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by Arnaud and Naja Girard…….

Key West suffers from an unprecedented housing crisis yet transient rental units seem to metastasize through Key West’s residential neighborhoods at an ever-accelerating rate.

Last year we uncovered a disturbing legal process: The City of Key West had discreetly passed a law creating amnesty for people who illegally rent long-term residences to tourists. Instead of the 60 days in jail plus fines contemplated by the city code, property owners who can show they’ve broken the law since April 1, 2010 are rewarded with legal transient business licenses. The issuance of new transient licenses [allowing rentals of less than 28 days] has been otherwise capped since 2002. [See: CRIME PAYS IN KEY WEST, ESPECIALLY WHEN YOU GET CAUGHT]

Last week we reported on the city government’s efforts to deregulate the transfer of transient rental licenses, which would allow developers to turn existing residential housing into nightly vacation rentals. [See: CITY’S DEREGULATION OF TRANSIENT LICENSES WILL REDUCE RESIDENTIAL HOUSING]

This week we researched the controversial origin of some of those transferable transient business licenses and how those questionable legal instruments manage to pierce through the protections surrounding residential housing.

This research stems from a case which infuriated Key Westers last year.  A well-connected developer, conch train owner and professed affordable housing advocate was caught again and again illegally (allegedly) renting badly needed residential housing to vacationers and getting little more than a slap on the wrist in return.

The charismatic Mr. Ed Swift III was becoming the lightning rod for the “Haves and Have Nots” argument opposing Key West ‘business as usual’. Behind the scenes, however, Swift was making remarkable headway with an ingenious plan to transfer 6 “unassigned” transient licenses to his Key Cove residential homes. But truth be told, it does look like our report last week has thrown a wrench in those gears.

Let’s start at the beginning:

Key Cove II

In 2007 Ed Swift was finishing up the development of “Key Cove II”: 10 luxury 4 bedroom/3 bathroom homes in a condominium complex behind Home Depot on Roosevelt Boulevard. They are single family residences, each with swimming pool and ocean view. Swift sold two but kept the other eight. It’s not clear at which point he and his partner, Chris Belland, began to unlawfully (allegedly) rent to tourists [Swift has never admitted to any violations], but by 2015 they were becoming entangled in code enforcement undercover investigations. The Key Cove file contains a complaint by a neighbor claiming that three units owned by Swift were being used for illegal short-term rentals and at least four units have been the focus of code compliance hearings over the past three years.

The choice was to either shut down the gold mine [more than $650 a night per unit] or find a way to transform the homes into legal short-term vacation rentals.

This is when Mr. Swift becomes involved with the so-called “unassigned transient licenses” of the Santa Maria Hotel.

The Santa Maria Hotel Becomes the Santa Maria Resort Condominium

In 2004, the Santa Maria Hotel at 1401 Simonton Street was redesigned by the Miesel brothers, its new owners. The hotel originally had 51 hotel units but the Miesels wanted to build a whole new vacation rental resort with 35 full-scale condominium units, each with a living room, kitchen, and 2 or 3 bedrooms.

According to city records the planning department found that the impact of the new larger units would be properly mitigated by equating the existing 51 hotel-size units [recognized by law as .58 of a BPAS* unit at the time] with only 30 full-size BPAS units.  A Major Development Plan allowing 35 units was negotiated and ultimately approved by the City Commission on September 21, 2004.

The Santa Maria “Unassigned” Transient Business Licenses

Then, in November of 2008, the Miesels claimed they still had 16 “leftover” transient licenses (51 units previously licensed as a hotel minus the 35 transient licensed condos in their new resort.). The City accepted their “business tax” payment and gave them 16 “business tax receipts”, classifying them as “unassigned” transient business licenses. The Miesels began selling those “extra licenses”. The following year they sold 8 of them for several hundred thousand dollars. The purchasers did get the City to issue transient business licenses associated with their specific residential properties, but the licenses were stamped “no use permitted.” The deals went sour and the Meisels sued the city.

The “no use permitted” stamp was not the only problem.

The Santa Maria’s licenses had originated in a zoning district that allows transient rentals. Under city code transient business tax licenses could only be transferred from non-conforming zones [where they’re prohibited] to conforming zones. The weakness of their argument must have become apparent to the Miesels; they voluntarily dismissed their case; no settlement agreement can be found in city records.

No matter how tempting those unassigned licenses were, it seemed nobody knew how to validate them. Too challenging.

But there is one man who apparently thought he could work with those odds. In early 2015 Ed Swift was getting into trouble with Jim Young, the code enforcement director with an Eliot Ness reputation. Transferring the “unassigned” Santa Maria licenses to Key Cove would be a way to win that battle. Swift purchased the last of the Santa Maria unassigned “no-use-permitted” transient licenses.

If anybody could make it work, he could. And he started lining the ducks.

Deregulation

While Jim Young’s code compliance officers kept citing Swift for illegal transient rentals at Key Cove, he was meeting with the City’s planning and legal staff to work out a way to effectively turn 6 of his Key Cove residences into legal transient rentals. Those negotiations are confirmed by Assistant City Attorney Ronald Ramsingh, who mentions them to a Key West Citizen reporter when explaining City staff’s leniency in prosecuting the illegal transient rental cases against Swift.

The last leg of the race to validate unassigned “no use permitted” transient licenses played out last week in front of the City Commission. The majority agreed, on first reading, that transient licenses coming from hotels and guesthouses anywhere in the city could now transform existing residential housing into transient rentals. (A second vote will be necessary for the amendment to become law.)

“I was asked to put my name on it,” Commissioner Weekley told The Blue Paper this week, “I was told there was no opposition on this. Maybe I didn’t ask all the right questions.” Commissioner Weekley explained that [after our report published last Friday in The Blue Paper] he spoke with the Planning Director, Patrick Wright: “[Wright] said there may be unintended consequences, so we’re postponing it.”

How Many?

One of the “million-dollar-questions” concerns the actual number of those “unassigned” and “no-use-permitted” transient licenses waiting to be activated. The City provided us with a list of 31 currently “unassigned” transient licenses. But of the 16 licenses associated with the Santa Maria hotel only 5 are counted. When we asked to see the list of all previously transferred unassigned transient business tax receipts we were told the City doesn’t track them.

Arguably, the Santa Maria model could work anywhere on the island and many more of those unassigned transient business licenses could be created out of clever revamping of existing hotels and guesthouses.  The Santa Maria reduced the number of “units” on the property but ended up with 19 more bedrooms. Using all of the BPAS units they had, they constructed 2 and 3-bedroom condos in place of one-bedroom hotel units and then claimed they still had rights to 16 “extra” transient business licenses.

In the past two years records show 9 transient licenses in three Old Town guesthouses were voluntarily put into “unassigned” status. All owners retained at least one transient license giving them the right to continue to function as guesthouses at their current location while reducing the number of licensed units.

If the City is to turn the tide on disappearing residential housing, the process of transferring “unassigned” transient licenses associated with disembodied businesses and non-existent BPAS units should not only NOT be deregulated – it should be scrapped.

What Business?

Florida Statute 205 is quite clear on the right to transfer business tax licenses from one owner to another: the transfer is allowed “when there is a bona fide sale of the business”.  The transfer statute recognizes that the business tax had already been paid by the seller and limits payment by the new owner to a “transfer fee.” Presentation of the original receipt showing the seller paid the tax and evidence of the sale of a “bona fide business” is required.

In a December 2012 memo, City Planner Don Craig explains [in reaction to the Miesel’s lawsuit] that the Santa Maria’s rebuild extinguished 100% of its building rights [BPAS]: “There are today none – zero – that are eligible for transfer” he wrote. Monroe County Circuit Judge David Audlin ruled in 2009 that a business tax license is merely a receipt for tax paid [not a property right].

It is unclear why the City decided to create the legal fiction of “unassigned” business tax receipts for non-existent “businesses” and sanction the high-dollar sale of those tax receipts by issuing “no use permitted” licenses to buyers such as Mr. Swift.

What’s Next?

According to Commissioner Weekley, the City’s planning director and legal staff is now considering narrowing the scope of the deregulation amendment by allowing the transfer of transient business tax licenses only into the General Commercial [GC] zone. It is probably only a coincidence that Mr. Swift’s Key Cove property is found precisely in the General Commercial zoning district.

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*Key West Building Permit Allocation System (BPAS)

The BPAS is the City’s primary tool to regulate new residential development growth. The BPAS establishes minimum baseline standards for all new residential dwelling units and assures sustainability, environmental responsibility, human health and safety. The BPAS also helps ensure the City’s infrastructure can accommodate the new residential growth while maintaining or improving the 24-hour hurricane evacuation time for permanent residents.

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