On Saturday, February 10, 2018 over the course of a community feedback session, Nancy Glasgow led a discussion on a rental tax, announcing she had a "great idea" that would lower the homeowner association assessment. Her solution is to charge renters a fee in exchange for access to the community's beach, offsetting the assessment. Over the course of the same community feedback session Marty Shecter pointed out that the top three expense areas of the homeowner's association were (in order) trash collection, life guard services and security services. Shecter went on to say that rental properties have a greater impact on these expense areas than non-rental properties.

Board member, Steve Larsen, passed around a spreadsheet he drafted that included three municipalities and five homeowner associations that charge a mix of percentage taxes and fees against property owners who lease their properties, saying the "entire world" is headed in the direction of raising revenue from rental fees. The three municipalities listed, Fenwich Island, Bethany Beach and South Bethany, reportedly collect rental taxes in addition to property taxes from their residents. However, municipalities have the jurisdictional authority to levy taxes, homeowner associations are statute barred from levying taxes. All of the homeowner associations on Larsen's carefully crafted, spreadsheet charge a flat fee either per season or per rental incident. None of the listed homeowner associations, with the exception of Breakwater Beach of Rehoboth Beach, Delaware charge a percentage fee on gross rental income. [1]

Glasgow, Shecter and Larsen (e.g., the GS&L squad) indeed sounded well verse on the proposal. In 2017 Glasgow and Shecter drafted a petition to compel the board to charge owners who lease their property 6% to 8% on gross rental income. They reportedly collected the signatures of sixty individuals or thereabouts on the petition. The board subsequently rejected the petition on the grounds that in its current form the board could not implement the petition.

An 8% rental tax would in theory raise over 240,000.00 dollars per year and lower the assessment by more than 1,000.00 dollars per residential property owner. It is no wonder why Glasgow, Shecter and Larsen, who do not lease their respective properties, are keen to change the covenants to impose such a tax.

Despite board member, Shecter's letter undated but received April 3, 2019 where he states rental fees will only be charged against renters and will not effect owners who lease their property, the board has to date not voted on a formula to raise revenues from owners who lease their respective property. Shecter words, which belie a tone of authority, do not carry the weight of the board. During the course of the community meeting on Saturday, May 4, 2019 Shecter walked back his words. He said the letter, received April 3, 2019 voices his opinions and his opinions only.

The salient questions on the matter of a rental tax are, (i) does Delaware law allow homeowners associations to levy percentage fees against their members, who offer their property for lease, (ii) can we as a homeowners association directly charge renters a fee to access the private beach and (iii) is the universe of homeowner associations charging rental fees?

Dean Campbell, a lawyer, specializing in civil litigation and practicing in Sussex County says, "Any fees beyond the assessment levied against a homeowner cannot be capricious and arbitary. If a homeowner association votes to levy fees against homeowners who lease their property, such fees would need to be cost justified. The cost justification would need to demonstrate the community incurs greater costs to service a leased property versus a property not under lease." Campbell further states, "Under no circumstances can a homeowner association charge a percentage fee tied to rental income. Homeowner associations do not have the authority to tax their members based on rental income."

During a board meeting on November 10, 2018, when advised of this legal opinion by a home owner and reportedly advised of a similar legal opinion from the community's resident lawyer, board member, Steve Lawson said he saw no reason to commission a study to determine the cost impact of properties that are otherwise vacation rental properties. To date the board has not commissioned a study into the question of the cost impact of rental property versus non-rental property.

In the absence of a cost justification any change to the Middlesex Beach association's covenants involving a percentage tax or flat fee levied against owners who lease their property would attract litigation regardless of how many homeowners vote to approve such a fee structure. As Marty Shecter has correctly stated in his letter, received April 3, 2019, a number of homeowners, who offer their property for lease, have served notice of their intentions to bring the matter to the Chancery Court of Sussex County should the homeowner association introduce an arbitrary fee in the absence of a cost justification. In light of the ongoing lawsuit with Bennett Realty, which thus far has dragged on for over one year, the community can least afford to engage in yet more litigation. The cost of the litigation in the Bennett Realty matter has by now likely surpassed 100,000.00 dollars given the number of motions before the court. On the event that our indemnity insurance expires in 2021, as it stands today we would likely see our indemnity increase four-fold.

Regarding whether we as a homeowner's association can directly charge renters a fee in exchange for access to the beach, circumventing property owners, a homeonwner's association has a binding legal agreement with its members and not with whom members enter lease agreements with. Ellen Throop, legal committee chair, says, "When an owner leases his/her property to a tenant, the owner consigns all rights associated with the property to the tenant [for the duration of the rental period]". This would include access to the private beach as well as the parking facilities. In effect the only entity Middlesex Beach Association could charge a fee to (assuming it was legal to do so) would be the owner of the property.

In fact the question of legal standing was recently exercised in the matter, Middlesex Beach Association versus Bennet Realty (Chancery Court, Sussex County, Delaware). The court found that the Norman law firm, a tenant with Bennett Realty, has no standing in the matter involving the one rotating sign on Route 1 before the court.

Regarding the population of homeowner associations that charge fees against owners who lease their properties, only 1 in 20 properties (or thereabouts) listed on HomeAway.com include a rental fee and most of them are situated in a municipality. There are 37 homeonwer associations at the Delaware shore. Larsen's carefully crafted spreadsheet includes only five of the thirty seven. To extrapolate a conclusion from a sample of five, cherry-picked, homeowner associations is at best a biased argument presumably to support a false narrative. Further, there is no evidence that the homeowner associations that have rental fees have performed a cost impact analysis to support their respective covenants. The fact that a homeowner association has instituted a rental fee does not make it immune from litigation.

"To suggest that properties under rental over an 18 week period have a greater cost impact to the community compared to a property of a full-time resident over a 52 week period is indeed a stretch and is probably the reason a number of board members are refusing to commission a study. Any argument to the contrary would be problematic in court."

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