February 2018
In This Issue:
Recent Cases in Community Association Law
Ordinary Words Do Not Need to Be Defined in Documents
Association Cannot Require a Construction Bond for Lot Alterations
Disney Character Mailbox Does Not Fit Community’s Architectural Style
Obstructed View is Not a Nuisance
Condominium Lien Had Priority Over Tax Lien
Association Could Not Prohibit Group Homes
Owner Assumed the Risks of Injury on Golf Course
Short-Term Rental is Commercial Use
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Recent Cases in Community Association Law

Law Reporter provides a brief review of key court decisions throughout the U.S. each month. These reviews give the reader an idea of the types of legal issues community associations face and how the courts rule on them. Case reviews are illustrations only and should not be applied to other situations. For further information, full court rulings can usually be found online by copying the case citation into your web browser. In addition, the College of Community Association Lawyers prepares a case law update annually. Summaries of these cases along with their references, case numbers, dates, and other data are available online.

Ordinary Words Do Not Need to Be Defined in Documents

C&B Investments v. Murphy, No. 2017AP723 (Wis. Ct. App. Dec. 14, 2017)

Architectural Control: Applying the ordinary meaning of terms, the Court of Appeals of Wisconsin found that a treehouse was a structure that required prior architectural approval under a declaration.

C&B Investments (developer) developed the Timbers at Shipwreck Bay subdivision in Germantown, Wisc. James Murphy and Rebecca Richards-Bria (owners) purchased a lot in the community.

In June 2015, the owners began constructing a treehouse on their lot. The developer demanded the owners remove the treehouse because it violated the community’s declaration of covenants, conditions, and restrictions (declaration). The declaration required owners to obtain the developer’s approval for all structures on lots, including primary and auxiliary structures, prior to construction.

The owners submitted plans for the treehouse, but the developer did not approve them because they did not comply with the declaration’s design or materials requirements or the local setback ordinance. The owners refused to remove the treehouse, and the developer filed suit to enforce the declaration.

Both parties moved for summary judgment (judgment without a trial based on undisputed facts). The trial court concluded that the treehouse did not constitute a “structure” within the meaning of the declaration and dismissed the case. The developer appealed.

The developer argued that the dictionary definition of “structure” should apply—something built or constructed—which it asserted was also the term’s plain and ordinary meaning. By contrast, the owners argued that the term was ambiguous because it was not defined in the declaration. The owners suggested the term’s ambiguity was further illustrated when the developer offered several, varying definitions based on dictionaries, local ordinances, and case law.

The appeals court found the owners’ argument missed the point because a word’s ordinary meaning is applied first. If a word has an ordinary, common meaning, then there is no need to define it in the document.

The appeals court further stated that an ordinance could certainly limit or refine the term’s meaning for a particular application, but it would not change the word’s ordinary meaning. Such limited or refined definition would apply only in those particular circumstances.

The declaration referred to all structures. The appeals court found the dictionary definition of “structure” to be consistent with the declaration as whole, which required prior approval of a wide range of things that would affect the lot’s outside appearance. The appeals court saw no reason why a more limited definition should be applied that would exclude a treehouse as a structure.

The appeals court concluded the owners’ treehouse was a structure that required the developer’s approval prior to construction. Accordingly, the trial court’s order was reversed and the case remanded for further proceedings.

©2018 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

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Association Cannot Require a Construction Bond for Lot Alterations

McVicker v. Bogue Sound Yacht Club, Inc., No. COA17-447 (N.C. Ct. App. Dec. 19, 2017)

Architectural Control: The Court of Appeals of North Carolina held that an association’s architectural control authority could not be expanded to include requiring a construction bond where the declaration’s architectural approval procedures did not contemplate such.

Bogue Sound Yacht Club, Inc. (association) governed the Bogue Sound Yacht Club subdivision in Carteret County, N.C. Joseph and Susan McVicker owned a lot in the subdivision.

In October 2013, the McVikers’ contractor began cutting trees and clearing brush on their lot to maintain its appearance and prevent overgrowth. Before the work was completed, the association notified the McVickers that they had violated the declaration of covenants, restrictions, and easements (declaration) by not seeking prior approval from the architectural control committee (ACC).

The association demanded that the McVickers cease work until they submitted an application to the ACC, paid a $250 refundable construction bond, and obtained the ACC's approval. The McVickers did not stop their contractor, and the work was completed the next day.

The McVickers eventually submitted an application to the ACC but refused to pay the construction bond. The ACC refused to accept the application without the construction bond. In November 2013, the association notified the McVickers that failure to submit the application and bond within seven days would result in a fine of $100 per day for 30 days.

In December 2013, the McVickers submitted an application and bond under protest. The association then retroactively approved the work and refunded the bond in full. However, since the bond was not paid within the required seven-day period, the association levied a $1,050 fine.

In April 2014, the McVickers sued the association, asserting that the fine violated the North Carolina Planned Community Act (act) and that the association had no authority to require a construction bond. Since the declaration and bylaws empowered the board to adopt rules specifying how the subdivision would be used and maintained, the association argued this included the authority to require a construction bond.

The McVickers argued that the bond was illegal since the declaration did not contemplate such, and the failure to pay the bond could not serve as a basis for imposing a fine. The trial court granted summary judgment (judgment without a trial based on undisputed facts) in the association’s favor. The McVickers appealed.

The act generally allowed the association to regulate the common areas and to exercise any other powers necessary or proper to govern and operate the association. The declaration gave the association the authority to charge reasonable fees for using the common areas.

The declaration prohibited lot improvements or alterations that changed the lot's appearance without the ACC’s approval. To obtain approval, the declaration specified that owners had to submit plans and specifications describing the improvement or alteration.

The declaration also stated that owners were responsible for common area damage caused by their construction activities. If damage occurred, the association had the authority to repair it and assess the repair costs to the owner.

Restrictive covenants may not be enlarged by implication or extended by interpretation. Ambiguity must be interpreted in favor of a property’s unrestricted use. The appeals court found no language in either the act or the declaration authorizing the association to charge a construction bond for activities on an owner’s lot. It held that the association could not assert such power by implied authority.

The declaration expressly set out the procedure for submitting ACC applications. Nothing in the procedure implied that a construction bond was required. To the contrary, the declaration specified that damage to the common area would be repaired by the association and assessed against the owner. The appeals court held that such requirement could not be enlarged to mandate a bond to pay for potential damage.

The act allows an association to impose reasonable fines for declaration violations. The association did not impose a fine for failing to submit an application, but rather for failing to pay the illegal bond. As such, the fine was clearly not reasonable.

Accordingly, the appeals court reversed the trial court’s order and remanded the case with instructions that summary judgment be entered in favor of the McVickers.

©2018 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

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Disney Character Mailbox Does Not Fit Community’s Architectural Style

Weber v. Board of Directors of the Laurel Oaks Association, No. 2051 C.D. 2016 (Pa. Commw. Ct. Nov. 13, 2017)

Architectural Control: The Commonwealth Court of Pennsylvania held that a mailbox was a structure requiring association approval.

Laurel Oaks Homeowners’ Association (association) governed a community in Langhorne, Penn. Jonathan and Abbey Weber owned a home in the community.

In 2012, the Webers replaced their mailbox with one made to resemble the Disney character Tigger. The association asked the Webers to remove the mailbox, asserting that it violated the Laurel Oaks declaration of covenants, conditions, and restrictions (declaration) and the Laurel Oaks architectural guidelines. The Webers refused.

The declaration required owners to get permission from the association’s board to install, construct, or alter structures on lots, including decks, fences, permanent play equipment, pools, accessory buildings, and any other structures on a lot. The architectural guidelines also required written board approval before owners could change, add, or alter the home or lot exterior.

The guidelines did not contain specific requirements for mailboxes. However, they did specify that the type, style, and color of proposed modifications must match the existing home and that the modification must be compatible with the community’s architectural character.

In 2014, the Webers sued the association and its management company. The Webers argued that the mailbox was not a structure requiring board approval and that it was compatible with the community’s architectural design.

After consulting the Pennsylvania Municipalities Planning Code andBlack’s Law Dictionary, the trial court concluded that a mailbox fell within both the ordinary and legal definitions of a “structure.” Accordingly, it ruled that the association had the authority to regulate mailboxes under the declaration.

The association’s president testified that the Tigger mailbox did not match the home’s color scheme, so the trial court concluded that the mailbox deviated from the guidelines’ design requirements. The trial court ruled in the association’s favor and ordered the Webers to remove the mailbox within 30 days. The Webers appealed.

The Webers asserted that the trial court erred in considering the dictionary and other outside sources for the meaning of the term “structure.” The appeals court disagreed, stating that, while the declaration’s words are to be given their natural, plain, ordinary meanings, courts may consider dictionary definitions to inform their understanding of a term. Black’s Law Dictionary defined “structure” as “[a]ny construction, production, or piece of work artificially built up or composed of parts purposefully joined together.” Merriam-Webster’s Collegiate Dictionary also defined “structure” as something that is constructed.

The appeals court agreed with the trial court that a mailbox was clearly a structure that required board approval. Although mailboxes were not specifically listed in the declaration as a structure, the appeals court determined the list was clearly illustrative rather than exhaustive. Moreover, the guidelines required prior approval for alterations, which certainly included installing a new mailbox.

The appeals court further found that the trial court did not err in considering the president’s testimony that the Tigger mailbox did not match the home. The Webers did not present any contradictory evidence.

Accordingly, the appeals court affirmed the trial court’s order that the Webers remove the Tigger mailbox.

©2018 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

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Obstructed View is Not a Nuisance

Ceynar v. Barth, 2017 ND 286, 904 N.W. 2d 469 (N.D. Dec. 7, 2017)

Architectural Control: The Supreme Court of North Dakota held that a pool house that obstructed the neighbor’s views did not constitute a nuisance, even though it significantly diminished the neighbor’s property value, since views are not protected without an express covenant.

The Ridge at Hawktree Homeowners’ Association (association) governed a community next to a golf course in Bismarck, N.D. Lonnie Barth owned a home in the community and asked the association for approval to build a pool house on his property.

The association’s architectural committee informed Barth that detached buildings were not permitted. Barth then proposed to construct a breezeway connecting the home to the pool house. The committee approved the plans in January 2014. Barth subsequently submitted the plans to the city for approval and obtained a building permit.

In June 2014, David and Virginia Ceynar purchased the home next door to Barth. Construction of the pool house did not begin until February 2015. Almost immediately, the Ceynars complained to the association that the pool house would block their view of the golf course and club. The association did not stop construction.

In July 2015, the Ceynars sued the association and Barth, alleging breach of contract/covenant and nuisance. They asserted that the pool house violated the community’s restrictive covenants, unreasonably interfered with the enjoyment of their property, and diminished their property’s value.

Barth and the association moved for summary judgment (judgment without a trial based on undisputed facts). The trial court concluded that the pool house did not violate the restrictive covenants or constitute a nuisance. The trial court granted the motion and dismissed the case. The Ceynars appealed.

The restrictive covenants included a nuisance provision that prohibited rubbish and trash accumulation, odors or loud noises, and unsightly or unsanitary conditions on lots. The covenants also provided that no other nuisance was permitted that was offensive or detrimental to another lot. The covenant specified that normal construction activities would not be considered a nuisance so long as the construction site remained tidy and building materials and equipment were properly stored.

The appeals court concluded that, since the covenant addressed rubbish, debris, odors, and loud noises as nuisances but exempted normal construction activities, the covenant applied to construction activities rather than the finished product. Moreover, the covenant specified that the architectural committee had the sole right to determine what constituted a nuisance, yet the committee approved the plans and found no nuisance.

The Ceynars argued that the pool house towered over their property, destroying the open prairie look and overall theme of the community. They also presented an appraisal indicating that the obstructed view lowered their property’s value by $140,000.

The architectural committee generally did not allow fences or outbuildings in order to preserve an open prairie look. However, the appeals court noted that the committee’s statements did not create actual or implied restrictions on the land. In general, restrictions on land use are not favored. As such, the courts may not read into the covenants implied restrictions.

North Dakota law defines nuisance as an unlawful act that annoys, injures, or endangers the comfort, health, or safety of others. The appeals court found nothing unlawful about the pool house to satisfy the statutory nuisance requirements since Barth obtained all required approvals and permits for its construction.

A nuisance claim can also arise based on common law or the covenants. The appeals court recognized that scenic views can enhance a property’s value. However, views are not protected without an express covenant or easement. The common law rule is that a property owner has no right to an unobstructed view over adjoining property. As such, the size of a neighboring structure cannot constitute a nuisance, even if it causes a material reduction in property value. Further, the appeals court found nothing in the covenants expressly protected views.

Accordingly, the trial court’s summary judgment grant in favor of the association and Barth was affirmed.

©2018 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

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Condominium Lien Had Priority Over Tax Lien

Yarmouth Commons Association v. Norwood, No. 16-12342 (E.D. Mich. Dec. 8, 2017)

Assessments: The U.S. District Court for the Eastern District of Michigan held that a condominium association’s lien (but only the amount stated in the lien) had priority over a federal tax lien that was recorded later.

Pamela Norwood owned a unit in the Yarmouth Commons Condominium in Macomb County, Mich. Yarmouth Commons Association governed the condominium.

In April 2015, the Internal Revenue Service (IRS) assessed Norwood for unpaid 2009 taxes. In January 2016, after Norwood had failed to pay assessments, the association recorded a lien against her unit for $1,490 and expressly stated the sum was “exclusive of interest, costs, attorney fees and any future assessments which might become due.” The following month, the IRS recorded a tax lien notice against the unit for $67,340.

Norwood’s equity in the unit was less than the total of the two liens. The association and the IRS were unable to agree on which lien had priority, so the association filed suit against Norwood and the IRS, asking the trial court to resolve the question.

The association and the IRS each moved for summary judgment (judgment without a trial based on undisputed facts) as to the priority of its lien over the other. The priority of a federal tax lien against competing liens is governed by federal law.

Where there is a competing federal tax lien and a state law lien, the first general rule is that the first lien recorded has priority. A second general rule is that a federal tax lien does not have to be recorded to gain priority over other liens; a tax lien is considered “perfected” at the time it is assessed.

However, the Internal Revenue Code (IRC) creates an exception to the second general rule, providing that a tax lien is not valid against another with a security interest until the lien notice has been recorded. The IRC defines “security interest” as including a property interest acquired by contract for the purpose of securing payment or performance of an obligation.

The IRC further explains that a security interest exists if the security interest is protected under local law against a subsequent judgment lien arising out of an unsecured obligation and the holder of the interest has parted with money or “money’s worth.”

The court found the association’s lien clearly satisfied the first part of the test to qualify as a security interest. There was no dispute that it was a property interest. The IRS objected that the lien right was not acquired by contract. The court disagreed, determining that the condominium master deed and bylaws were considered contracts between the unit owner and the association under Michigan law. It was also clear the lien right was acquired to secure Norwood’s obligation for assessments.

Relying on cases under the Bankruptcy Code, the IRS argued that a distinction exists between a statutory lien right created by the Michigan Condominium Act (act) and the contractual security interest contemplated by the IRC and that a lien cannot be both types. The IRS urged that the association’s lien was a statutory lien.

The court was not persuaded, finding that the IRC, unlike the Bankruptcy Code, does not distinguish between a statutory lien and security interest. Nothing in the IRC’s definition of “security interest” excludes interests that are created partly or wholly by statute.

The next part of the IRC test requires that the security interest be protected under state law against a judgment lien asserted by an unsecured creditor. The act provides that condominium assessment liens have priority over other liens except state or federal tax liens. However, federal courts are to apply federal law in such priority disputes, without regard to the effect of state law on the question. So, the court looked only at whether the act provided protection for the association against a judgment lien asserted by an unsecured creditor and found that it did.

It was also evident that the association had parted with money or money’s worth to satisfy the last part of the IRC test since the association did pay or incur expenses for Norwood’s benefit. Accordingly, the court held that the association’s lien qualified as a security interest for IRC purposes.

The last debate was over the amount of the association’s priority lien. Under federal law, a state-created lien has priority over a tax lien filed later, but only the amount stated in the lien. The lien amount must be clearly established. The court found the association’s statement in the lien concerning lien rights for interest, costs and future assessments insufficient to gain priority lien rights. There was no evidence such costs or assessments had been incurred or the amounts established.

Accordingly, the court held that the association’s lien for $1,490 had priority over the tax lien, but the tax lien had priority over the association’s lien for interest, costs and future assessments.

©2018 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

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Association Could Not Prohibit Group Homes

Walls v. Capella Park Homeowners’ Association, Inc., No. 05-16-00783-CV (Tex. App. Nov. 30, 2017)

Federal Law and Legislation: The Court of Appeals of Texas held that an association must make an exception to its prohibition on group homes based on the Fair Housing Act’s requirement that disabled persons be allowed to live in the community of their choice.

Capella Park Homeowners’ Association, Inc. (association) governed a community in Dallas, Tex. Willie Walls and Melody Hanson owned two adjacent homes (collectively, group homes) in Capella Park in which they operated a for-profit residential program for persons with physical and intellectual disabilities under the name My Royal Palace. David Whitaker and Ashuntis Grisby were residents in the group homes.

In February 2013, the association notified Walls and Hanson that they were violating the community’s restrictive covenants by operating a business. The covenants prohibited group homes unless a home qualified as a community home under the Texas Human Resources Code (the code), and these group homes did not. Walls asserted that their activities were protected by the Texas and Federal Fair Housing Acts (the acts), independent of the code.

In December 2013, the association sued Walls, Hanson, and My Royal Palace (the defendants) for breach of the covenants. The defendants counterclaimed for breach of the acts. Whitaker and Grisby intervened, also asserting claims for breach of the acts.

The association asserted that a restrictive covenant that does not violate the Human Resources Code is legal. The defendants urged that the purpose of the acts is to require reasonable accommodations in policies to allow disabled persons to live where they like. The trial court found in the association’s favor and awarded the association $58,498 in attorneys’ fees. The defendants, Whitaker and Grisby appealed.

The acts prohibit discrimination when selling or renting a dwelling, or in otherwise making a dwelling unavailable, to a buyer or renter because of a handicap or disability. Discrimination specifically includes refusing to make reasonable accommodations in rules, policies, practices, or services when such accommodations may be necessary to afford such person equal opportunity to use and enjoy a dwelling.

The association clearly denied a requested accommodation since it chose to file suit after the defendants asked the association to cease its enforcement efforts. So, the primary issue was whether the requested accommodation was reasonable, which is determined on a case-by-case basis and is highly fact-specific.

Courts may consider factors such as the extent to which the accommodation would undermine the legitimate purposes and effects of existing restrictions and the benefits that the accommodation would provide to the disabled. In measuring the effects of an accommodation, a court may look at its functional and administrative aspects as well as its costs. If the requested accommodation would impose undue financial and administrative burdens or require substantial modifications to existing programs that would fundamentally alter the nature of the program, the accommodation is not reasonable.

There were usually three residents in each group home. Whitaker and Grisby both suffered severe intellectual and physical disabilities that required constant nursing care. Three workers were always present, so three vehicles were always parked at the homes. In addition, an ambulance was occasionally present for medical emergencies.

The appeals court noted that the code permits as many as six residents and two supervisors to reside in a single community home. Thus, if the group homes qualified as community homes, the restrictive covenants would permit more residents than were actually living there. In addition, the restrictive covenants permitted up to three unrelated persons to live together as a single housekeeping unit.

Therefore, the appeals court concluded the requested accommodation was reasonable since the home’s use was similar to uses already permitted by the association, with the only difference being that the unrelated persons in the group homes were disabled.

Next, the appeals court analyzed whether the accommodation was necessary to afford the disabled residents equal opportunities. If the proposed accommodation provides no direct amelioration of a disability’s effect, then it is not “necessary” for purposes of the acts.

The association asserted that the accommodation was not necessary since the group homes could be located elsewhere in a commercial setting. It urged that living in Capella Park was not necessary to ameliorate Whitaker’s and Grisby’s disabilities. The appeals court rejected this argument, noting that the question was not whether the disabled have an opportunity to live someplace in Dallas, but whether the disabled had an equal opportunity to live in dwellings of their choice.

The appeals court concluded that forcing the group homes to cease operations would eliminate Whitaker’s and Grisby’s ability to live in the dwelling of their choice. Therefore, the association must refrain from enforcing the restrictive covenant to afford disabled persons the same opportunity as non-disabled persons to reside in the group homes.

Accordingly, the appeals court reversed the trial court’s judgment and remanded the case for further proceedings.

©2018 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

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Owner Assumed the Risks of Injury on Golf Course

McCloskey v. The Clubs of Cordillera Ranch, LP, No. 04-17-00234-CV (Tex. App. Dec. 20, 2017)

Risks and Liabilities: The Court of Appeals of Texas found a golf club owner and its contractors were released from liability for a golfer’s injuries by language in the declaration.

Tom McCloskey purchased a unit in the Cordillera Ranch planned community in Boerne, Tex. He also became a member of the community’s golf club, which was owned by The Clubs of Cordillera Ranch, LP (club).

The golf course’s 16th hole had an elevated green surrounded on three sides by cliffs. While McCloskey was playing the hole, he stumbled on the green, rolled to the edge, and fell off the side. McCloskey’s shoulder was seriously injured in the fall.

McCloskey sued the club as well as the companies that designed and constructed the golf course (collectively, the defendants) for premises liability, negligence, and gross negligence. The trial court determined that the defendants were released from liability by language in the club membership documents and the Cordillera Ranch Master Declaration of Covenants (declaration).

The declaration provided in relevant part that each owner acknowledged and assumed the risks associated with the club facilities, including personal injury caused by or arising from golf course hazards or other risks or dangers associated with the golf course. It further stated that the owner released the club and its employees, contractors, and agents from liability for ordinary negligence or other obligations in connection with the assumed risks.

The trial court granted summary judgment (judgment without a trial based on undisputed facts) in favor of the defendants, and McCloskey appealed. McCloskey contended the release violated the statute of frauds and the fair notice requirements. The statute of frauds requires that certain contracts be in writing and signed to be enforceable. While McCloskey did not sign the declaration, courts have found it sufficient if a party expressly accepted the contract’s terms.

The appeals court determined that McCloskey agreed to the declaration’s terms by accepting the unit. In particular, the purchase contract signed by McCloskey specifically provided that the purchase was subject to the restrictions and conditions in the declaration. Therefore, the statute of frauds was not violated.

The law requires that fair notice be given to those who release others of responsibility because it involves an extraordinary shifting of risk. The fair notice requirements include the express negligence doctrine and the conspicuousness requirement.

The conspicuousness requirement mandates that the release text must be designed to attract the attention of a reasonable person. Text printed in all capital letters is considered conspicuous. The appeals court determined the release language was sufficiently conspicuous because it was in all capital letters in contrast to the surrounding sections.

The express negligence doctrine requires that the releasor’s intent to release the releasee from the releasee’s own future negligence must be expressed in unambiguous terms. Release language is to be narrowly interpreted; a claim not clearly within the subject matter of the release language is not released.

The appeals court found the release language satisfied the express negligence doctrine. It specifically referred to the club, as well as its contractors, as parties being released. The release also covered McCloskey’s premises liability and negligence claims.

McCloskey argued that the release only covered claims relating to hazardous conditions, which were defined elsewhere in the declaration as naturally-occurring conditions. McCloskey asserted that the hazardous conditions included the cliffs but not the sloped green, a condition that did not occur naturally and was the contributing cause of his injury.

The appeals court disagreed, finding that the release specifically stated that the risks assumed by owners included golf course hazards and other risks, hazards and dangers associated with the operation of a golf course. The appeals court determined that falling off of an elevated green was a risk, hazard or danger associated with the golf course’s operation.

The appeals court agreed with McCloskey that the release did not cover gross negligence. However, there was insufficient evidence to prove gross negligence. To prove gross negligence, the complaint must first involve an act or omission posing an extreme degree of risk, considering the probability and magnitude of the potential harm to others, with a likelihood of serious injury. Second, the person causing the harm must have been aware of the risk, but proceeded anyway with conscious indifference to others' rights, safety, or welfare. 

McCloskey offered no evidence that the defendants were actually aware of the risk or proceeded with conscious indifference. There was no evidence that another person had fallen on the green, and no expert testified that the green’s design or construction involved an extreme degree of risk.

Accordingly, the appeals court affirmed the trial court’s order.

©2018 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

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Short-Term Rental is Commercial Use

Eager v. Peasley, No. 336460 (Mich. Ct. App. Nov. 30, 2017)

Use Restrictions: The Court of Appeals of Michigan held that renting a home to a third party for short-term use constituted commercial use.

Donald and Carol Eager owned a home in the Doctor’s Point subdivision in Hubbard Lake, Mich. In 2009, Cecilia Peasley purchased a home nearby, which she rented during the summer season each year.

The Eagers sued Peasley for breach of the subdivision covenants and nuisance. The covenants limited the property’s use to private occupancy only, prohibited any commercial use of the property, and permitted only private dwellings and appurtenant structures (such as a garage). The Eagers sought an injunction (order to take certain action or refrain from taking action) to prohibit further rental activity and abate the nuisance.

Peasley advertised and rented the home through a national website with a two-night minimum and a 10-guest maximum per rental. In a typical year, she averaged 64 rental nights between May and August. Peasley provided no services to the renters, such as breakfast, housekeeping, or linen.

The trial court found the covenants ambiguous, which required it to construe the covenants as not prohibiting short-term rentals. Accordingly, the trial court denied the requested injunction. The Eagers appealed.

The chief principle in interpreting covenants is to ascertain the parties’ intent. Where the covenant is unambiguous, it must be enforced as written. The covenants’ language is to be “taken in its ordinary and generally understood or popular sense, and is not to be subjected to technical refinement, nor the words torn from their association and their separate meanings sought” in a dictionary.

The appeals court found the terms “private occupancy only” and “private dwelling” coupled with the prohibition against commercial use clearly and unambiguously prohibited renting the home on a transient, short-term basis. The Michigan Supreme Court had previously held that a “private dwelling house” restriction permitted only one house for a single family living in a private state. In that case, the Supreme Court determined that a single, private dwelling restriction prohibited using a home for a college fraternity.

The appeals court saw no reason to treat the private occupancy restriction for Doctor’s Point differently and found the prior case law confirmed that short-term rentals violated the covenants. The appeals court rejected Peasley’s “tortured attempt” to find ambiguity in the covenants, stating that such ambiguity simply did not exist. The appeals court found that Peasley’s rental activity clearly violated the covenants because such use was not limited to a single family for private occupancy only.

Moreover, the appeals court determined that rental activity constituted commercial use in violation of the covenants, irrespective of the occupancy restriction. The rentals made or were likely to yield a profit to Peasley and were a business activity. Therefore, the appeals court concluded that renting property to a third party for short-term use constituted a commercial use, even if it is residential in nature.

Since Peasley’s short-term rentals violated both the commercial use prohibition and occupancy restriction, the appeals court reversed the trial court’s judgment. The case was remanded with instructions that the Eagers’ request for injunctive relief be granted.

©2018 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

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