Michigan Court of Appeals affirms that short-term rentals violate HOA residential use restrictions

In Cherry Home Association v. Keith Barker, et. al., unpublished opinion of the Court of Appeals, issued October 21, 2021 (Docket No. 354841), the Michigan Court of Appeals upheld the Leelanau County Circuit Court’s ruling that frequent short-term rentals violated the residential use restrictions contained in the deed restriction for the homeowners association.  The Court of Appeals also concluded that the anti-waiver provisions of the HOA declaration, as well as the facts proven at trial, precluded the property owners from arguing that the restrictions were unenforceable due to waiver.

Learn About the Facts

The lots in Cherry Home Community were subject to a declaration of covenants and restrictions drafted recorded in the Leelanau County register of deeds on August 27, 1965. The declaration states, in part:

WHEREAS, Developer is the owner of the real property described in Article II of this declaration and desires to create thereon a residential community with permanent parks, playgrounds, open space, and other common facilities for the benefit of said community; and

* * *

WHEREAS, Developer has deemed it desirable, for the efficient preservation of the values and amenities in said community, to create an agency to which should be delegated and assigned the powers of maintaining and administering the community properties and facilities and administering and enforcing the covenants and restrictions and collection and disbursing the assessments and charges hereinafter created; and

WHEREAS, Developer will cause to be incorporated under the laws of the State of Michigan, as a non-profit corporation, THE CHERRY HOME ASSOCIATION, for the purpose of exercising the functions aforesaid;

NOW THEREFORE, the Developer declares that the real property described in Article II, and such additions thereto as may hereafter be made pursuant to Article II hereof, is and shall be held, transferred, sold, conveyed and occupied subject to the covenants, restrictions, easements, charges and liens (sometimes referred to as “covenants and restrictions”) hereinafter set forth.

Article VII of the declaration is entitled “Building and Use Limitations.” Section 1 states, in relevant part, as follows:

All land which is subject to this Declaration shall be limited to residential use. No building shall be erected, altered, placed or permitted to remain on any property other than a one family dwelling and private garage or outbuildings incidental thereto.

Section 5 states as follows:

Variance. 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. Any reasonable change, modification or addition to the foregoing shall be considered by the Developer and the Association and if so approved will then be submitted in writing to the abutting property owners and if so consented to in writing shall be recorded and when recorded shall be as binding as the original Covenants.

Article VIII of the declaration states in § 1, in part, that “[t]he 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.” Section 4 states:

Enforcement of these covenants and restrictions shall be by any proceeding at law or in equity against any person or persons violation 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.

Following a bench trial, the trial court ruled that the defendants’ property was not used for a residential purpose, but instead, was used for a commercial purpose as a rental property. The trial court explained that “when you put [a property] on a[n online] platform offering it to the public at large … the purpose of that is raising money, it is not for a residential purpose.” Next, the trial court rejected defendants’ waiver argument, stating that plaintiff did not waive enforcement of the covenant merely because it did not enforce it “every time” there was a short-term rental. Moreover, there was an antiwaiver clause in the declaration, “which says that failure to enforce these provisions … in one instance[ ] does not prevent enforcement” in a later situation. Accordingly, the trial issued an injunction prohibiting the defendants from renting their property for a term of six months or less.

Residental Use Restrictions Prohibited Short-Term Rentals

On appeal, the property owners argued that the HOA declaration did not explicitly prohibit short-term rentals as it only contained a “residential use” restriction. In rejecting this argument, the Court of Appeals started by analyzing prior Michigan case law on short-term rentals as follows:

Here, the plain language of the declaration clearly restricts the use of the lots in Cherry Home to residential use. The meaning of “residential” in a restrictive covenant is not a novel issue, but does require a fact-specific inquiry into the use. Wood v Blancke, 304 Mich 283, 289; 8 NW2d 67 (1943). In Wood, the plaintiffs owned subdivision lots and brought suit to enjoin the defendant lot owners from keeping, housing, or breeding racing pigeons upon their lots in alleged violation of a restrictive covenant in a deed restricting the use of lots for residence purposes only. Id. at 285-287. The Court concluded that incidental uses to a prescribed residential use may not violate the covenant if the use was “casual, infrequent, or unobtrusive and result[ed] in neither appreciable damage to neighboring property nor inconvenience, annoyance, or discomfort to neighboring residents.” Id. at 288-289…..The Court concluded that the maintenance and breeding of a flock of racing pigeons was not the usual, ordinary, or incidental use of one’s property for “residence purposes only”…

…In O’Connor, 459 Mich 335, the use and character restrictions provided: “ ‘No lot shall be used except for residential purposes. No building shall be erected, altered, placed or permitted to remain on any lot other than for the purpose of one single dwelling not to exceed two stories in height.’ ” Id. at 337. The Court concluded that “interval ownership” or “timesharing arrangements” violated the restriction. Id. at 337, 346….The Court then turned to the term “residential purpose” and adopted as its own the trial court’s analysis, which was as follows:

[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 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 any time 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. [Id. at 346 (quotation marks omitted).

In applying the above cases to situation in Cherry Home, the Court stated that:

By limiting use to residential use, the restriction emphasizes that the lots may only be used for this purpose. Accordingly, the trial court properly applied the O’Connor definition of residence in this case. To conform with the residential use restriction, the use must have been more than transitory, evidencing an intent to establish a permanence to the occupants’ presence there. O’Connor, 459 Mich at 345. The weekly rentals in defendants’ case do not establish the type of permanence needed to establish residential use. The evidence overwhelmingly showed that defendants’ property had been used only for short-term rentals. The property was marketed through a company that advertised vacation rentals on various websites. Defendants do not reside at the property. The renters are transient guests who typically vacation at Serendipity for up to a week. Indeed, the trial court found that defendants’ use of their property as a short-term rental is not a residential use, and defendants do not seem to dispute that short-term renting is not a residential use.

…And contrary to defendants’ suggestion, the trial court’s ruling did not “prohibit [defendants’] [short-term rental activity], but open the door to more ‘residential’ friendly [short-term rental] activity.” Rather, the court enjoined defendants from renting the property for a period less than six continuous months, presumably on the basis that such a rental is not a transient use but, rather, a residential use. The trial court’s decision to bar defendants’ short-term rental activity and to allow rental activity for continuous periods of six months or more was not outside the range of principled outcomes.

Accordingly, based on the fact of the case, the Court of Appeals affirmed the injunction that prohibited short-term rentals for a period less than six continuous months.

Waiver of the HOA Deed Restrictions

On appeal, the property owners also argued that the homeowners association waived the deed restrictions by failing to consistently enforce the recorded covenants. In rejecting this argument, the Court of Appeals relied on the anti-waiver clause in the declaration, and stated as follows:

….the declaration contains an antiwaiver provision in Article VIII, § 4, that states that “failure by [plaintiff] 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.” Under the plain language of the declaration’s antiwaiver provision, the fact that plaintiff may not have enforced the restriction on residential use by acting to stop the use of short-term rental activity does not prohibit plaintiff from doing so now. The antiwaiver clause in the declaration provides plaintiff with the authority to enforce the declaration, even if prior or current board members failed to do so.

Similarly, even if the anti-waiver clause was not applicable, the Court of Appeals determined that the property owner failed to demonstrate waiver. The Court of Appeals set forth the standard for waiver as follows:

Whether a restriction has been waived is a question to be determined on the facts of each case presented. O’Connor, 459 Mich at 344….“The character, as well as the number, of claimed violations must be considered in determining whether the complaining property owners have waived or forfeited the benefit of the restriction.” Id. “There is no waiver where the character of the neighborhood intended and fixed by the restrictions remains unchanged.” Rofe v Robinson (After Second Remand), 126 Mich App 151, 155; 336 NW2d 778 (1983). In other words, waiver might occur if unaddressed violations effectively destroy the purpose of the restriction. See O’Connor, 459 Mich at 346.

Additionally, when a plaintiff has not challenged previous violations of a deed restriction, the restriction “ ‘does not thereby become void and unenforceable when a violation of a more serious and damaging degree occurs.’ ” Bloomfield Estates, 479 Mich at 219, quoting Jeffery v Lathrup, 363 Mich 15, 22; 108 NW2d 827 (1961).

            In analyzing the facts of this case, the Court of Appeals stated that:

…the testimony established that the short-term rental of property in Cherry Home was not widespread and that Cherry Home was primarily a neighborhood of primary or second homes for members. Many members were unaware that short-term rental activity had been taking place over the years. None of the witnesses who engaged in short-term rental activity testified that they informed plaintiff of their rental activity. Testimony was presented that plaintiff, or at least some of plaintiff’s board members, were aware that some members had been using their property for short-term rental purposes. However, the testimony established that short-term renting was infrequent and casual, and that few, if any, complaints regarding rental activity had been brought to plaintiff’s attention by lot owners. It may be that plaintiff’s enforcement of violations of the declaration had been carried on in an informal manner as some witnesses suggested.

There was ample testimony at trial, however, that short-term rental activity began to increase with the advent of online rental platforms such as Vacation Up North, Airbnb, and VRBO, and that plaintiff began to receive numerous complaints from defendants’ neighbors associated with the increased short-term rental activity, including increased noise and traffic, trespassing, loose and barking dogs, and unauthorized use of private Cherry Home amenities, among other complaints. Although there was testimony involving other members renting their homes, these instances were not as serious or damaging to the neighborhood as defendants’ short-term rental activity. And, contrary to defendants’ suggestion, the evidence does not support that the character of Cherry Home was one of short-term rentals such that the residential use restriction provided little or no benefit to the other property owners in Cherry Hill.

Accordingly, the Court of Appeals affirmed the trial court’s ruling that waiver had not been established.

Conclusion of the Court Appeals

Cherry Home Association v. Keith Barker, et. al., unpublished opinion of the Court of Appeals, issued October 21, 2021 (Docket No. 354841) is an important case as it re-affirms the Court of Appeals enforcement of residential use restrictions to ban short-term rentals. This case is somewhat unique as the declaration did not contain a commercial use restriction or a specific deed restriction regarding short-term rentals.  Based on pending legislation regarding short-term rentals, deed restrictions will likely take on a more important role in banning short-term rentals.  The Michigan House of Representatives recently voted to bar municipalities from completely banning short-term rentals through platforms such as Airbnb or VRBO.  Specifically, HB 4722 would amend the Michigan Zoning Enabling Act to prevent Michigan municipalities from completely zoning out short-term rentals.  Accordingly, Michigan condominium associations and homeowners associations should review their governing documents to ensure that they contain adequate protections against short-term rentals if HB 4722 becomes law.

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 law 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. Mr. Hirzel has been recognized as a Michigan Super Lawyer’s Rising Star in Real Estate Law by Super Lawyers Magazine, a Leading Lawyer in Condominium & HOA law by Leading Lawyers Magazine from 2018-2020, and as a Best Lawyer in Real Estate Law by U.S News and World Report’s Best Lawyers Publication. 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 kevin@hirzellaw.com.

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