ALLEGAN COUNTY TRIAL COURT RULES THAT SHORT-TERM VACATION RENTALS VIOLATE DEED RESTRICTIONS

As mentioned in our previous blog article, technological advancements have increased the ability of individuals to do short-term leasing, as opposed to the traditional long term, six month or greater, leasing arrangement, in particular looking at the new phenomenon of Airbnb.  Websites such as Airbnb, VRBO and Homeaway are often used by short-term lessors and lessees alike to both list and locate short-term rentals. The blog article examined the nature of Airbnb rentals and the pros and cons of short-term rentals on community living projects.

A recent ruling by a trial judge in Allegan County may potentially impact how short-term rentals such as Airbnb rentals are handled in community association projects going forward.  This article addresses whether renting your home for short periods of time constitutes commercial activity and whether such activity may be prohibited in community living projects.

Background of the Case

In Bauckham, et al. v James and Linda Skarin, et al, (Case No. 15-054455-CH, 48th Judicial Circuit Court, Dec. 30, 2015 and April 5, 2016), Plaintiffs[1] brought suit seeking declaratory and injunctive relief to prevent the Defendants[2] from entering into short-term leases in the Sunset Shores subdivision bordering Lake Michigan in Casco Township in Allegan County.   Plaintiffs alleged that short-term vacation rentals violated deed restrictions which barred commercial activity in the subdivision. The Plaintiffs also alleged that the short-term vacation rentals were a nuisance per se as the activity violated the Casco Township zoning ordinance, which prohibited most commercial activity in the Low Density Residential (LDR) zone in which the subdivision was located.

The specific deed restrictions at issue stated that each parcel in the subdivision was usable for “a private residence and a private garage for the sole use of the owner or occupant” and that “no part of said premises shall be used for commercial or manufacturing purpose[s], except those lots designated as commercial on the plat map”.

The Casco Township zoning ordinances at issue provided that:

  1. “Any land use not specifically permitted … is prohibited”, Section 3.01(C);
  2. The Sunset Shores subdivision is contained in the “LDR” district;
  3. The purpose of the LDR district is to accommodate a “family residential environment with suburban style single family dwellings”, Section 8.01;
  4. Commercial activity is defined as “the use of the property for the purchase, sale, barter, display or exchange of goods, wares, merchandise, or personal services; or the maintenance of service offices for recreation or amusement enterprises; or garage/yard sales operating more than 12 days during any one 12 month period”, Section 2.04; and
  5. Commercial uses in the LDR district are prohibited, subject to narrowly drafted exceptions for which Defendants did not qualify (such as bed and breakfast establishments) under Section 8.02.

Court’s Analysis of the Deed Restrictions

The Court found that the ban on commercial uses in the deed restrictions was clear, unambiguous, unconditional and total and that even though the term “commercial purposes” was not defined in the deed itself, the Court used the well-established meaning in common usage for the terms commercial, commercial use, commercial activity and business to find that short-term vacation rentals by the Defendants constituted commercial activity.

Furthermore, the Court found that the Michigan Supreme Court had previously ruled that short-term rentals of a dwelling for a fee do not constitute the use of the property as a single family dwelling. Laketon Twp v Advanse Inc, 485 Mich 933, 773 NW2d 903 (2009).

The Court also found the definition of residency appropriate in Enchanted Forest Prop. Owners Ass’n v Schilling, 2010 WL 866148 (Mich Ct. App March 11, 2010), describing a person’s residence as “the place where a person has his home, with no present intention of removing and to which he intends to return after going elsewhere …” and found that the licensees or customers of the Defendants were not using Sunset Shores as their private residence.

The Court further found that the deed restrictions intended to ban all commercial uses of the subdivision property  and pursuant to Lanski v Montealegre, 361 Mich 44, 104 NW2d 772 (1960), the deed restrictions expressed a “general plan” for single family residence uses only.

The Defendants countered Plaintiffs’ claims on equitable grounds of waiver and unclean hands on the basis that: 1) Plaintiffs knew of the commercial activity or did nothing to prevent the activity (waiver); 2) Plaintiff’s actively facilitated commercial rental activity by referring renters to other parcel owners (waiver/unclean hands); and/or 3) the Plaintiffs themselves commercially rented their homes.

In determining whether a restriction has been waived, the Supreme Court has ruled that the facts of each case will be determinative of whether there has been a waiver of a restrictive covenant or those seeking to enforce same are guilty of laches. Grandmont Improvement Ass’n v Liquor Control Comm., 294 Mich 541, 544, 293 NW 744 (1940) as quoted in Bloomfield Estates Improvement Ass’n, Inc. v City of Birmingham, 479 Mich 206; 737 NW2d 670 (2007).

In Bloomfield Estates, the Supreme Court held that Plaintiffs can pursue present violations of deed restrictions if the present violation is a “more serious” violation despite Plaintiff’s acquiescence to prior deed restriction violations of a less serious character. Id. In determining whether the current violation is a “more serious” violation, the court will examine relevant factors including: 1) whether the later violation involved the erection of a structure where no such structure had previously been permitted; 2) whether the later violation constituted a more extensive violation of restrictions on the size or extent of a building; 3) whether the later violation increased the use of land from a sporadic violation of the restriction to a continuous violation; 4) whether the later violation significantly increased the noise or pollutant level on restricted land; 5) whether the later violation increased the level of traffic occasioned by the prior violation; 6) whether the later violation permitted an action that had been previously prohibited; and 7) whether the later violation altered in some material respect the character of the use of the restricted property. Id.

When examining the facts of the prior commercial activity in the Sunset Shores subdivisions, the Court found that although the number of short-term rental periods increased over time, along with the number of day time and overnight visitors, there is no evidence that the character and use of the subdivision was significantly changed over time and that the predominant use in the subdivision continues to be for single family residence.  Thus, the Court found that the enforcement of the deed restrictions barring commercial rental activity still has significance and importance to the residents within the subdivision.

Accordingly, the Court found that even though one or more of the named Plaintiffs had unclean hands, the other named Plaintiffs had clean hands as they never acquiesced in commercial rental activity, never facilitated commercial rental activity nor engaged in commercial rentals on their own parcels for a fee in violation of the deed restrictions

Court’s Analysis of the Violation of the Zoning Ordinance

As to the nuisance per se claim, the Defendants claimed that the Plaintiffs did not have standing to bring such a claim.  The Court held that Plaintiffs had standing as the Supreme Court has long recognized the propriety of private citizens bringing an action to abate public nuisances arising out of violations of zoning ordinances. Baura v Thomasma, 321 Mich 139, 32 NW2d 369 (1948); Jones v DeVries, 326 Mich 126, 40 NW2d 317 (1949); Wolff v Steiner, 350 Mich 615, 87 NW2d 85 (1957); Cook v Bandeen, 356 Mich 328, 96 NW2d 743 (1959).

In reviewing the zoning ordinance, the Court found that Defendants’ rental activity was a commercial sale of personal recreation services, impermissible under the zoning ordinance in the LDR district and, thus, a nuisance per se.  The Court also held that the Plaintiffs were not estopped from enforcing the zoning violations as a nuisance per se.

Impact on Condominium / Homeowner Association Projects

Most condominium and homeowner association projects contain similar residential use provisions in their respective bylaws and declarations, as those found in the Sunset Shores’ deed restrictions. The use provision is typically found in the Restrictions section of the Condominium Bylaws or Declaration restricting the co-owner/owner’s use of the condominium unit or lot to single-family residential or residential purposes and use of the common elements only for purposes consistent with single family residential or residential use in accordance with the local ordinances.

Likewise, similar ordinances like the one found in Casco Township can be found throughout other municipalities across Michigan. For example, the City of Livonia’s Zoning Ordinance regarding residential districts can be found in Ordinance No. 543. Article IV, with the exceptions found at Section 4.03 Waiver Uses and section (g) containing a similar Bed and Breakfast exception provision.

As mentioned in the prior blog article, advancements in technology have made it much easier for lessors and lessees alike to list and locate short-term rentals through websites such as Airbnb, VRBO and Homeaway. As a result, the traditional long term, six months or greater, leasing arrangement has become less favored by both lessors and lessees. Thus, if an association is seeking to restrict such rentals within its community, the Bauckham opinion may provide the Association a new way to combat the practice, even if the documents are silent on whether a member can rent their unit/home, so long as the typical residential use provisions are found in the governing documents.

In addition, the Association could also seek to have its local municipality address the potential ordinance violation. Alternatively, as the Plaintiffs did in Bauckham, an association could pursue its own claim in court, if the municipality refuses and/or neglects to do so, so long as their project is located in a similar residential zoning district with commercial activity restrictions, as those found in the Casco Township zoning ordinances.

Although the Bauckham opinion is not binding on other courts across Michigan[3], it can be used as persuasive authority to allow associations to address concerns that they may face with short-term vacation rentals.

To Allow or Not To Allow Short-term Vacation Rentals

As with most things in life, there are pros and cons to short-term vacation rentals. For example, the rentals potentially could impact FHA insured mortgages and attempts by the condominium association from obtaining FHA certification. On the other hand, the rentals could bring in much needed revenue to the local economy, prevent potential member delinquencies that would require the association to spend funds that it may never recoup or short-term vacation rentals may be the intended purpose behind the creation of the community.

In addition to examining whether to allow or not allow short-term vacation rentals, a question remains as to what could be considered short-term vacation rental to be deemed commercial activity.  Ordinarily, short-term vacation rentals are found to be transient in nature, meaning thirty days or less.  However, could there be a potential to address leases/rentals that are greater than 30 days but less than 6 months (a typical minimum allowed time frame for leases/rentals found in condominium bylaws and declarations).  Can there be an outright ban on vacation rentals no matter the length of the lease?

Conclusion

If your association has not done so already after reading the blog article on Airbnb, the Bauckham opinion may be just the impetus for the membership to determine its view of short-term vacation rentals within the community, any current potential impacts, the future potential impacts, if any, whether there are any current short-term vacation rentals in the community and whether the current documents address the current and future short-term vacation rentals within the community.   Accordingly, by exploring the issues today, you can avoid potential problems that may arise with short-term vacation rentals in the future.  As Mahatma Gandhi said, “The future depends on what you do today.”

 

William Z. Kolobaric is an attorney with the law firm of Cummings, McClorey, Davis & Acho, P.L.C. where he focuses his practice on community association law, construction law, real estate law, creditor’s rights in bankruptcy and probate and estate planning. He has extensive experience in state and federal courts involving a wide scope of real estate, commercial litigation and creditor’s rights matters. He can be reached at (734) 261-2400 or wkolobaric@cmda-law.com. Please view The Michigan Community Association Law Blog at http://www.micondolaw.com for additional resources on Michigan Community Association Law.

 

[1] There was no authoritative governing association of owners created for the Sunset Shores Subdivision.  Thus, individual owners of lots within the subdivision brought the lawsuit alleging defendants violated the deed restrictions.

[2] Defendants are owners of lots within the Sunset Shores Subdivision.

[3] The Defendants have appealed the Court’s opinions so there may be binding authority in the future if the Court of Appeals issues a published opinion on the matter. (Court of Appeals Case No. 332643).