The Lawletter Vol 47 No 2
It is not unusual for homes in a subdivision to be subject to restrictive covenants limiting the owners’ use of their property to residential purposes and/or prohibiting the use of the property for commercial, trade, or business purposes. This sort of restriction can also be found in instruments such as declarations governing condominium or townhouse communities. With the increasing popularity of programs such as VRBO and Airbnb, numerous courts have recently dealt with the issue of whether these so-called short-term rentals violate these sort of use restrictions. So far, the courts, strictly construing the covenants, have been fairly hesitant to find a violation.
For example, recently in Lake Serene Property Owners Association v. Esplin, No. 2020-CA-00689-SCT, 2022 WL 713417 (Miss. Mar. 10, 2022), the Mississippi Supreme Court held that a homeowner's use of his property for short-term rentals was a “residential use” and, thus, did not violate the restrictive covenants governing the subdivision and limiting use to residential use. The court emphasized that the property was being used as a place of abode, the house was rented anywhere from one day to thirty days, the renters used the property to eat, sleep, and bathe, all commercial activity and exchange of funds occurred online and not on the property, and there were no signs or offices located on the property. To support its decision, the court cited decisions from several other states including Alabama, Florida, and Texas. See Santa Monica Beach Prop. Owners Ass'n v. Acord, 219 So. 3d 111 (Fla. Dist. Ct. App. 2017).
However, not every court that has dealt with this issue has permitted these short-term rentals to prevail over these types of restrictions. For example, in Wood v. Evergreen Condominium Association, 2021 IL App (1st) 200687, appeal denied, No. 127545, 2021 WL 6500616 (Ill. Nov. 24, 2021), an Illinois appellate court held that the owner’s use of her condominium unit for a short-term rental (the owner was using Airbnb) constituted a business in violation of the section of the declaration which prohibited the use of units for business. The court explained that “[the owner] is engaged in a business enterprise in that she is providing her short-term renters with a service and a product—use of her unit as an accommodation—in exchange for payment.” Id. ¶ 36. Interestingly, in that case, the court held that the owner was not violating the restriction in the declaration prohibiting leasing, because it considered the Airbnb arrangement to be a license agreement and not a lease agreement. However, the owner could not overcome the business restriction.