The Lawletter Vol 43 No 5
Recently, in Forshee v. Neuschwander, 2018 WI 62, 914 N.W.2d 643 (Wyo. 2018), the Wisconsin Supreme Court considered this exact issue. There, the defendants owned a large house on Hayward Lake in Hayward, Wisconsin. After renovating the house, the defendants began to rent it to vacationers on short-term and long-term bases. Several neighboring property owners objected to the use of the property as a vacation rental and filed suit. The plaintiffs relied on a restrictive covenant that encumbered all of the lots in the subdivision. In particular, the restrictive covenant provided that “[t]here shall be no commercial activity allowed on any of said lots.” Id. & 4, 914 S.W.2d at 761. Finding that the term “commercial activity”—left undefined in the covenant—to be ambiguous, the court held the defendant’s short-term rentals (and long-term rentals) did not violate the covenant:
We conclude that the term, “commercial activity,” which is undefined in the covenant, is ambiguous. Therefore, we narrowly interpret it and conclude that it does not preclude either short-term or long-term rentals of Neuschwanders' property.
Id. ¶ 3, 914 N.W.2d at 761. However, it should also be noted that the lead opinion did not command a majority of the Wisconsin Supreme Court. A concurring justice found that the term was unambiguous and that the only activity that occurred on the property was residential rather than commercial in nature. A second concurrence also found that the covenant was unambiguous in that there was no commercial activity “on any” lot. A dissent concluded that short-term vacation rentals constituted commercial activity prohibited by the covenant.
Therefore, in order to ensure that short-term rentals are prohibited, the drafter of a restrictive covenant should include language expressly prohibiting short-term
rentals. It may not be sufficient to simply prohibit commercial activities or uses.