investment play achieve an upside that would not come from listing their home online or through a local real estate agent.
The documents secure the integrity of marketing and branding efforts, which in turn protect buyers’ investments in the property. We have found that when a significant percentage of homeowners do not participate in the resort-rental program, everyone suffers financially.
When you have hundreds of homes in a community with no central marketing program, every homeowner is on their own and relies heavily on dropping rates to be competitive with their neighbors. This creates a race to the bottom with the rental rates versus a model where we can increase rates by having a central program which includes marketing a total resort experience and with proper revenue management policies in place that allows Rentyl to optimize the rental rates.
These financial and legal arrangements are not for everyone. Buyers accustomed to a traditional community where homeowners write the neighborhood rules and club members decide everything from pool hours to building renovation budgets may feel left out.
Attorneys who represent investor-buyers, HOAs, developers, hospitality brands and property managers may also find themselves in unfamiliar waters. They should see that as something to embrace, not avoid. As resort rentals continue to gain popularity, they will see more documents emanating from this business model and the opportunity to practice a different kind of law.
Nick Falcone is the founder and CEO of Rentyl Resorts, which currently employs more than 650 people. Rentyl has headquarters in both Boca Raton and Orlando, Florida.