Lee Dunham—Senior Attorney
In the wake of the rise of online vacation rental platforms like Airbnb and VRBO, the modern trend in drafting restrictive covenants for planned communities or condominiums is to include a provision specifically addressing whether, and under what conditions, short-term rentals will be permitted. Older covenants, however, did not contemplate the widespread use of properties as short-term rentals, and typically contain only broad provisions restricting the properties to “residential use,” or limiting “commercial” or “business” use.
States are divided on the issue of whether use as a short-term rental violates such a commercial use prohibition, but the clear majority view is that it does not, unless the covenants specify rental duration terms or clearly articulate a prohibition against rentals of any duration. See, e.g., Slaby v. Mountain River Estates Residential Ass'n, Inc., 100 So. 3d 569 (Ala. Civ. App. 2012); Vera Lee Angel Revocable Tr. v. Jim O'Bryant & Kay O'Bryant Joint Revocable Tr., 2018 Ark. 38, 537 S.W.3d 254; Houston v. Wilson Mesa Ranch Homeowners Ass'n, Inc., 2015 COA 113, 360 P.3d 255; Wihbey v. Zoning Bd. of Appeals of the Pine Orchard Ass'n, 350 Conn. 87, 91, 323 A.3d 324, 326 (2024); Santa Monica Beach Prop. Owners Ass’n v. Acord, 219 So. 3d 111 (Fla. Dist. Ct. App. 2017); Grave de Peralta v. Blackberry Mountain Ass'n, Inc., 315 Ga. App. 315, 726 S.E.2d 789 (2012); Hiner v. Hoffman, 90 Haw. 188, 977 P.2d 878 (1999); Roaring Lion, LLC v. Exclusive Resorts PBL1, LLC, No. CAAP-11-0001072, 2013 Haw. App. LEXIS 231, 2013 WL 1759002 (Apr. 24, 2013) (unpublished opinion); Pinehaven Planning Bd. v. Brooks, 138 Idaho 826, 70 P.3d 664, 668 (2003); Wood v. Evergreen Condo. Ass'n, 2021 IL App (1st) 200687, 454 Ill. Dec. 484, 189 N.E.3d 1045, 1052, appeal denied, 451 Ill. Dec. 444, 183 N.E.3d 901 (2021); Applegate v. Colucci, 908 N.E.2d 1214 (Ind. Ct. App. 2009); Lowden v. Bosley, 395 Md. 58, 909 A.2d 261 (2006); Lake Serene Prop. Owners Ass'n Inc. v. Esplin, 334 So 3d 1139 (Miss. 2022); Mullin v. Silvercreek Condo., Owner's Ass'n, Inc., 195 S.W.3d 484 (Mo. Ct. App. 2006); Craig Tracts Homeowners' Ass'n, Inc. v. Brown Drake, LLC, 2020 MT 305, 402 Mont. 223, 477 P.3d 283 (Cf. Brandt v. R&R Mt. Escapes, LLC, 2025 MT 155, ¶ 1, 423 Mont. 100, 102, 572 P.3d 809 [prohibiting a short-term rental where, unlike in Craig Tracts, where only a "residential purpose" covenant was at issue, multiple covenants together clearly indicated the intent to prohibit commercial short-term rentals].); Elk Point Country Club Homeowners' Ass'n, Inc. v. K.J. Brown, LLC, 515 P.3d 837 (Nev. 2022); Town of Conway v. Kudrick, 175 N.H. 714 (2023); Mason Family Tr. v. Devaney, 2009-NMCA-048, 146 N.M. 199, 207 P.3d 1176; Russell v. Donaldson, 222 N.C. App. 702, 731 S.E.2d 535 (2012); Kinzel v. Ebner, 2020-Ohio-4165, 157 N.E.3d 898 (Ct. App.); Graham v. Reynolds, 2024 OK CIV APP 26, ¶ 18, 560 P.3d 51; Yogman v. Parrott, 325 Or. 358, 937 P.2d 1019 (1997); Cmty. Servs. Assocs., Inc. v. Wall, 421 S.C. 575, 808 S.E.2d 831 (Ct. App. 2017); Wilson v. Maynard, 2021 SD 37, 961 N.W.2d 596; Pandharipande v. FSD Corp., 679 S.W.3d 610 (Tenn. 2023); JBrice Holdings, L.L.C. v. Wilcrest Walk Townhomes Ass'n, Inc., 644 S.W.3d 179 (Tex. 2022); Scott v. Walker, 274 Va. 209, 645 S.E.2d 278 (2007); Wilkinson v. Chiwawa Comtys. Ass'n, 180 Wn. 2d 241, 327 P.3d 614 (2014); Forshee v. Neuschwander, 2017 WI App 43, 377 Wis. 2d 162, 900 N.W.2d 100.
In the handful cases in which courts have found that a short-term rental does violate a commercial use restriction, courts have focused on, or at least noted, the income-earning aspect of the transaction, as well as the frequency with which the property was rented. In Edwards v. Landry Chalet Rentals, LLC, 51,883 (La. App. 2 Cir. 02/28/18), 246 So. 3d 754, writ denied, 2018-0502 (La. 06/01/18), 244 So. 3d 437, the court found that a lakefront property owner violated a subdivision covenant prohibiting use of the property for “any commercial purposes” where the owner was a limited liability company, advertised the property on a vacation rental website, insured it with a commercial insurance policy, and leased it to 43 different occupants for approximately four nights on average over a two-year period, earning over $53,000.
In Eager v. Peasley, 322 Mich. App. 174, 911 N.W.2d 470 (2017), the court held that the transient use of a lakefront property for short-term rentals violated restrictive covenant barring “commercial use,” and discussed the significance of income earned by the owner in characterizing it as a commercial endeavor.
In Hensley v. Gadd, 560 S.W.3d 516, 519 (Ky. 2018), the court deemed the use of a property for vacation rental at $300 to $375 per night to violate a restriction on business use, where the owner had registered his business as a “hotel” and collected taxes accordingly from guests, and single-night rentals brought the use within the definition of a “hotel” under Kentucky law.
Finally, in Morgan v. Townsend, 2023 ME 62, ¶ 32, 302 A.3d 30, 40, the frequency of rentals was a determinative factor in the court’s finding that the owner’s short-term rentals were a business use: “A household that puts items in the driveway to sell on one Saturday is holding a garage sale; a household that does it every Saturday is operating a flea market business.… [Defendant’s] pattern of use, maintenance, advertising, and holding out of his property brings his rentals squarely within the definition of a business, such as a ‘hotel.’”
In the jurisdictions that have not clearly found that a short-term rental qualifies as a “residential use,” counsel advising prospective short-term landlords should inquire thoroughly into the facts, including the planned frequency of rentals and the tax and financial structure of the operation. Clients should be informed that operating the rental in a more “businesslike” fashion, under an LLC or other business entity, registered as a “hotel” or other business, with regular advertising, substantial profits, or frequent guest turnover, is more likely to result in their short-term rental being deemed impermissible under a Condominium Owners Association or Homeowners Association residential-use-only restriction.
