New Case May Impact Vacation Rental Market in Michigan
I am a big fan of renting properties for vacation (especially in Northern Michigan), but the market may be shrinking due to a recently published opinion by the Michigan Court of Appeals. In Eager v Peasley, --- Mich App ---; 2017 WL 5907310 (2017), Donald and Carol Eager filed a lawsuit to stop Cecilia Peasley from renting her lake house on Hubbard Lake. Ms. Peasley did not reside in the property, but she rented to a variety of groups, including tourists, hunters, and business groups, using www.homeaway.com to advertise. The Eagers argued Ms. Peasley’s short-term rentals violated deed covenants prohibiting “commercial use” and limiting her use of the property to “private occupancy.” The trial court disagreed, holding the restrictive covenants were ambiguous and Ms. Peasley was free to use the property for “transient short-term rentals.”
On appeal, the Michigan Court of Appeals reversed in a 2-1 decision. The majority held short-term rentals violated the restrictive covenants and “[t]hose using the property for transient short-term rental ha[d] no right to leave their belongings on the property.” The majority also held “commercial use” includes short-term rentals, even if the activity is residential in nature.
The dissent agreed with the trial court, believing the restrictive covenants were ambiguous. The dissent also believed Ms. Peasley's use was not commercial because her renters used the property for eating, sleeping, and other residential purposes, “just like any of the other houses in the subdivision.” The dissent also stated the majority’s opinion could be invoked by parties seeking to bar long-term rentals that have similar restrictive deed covenants.
Given the increasing popularity of rental properties and websites like homeaway.com and airbnb.com, this case could have a significant impact on the rental market in Michigan, at least for properties with similar deed covenants. Ms. Peasley could file an application for leave to appeal to the Michigan Supreme Court, but that will not diminish the precedential effect of the case. In other words, the majority's opinion is the law of the land, now and for the foreseeable future.
In addition to deed restrictions, I’ve also seen parties invoke local ordinances and common law claims (e.g., nuisance) in attempts to stop a neighbor from renting a property. I find this area of the law fascinating and will continue to monitor and report.