Deed restrictions could hurt Michigan’s vacation industry
If you — like many Michiganders — rent your vacation home from time to time, make sure you consider the potential impact that deed restrictions may have on your right to continue using your property as a vacation rental.
Failure to do so could result in costly litigation or other demands from neighbors or associations, which ultimately could threaten your ability to enjoy the full use of your property.
Take, for example, a couple who owned a cottage in northern Michigan. The couple entered into an agreement with a rental agency and occasionally rented their summer cottage to vacationers for periods of typically a week or less.
No big deal, right? Not so fast, the neighborhood association argued. The group took the couple to court, seeking to end their use of the cottage as a vacation rental — and won.
In suing the couple, the neighborhood association cited a deed restriction that, it argued, prohibited “commercial” uses in its cottage neighborhood. The association claimed that renting to vacationers was a “commercial use”that was in direct violation of the prohibition against commercial uses contained in the deed restrictions.
The case then went before the Michigan Court of Appeals, which ruled against the couple. The court held that renting a summer cottage to individuals as a vacation home violated a property deed restriction that prohibits such “commercial” use.
The Court of Appeals reasoned that including vacation rentals within the ambit of a commercial purpose restriction was bolstered by the “clear intent” of the drafters of the deed to restrict the use of the property to private residential use. Private residential use, the court concluded, did not include private residential use by renters.
Interestingly, the Michigan Supreme Court previously considered restrictions similar to those in this case in the context of commercial use and prohibited activities that most would consider more typically “commercial,” such as daycare operations and operating a convalescent home. Those cases involved the operation of actual businesses in a residential area, not the mere renting of residential properties by individuals to vacationers.
The decision in the northern Michigan couple’s case also runs contrary to the emerging national trend. Recent court rulings in other states have found that renting to vacationers is not a commercial use and that vacationers use the property in the same manner as other residents.
From Copper Harbor to Saugatuck and all points in between, Michigan’s vacation rental business is booming — thanks to thousands of Michiganders and visitors who want to experience those Pure Michigan moments. Don’t think for a second it’s just the vacation home renters who benefit. The towns that make up vacation rental spots — many of them small — depend on tourists to keep their economies going.
But it’s not just local economies in jeopardy of losing big if the ruling in the northern Michigan couple’s case is affirmed by other courts. This could threaten our state’s vacation rental market, putting it at risk of being shut down under a broad characterization of the term “commercial use.”
So, what can property owners learn from this case?
Read your deed carefully and get a legal review of it to ensure you are aware of any limitations that might prevent you from renting your property. This is a surefire way to minimize surprises and make sure you’re not putting yourself in a situation that could land you in court.
What can prospective property owners do?
Consider whether you plan to rent your vacation home before purchasing it. If the answer is yes, make sure the property deed does not restrict this use — a legal review of the document will help you determine this.
As this case demonstrates, the devil certainly is in the deed-tails.
Brian T. Lang is a partner and litigator at Warner Norcross & Judd LLP who concentrates his practice in real estate and commercial litigation. He chairs the Real Estate Litigation Practice Group and can be reached at firstname.lastname@example.org.