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    Property Law Legal Research Blog

    Do Short-Term Vacation Rentals Violate Covenant Prohibiting Commercial Activity or Use?

    Posted by Alistair D. Edwards on Tue, Oct 16, 2018 @ 11:10 AM

    Alistair Edwards—Senior Attorney, National Legal Research Group

                Short-term vacation rentals have become increasingly popular and easier to obtain with the advent of websites such as Airbnb. Now, an owner can simply use such a website to attract potential renters and lease the property to vacationers on a very short-term basis. Some of these rentals can be as short as a one- or two-day rental. However, owners of residential properties that are subject to restrictive covenants are often prohibited from using their properties for commercial activities, uses, or purposes. Does this include renting the property to vacationers on a short-term basis?

            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.

    Topics: property law, short-term vacation rental, restrictive covenant, commercial activity use

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