HIRZEL LAW WINS ZOOM BENCH TRIAL! COURT HOLDS THAT EXTENSIVE SHORT-TERM RENTALS VIOLATED RESIDENTIAL USE RESTRICTIONS

Kevin Hirzel, Kayleigh Long and Michael McCulloch of Hirzel Law, PLC represented the Cherry Home Association in this case.

In Cherry Home Association v. Keith Barker, et. al., the Leelanau County Circuit Court held that several lot owners violated residential use restrictions by engaging in extensive online short-term rentals.  After holding one of the first zoom bench trials in the history of the Leelanau County, on August 26, 2020 the trial court determined that extensive short-term rentals did not constitute “residential use” as defined by the declaration and granted an injunction in favor of the homeowners associations that prevented rentals that were less than six (6) months without permission from the court. 

Facts

The Cherry Home Association was responsible for enforcing the restrictive covenants that were recorded against lots contained in Cherry Home Subdivision #1, Cherry Home Subdivision No. 2, Cherry Home Shores, Cherry Home Shores #2, Cherry Home Shores #3 and Cherry Home Shores #4 (collectively, the “Cherry Home Community”).  The lots were subject to the following restrictive covenants:

  • Article VII, Section 1 of the Declaration states. “Residential Use. All land which is subject to this Declaration shall be limited to residential use.
  • Article VII, Section 5 of the Declaration states, in pertinent part, the following:

The purpose of the foregoing Building and Use Limitations being to insure the use of the properties for attractive residential uses, to prevent nuisances, to prevent impairment of the attractiveness of the property, to maintain the desirability of the community and thereby secure to each owner the full benefits and enjoyments to his home with no greater restriction upon the free and undisturbed use of his property than are necessary to insure the same advantages to other owners.

  • Article VIII, Section 1 of the Declaration states, in pertinent part, the following:

The covenants and restrictions of this Declaration shall run with and bind the land and shall inure to the benefit of and be enforceable by the Association, or the owner of any land subject to this Declaration, their respective legal representatives, heirs, successors and assigns….

  • Article VIII, Section 3 of the Declaration states, in pertinent part, that the “failure by the Association or any owner to enforce any covenant or restriction herein contained shall in no event be deemed a waiver of the right to do so thereafter.”
  • Article VIII, Section 4 of the Declaration states the following:

Enforcement of these covenants and restrictions shall be by any proceeding at law or in equity against any person or persons violating or attempting to violate any covenant or restriction, either to restrain violation or to recover damages, and against the land to enforce any lien created by these covenants; and failure by the Association or any owner to enforce any covenant or restriction herein contained shall in no event be deemed a waiver of the right to do so thereafter.

            The trial court determined that the defendant lot owners had engaged in extensive short-term rentals through AirBnB, VBRO and other online platforms on a daily basis for several years.  The trial court determined that these rentals were offered for rent to the public at large in exchange for money.  Finally, the court determined that numerous renters were on small lots and that such rentals often caused disruption in the Cherry Home Community.

Ruling

            In defining what constituted “residential use” under the Declaration, the trial court relied “O’Connor v Resort Custom Builders, Inc, 459 Mich 335, 345–46; 591 NW2d 216, 220–21 (1999), which provides in pertinent part:

Proceeding on that basis, we return to the trial court’s analysis. We conclude that its reasoning is sound, and adopt it as our own:

[W]hat’s a residential purpose is the question. Well, a residence most narrowly defined can be a place which would be one place where a person lives as their permanent home, and by that standard people could have only one residence, or the summer cottage could not be a residence, the summer home at Shanty Creek could not be a residence if the principal residence, the place where they permanently reside, their domicile is in some other location, but I think residential purposes for these uses is a little broader than that. It is a place where someone lives, and has a permanent presence, if you will, as a resident, whether they are physically there or not. Their belongings are there. They store their golf clubs, their ski equipment, the old radio, whatever they want. It is another residence for them, and it has a permanence to it, and a continuity of presence, if you will, that makes it a residence.

The trial court then correctly determined that interval ownership did not constitute a residential purpose under the circumstances of this case:

I don’t think that’s true of weekly—of timeshare units on a weekly basis of the kind, at least, of the kind being discussed here, which includes trading, and is a traditional—usually associated with condominiums, but in this case happens to be instead of an apartment happens to be a building that is a single family building other than this arrangement for its joint ownership by, at least, up to forty-eight people in this case. The people who occupy it, or who have these weekly interests in this property, they have the right to occupy it for one week each year, but they don’t have any rights, any occupancy right, other than that one week. They don’t have the right to come whenever they want to, for example, or to leave belongings there because the next resident, who is a one-fiftieth or one forty-eighth co-owner has a right to occupy the place, too, and the weekly owner has no right to be at the residence at anytime other than during their one week that they have purchased. That is not a residence. That is too temporary. There is no permanence to the presence, either psychologically or physically at that location, and so I deem that the division of the home into one-week timeshare intervals as not being for residential purposes as that term is used in these building and use restrictions….

            While the defendants argued that they were not successful in turning a profit from the short-term rentals, the trial court determined that turning a profit was not the test as to what constituted residential use.  The court determined that while tax returns reflected a loss, this was inconsequential as the fact that the lots were being extensively rented on a short-term basis in exchange for money was sufficient to violate the residential use restriction.

            Similarly, the trial court determined that the affirmative defenses of waiver, estoppel and laches had not been established.  The court determined that these defenses had not been established factually, as there has been a significant increase in short-term rentals in recent years and that prior informal enforcement of the Declaration by the homeowner’s association had produced results.  Accordingly, the court relied on  Taylor Ave Imp Ass’n v Detroit Tr. Co, 283 Mich 304, 312; 278 NW 75, 78 (1938) for the proposition that there had not been a significant change in the characteristics of the Cherry Home Community. 

However, the court also relied on Article VIII, Section 3 of the Declaration and determined that the anti-waiver clause of the Declaration was enforceable  The court relied on Dearborn West Village Condo Ass’n v Makki, unpublished per curiam opinion of the Court of Appeals, issued Jan 3, 2019 (Docket No. 340166), p 3 (Ex. 36) (“The anti-waiver clause in the bylaws provides plaintiff with the authority to enforce its bylaws, even if co-owners or a prior board of directors failed to do so….”) and Fox Pointe Ass’n v Ryal, unpublished per curiam opinion of the Court of Appeals, issued Oct 30, 2019 (Docket No. 344232), p 4 (Ex. 37) (“But Article 6.10(c) of the bylaws provides: ‘The failure of the Association to enforce any right, provision, covenant or condition which is granted by the Condominium Documents shall not constitute a waiver of the right of the Association to enforce such right, provision, covenant or condition in the future’. Ryal is bound by the bylaws. Accordingly, we reject Ryal’s waiver argument.”).  Accordingly, the defendants’ argument that some short-term rentals had previously occurred was insufficient to establish waiver, estoppel or laches.

Conclusion

               Cases that involve the enforcement of short-term rental restrictions are highly fact specific.  In Cherry Home Association v. Keith Barker, et. al., the Leelanau County Circuit granted an injunction in favor of the homeowners associations that prevented rentals that were less than six (6) months without permission from the court based on a residential use restriction.  Specifically, the court determined that the lot owners had violated the residential use restrictions contained in Article VII, Section 1 of the Declaration based on the facts of this case. Accordingly, homeowner associations that have residential use restrictions should ensure that such restrictions are properly enforced as short-term rentals via online platforms continue to grow in popularity.

Kevin Hirzel is the Managing Member of Hirzel Law, PLC and concentrates his practice on commercial litigation, community association law, condominium law, Fair Housing Act compliance, homeowners association and real estate law. Mr. Hirzel is a fellow in the College of Community Association Lawyers, a prestigious designation given to less than 175 attorneys in the country. He is also a member of the Community Associations Institute’s (“CAI”) National Board of Trustees. Mr. Hirzel has been a Michigan Super Lawyer’s Rising Star in Real Estate Law from 2013-2020, an award given to only 2.5% of the attorneys in Michigan each year. Mr. Hirzel has been named a Leading Lawyer in Condominium & HOA law by Leading Lawyers Magazine from 2018-2020, an award given to less than 5% of the attorneys in Michigan each year. He represents community associations, condominium associations, cooperatives, homeowners associations, property owners and property managers throughout Michigan. He may be reached at (248) 450-0339 or [email protected].