The Michigan Court of Appeals has published a 2-1 split decision, Eager v. Peasley, Mich App N.W.2d, 2017 WL 5907310, confirming that short-term rentals (generally understood to be for a term less than one month) constitute violations of “commercial use” prohibitions in deed restrictions. Previously, there were unpublished decisions to this effect, but a published decision establishes binding precedent which lower courts must follow. The restrictions in question also restricted use of the property to “private occupancy only” and a “private dwelling”, which also unambiguously prohibit short-term rentals, according to the majority opinion.
Can you hear Airbnb screaming, too?
The dissent is notable for its survey of similar published decisions from many other states that have come to the opposite conclusion regarding commercial/residential use restrictions, showing that Michigan might be considered an outlier on this question. The dissent also raises excellent points in that well-established common-law principles require that courts must not “…lightly restrict the free use of property, that a restrictive covenant is to be strictly construed against the would-be enforcer, and that all doubts as to the construction of a restrictive covenant must be resolved in favor of the free use of property.” But the majority opinion claims there is absolutely no ambiguity to the terms in question.
Generally speaking, when courts decide to focus on how the property is used by the tenant (sleeping, eating, personal enjoyment of the property), they tend to find that there is no violation; when they decide to focus on how the property is used by the owner (advertising, earning a profit, providing third-party services in connection with the rental), they tend to find that there is a violation.
So, what does this mean for your association? It may be too early to say for sure – it’s possible that at some point in the future, a similar case may reach the Michigan Supreme Court. It’s likely not yet advisable to rely solely on your “commercial use” prohibition to demand that someone cease and desist from short-term renting, and you should propose amendment of your governing documents to specifically prohibit same if you believe it is in the association’s best interest to do so.
We also know that some associations have both a commercial use prohibition and an additional provision specifically allowing short-term rentals. While it now might be argued that a conflict exists between those provisions, there is a concept in contract law that favors specific provisions over general provisions. This means that your short-term rental provision is likely not automatically voided by Eager v. Peasley, as in that case, there was no provision specifically allowing short-term rentals.
