The loss of homestead through rental.

• Author: Rothenberg, Mark A.
• Position: Florida

The recent economic downturn has led to numerous battles between county property appraisers desperate to preserve revenue and homeowners desperate to generate additional income from their properties. A new battle ground has emerged as to the extent to which property appraisers can revoke the constitutional right to homestead where property owners rent out their homesteaded properties (hereafter, the "homestead exemption" or "homestead").

It had been commonly understood that property owners who rent their entire dwelling for long periods of time forfeit the benefit of homestead. The underlying rationale for the termination of homestead due to long-term rentals is that the owner's long-term rental activity, coupled with his or her implied absence from the property, signifies the owner's intent to reside elsewhere. Therefore, the owner's departure and residence elsewhere, coupled with the conversion of his or her home into a commercially oriented use (a rental), reveals an "intent" to abandon the homestead. (1)

By contrast, there are occasions when property owners do not intend to abandon their residence through rental. For example, numerous Floridians rent out their homes for short periods of time and may even remain on the premises during the course of these rentals. These short-term or seasonal renters are now finding themselves forced to defend their right to their homestead exemption, even when they still consider their home to be their permanent residence. The purpose of this article is to explore the effect of a rental on the homestead exemption and to recommend legislative revisions aimed at clarifying the permitted contours of rental activity in the context of a homestead abandonment case.

Early History of Abandonment of Homestead Through Rental

Florida courts have traditionally emphasized that a determination of homestead abandonment is made on a case-by-case basis. In particular, courts conduct a factual inquiry as to whether the owner's rental activity constituted abandonment of the homestead. (2) Nevertheless, early cases and guidance from the Florida attorney general directly supported the preservation of homestead, even when the property owner engaged in rental.

In early cases in which homestead was restored, the homeowner had left personal property onsite and otherwise manifested an intent to return. (3) Moreover, the Florida Supreme Court's jurisprudence on the subject emphasized that the owner's continuous physical presence without interruption was not required to preserve homestead. (4)

The Legislative "Fix"

The Florida Legislature attempted to codify and clarify the early case law on abandonment through rental when it adopted FS. [section] 196.061(1996) (rental statute). The rental statute can be summarized as follows. The rental statute requires there to be a "rental." Second, the rental must be of the "entire dwelling." The rental of the entire dwelling constitutes an abandonment of the right to homestead. However, the statute contains an exception with an exception to the exception. The rental statute provides that property owners do not lose homestead if they had established homestead through permanent residency on January 1 of the year. (5) For example, if an owner of homesteaded property rented the dwelling on January 2, but had qualified for homestead on the first, homestead would not be lost for that year. However, this exception cannot be utilized for two consecutive years. (6) The rental statute is not the model of clarity and is ambiguous in several instances. As discussed more fully below, the rental statute does not define what a "rental" means or what constitutes the "entire dwelling."

Deference in Statutory Construction

The threshold question in all ad valorem property tax disputes is whether the rules of construction of the applicable statutes favor the homeowner or the property appraiser. In large measure, the outcome of this inquiry depends on the nature of the tax exemption in question. Unlike the bulk of tax exemptions, the right to a homestead exemption sounds in the Florida Constitution. (7) The fact that homestead is a constitutional right in comparison with other nonconstitutional exemptions does not end the inquiry in favor of the property owner.

Florida courts have struggled with the burden of proof and deference due to property owners in homestead cases. As illustrated, the case law is somewhat inconsistent. However, it can safely be said that homestead is a "qualified constitutional right" because homestead must be applied for.

Florida courts have explained that the legislature may establish appropriate limits in terms of qualifying for the right to homestead. (8) For example, the Florida Legislature has established requirements for the application and processing of homestead applications. (9) Moreover, the legislature established criteria to be utilized for determining "permanent residency" (the threshold requirement for qualifying for homestead). (10) For example, in ES. [section] 196.015 (2009), the legislature provided property appraisers with criteria to utilize in determining permanent residency. The criteria include an assessment of the address provided on items such as a recorded sworn statement of domicile, voter registration, driver's license, utility statements, bank statements, vehicular registration, and business licensure. (11)

However, in contrast to cases dependant on whether an owner qualifies for homestead (e.g., whether the owner meets the criteria of [section] 196.015), the rental statute appears to assume that the property owner has already established or qualified for homestead. The inquiry becomes whether the now established right to homestead has been abandoned. Lest there be any doubt on this point, the authors respectfully pose the following question: How can a right be "abandoned" if the owner had not qualified for the right to begin with? Moreover, recall that [section] 196.061 is entitled "Rental of homestead to constitute abandonment." The distinction between qualifying for the right and having the established right taken away by deeming it abandoned is important because Florida courts have deferred to property appraisers in cases addressing the act of qualifying for homestead. By contrast, Florida courts have, with a few notable exceptions, zealously protected the established right to homestead.

There is a sizeable gulf between general tax exemption cases and cases interpreting the constitutional right to homestead. In cases addressing nonconstitutional exemptions, Florida courts have generally held that tax exemptions are to be construed against the individual claiming the exemption. (12) Therefore, the burden favors the property appraiser during the initial qualification phase. (13)

By contrast, once the right to homestead has been established, Florida and federal courts have generally been protective of the right in cases both when homestead is used as a shield against creditors and when the established right to homestead has...