Restrictive Covenants Limiting Short-Term Rentals

In Eager v. Kaurich Trust, (Mich. App. No. 336460, Nov. 30, 2017, unpublished), a property owner sought to enjoin a neighbor from renting out a lake house for short-term use, arguing that the rental violated the subdivision’s restrictive covenants. The trial court denied the request, finding that the restrictions’ limitations on the use to “private occupancy” and prohibitions on “commercial use” were ambiguous.
The Michigan Court of Appeals reversed, finding that the rental violated the restrictions because the terms “private occupancy only” and “private dwelling” were unambiguous. The defendant did not reside at the property and rented it to a wide variety of groups after advertising on at least one worldwide rental site for rentals throughout the year. Separately, the Court of Appeals held that a short-term rental constitutes a commercial use without regard to the separate determination of what constitutes a “private occupancy” or “private dwelling,” relying on the Michigan Supreme Court’s prior jurisprudence on the definition of “commercial” in Terrien v. Zwit, 467 Mich. 56 (2002). Terrien held that the act of renting property for short-term use is a commercial use even if the activity is residential in nature.
Recently, the Michigan House introduced HB 4503 that, if passed, would legislatively trump an association’s restrictions on rentals of less than 28 days by declaring that these uses are residential and not commercial. It would also deem short-term rentals a permitted use in any residential zone and not subject to any special or conditional land use permits.
Practice Tip: Many clients are converting long-term rentals to vacation rentals because of the popularity of companies such as Airbnb and HomeAway. Attorneys advising their clients should review all deed restrictions carefully, and also keep an eye on HB 4503’s progress, especially in the Legislature’s lame duck session.