Restrictive Covenants on Residential Single-Family Use and Short-Term Rentals

A home on a beautiful Michigan lake sounds like the perfect investment, and since you have a primary home in another state, renting it out short-term seems like a sensible way to generate income. Your realtor even assured you it was fine. Isn’t it? It would be, except for a restrictive covenant in the subdivision’s governing documents that limits property use to “single family residence purposes.” In Michigan, this phrase has been the source of significant litigation, as communities push back against the rise of short-term vacation rentals. The issue is whether the transient, commercial nature of short-term rentals can coexist with the concept of a “residence,” which Michigan courts have generally defined as having a degree of permanence and continuity of presence.

Michigan courts have regularly held that short term rentals violate residential-use covenants because they are considered a commercial activity that is inconsistent with a residential neighborhood’s character, even though the renters use the property for residential purposes during their stay. See generally O’Connor v Resort Custom Builders, 459 Mich 335, 345 (1999). The rationale is that a true residence is a place where a person lives, stores their belongings, and maintains a permanent and continuous tie, even if they are physically absent for a time (like at a summer home). Id. Short-term rentals, particularly those that are mass-marketed and used almost exclusively as rentals, are seen as hosting a revolving door of transitory renters who have no lasting ties to the home or community, which defeats a residential-use covenant’s purpose of preserving a quiet environment for family use.

The recent Michigan Supreme Court case, Melvin R Berlin Revocable Trust v Rubin, reinforced this line of reasoning when it affirmed, by equal division, a decision from the Court of Appeals that a “single family residence purposes” covenant prohibited owners from primarily using their homes as short-term rentals. While the Court was split, leaving no new statewide precedent from the Supreme Court itself, the underlying judgment that frequent, commercial short-term rental use violates such a restriction remained intact.

The case highlighted the key point of contention: whether a “single family residence purposes” restrictive covenant is unambiguous in its prohibition. The prevailing view holds that commercial activity, like using the property as an enterprise to generate profit for an owner who is often domiciled elsewhere, changes the use from residential to commercial. However, dissenting justices argued that the term is ambiguous, susceptible to multiple meanings that could, for instance, only regulate the structure (e.g., banning apartment buildings) or the occupant’s conduct (e.g., eating and sleeping), and therefore should be construed in favor of the free use of property.

Ultimately, for Michigan property owners, the ability to rent out a second home depends on the specific language of their community’s covenants. While occasional, non-commercial rentals to family or friends may be tolerated, marketing a property as a commercial, transient vacation rental is likely to be deemed a violation of a single-family residential use restrictive covenant. Buyers intending to use a property for short-term rentals should conduct a thorough review of all governing documents because broad language limiting use to residential purposes is sufficient to prohibit short-term rentals based on their lack of permanence and continuity. A realtor’s verbal assurances or a community’s common practice may not match a court’s decision regarding the effect of a restrictive covenant like that in Melvin R. Berlin Revocable Trust.

If you have questions or require assistance regarding short-term rentals, contact our experienced real estate attorneys. For over 120 years, Curtis, Curtis & Brelinski, P.C., has remained committed to providing the greater Jackson community with cost-effective legal services.

Disclaimer

This publication is for general information only. The information contained is not intended as formal legal advice. If you have any questions or need assistance, please contact your attorney at Curtis, Curtis & Brelinski, P.C.

Article by: Ethan J. Loch