The popularity of short-term property rental sites like Airbnb and Vrbo have raised a host of legal questions regarding the status of the owners who list their homes. Many state and local governments have adopted regulations for such properties. And in some cases, disgruntled neighbors have taken direct legal action against what they consider a disruption to the quiet enjoyment of their properties arising from the revolving door of short-term guests.
Neighbors Sued Over Frequent Short-Term Rentals
The Supreme Judicial Court of Maine recently addressed such a case. In Morgan v. Townsend, three homeowners (the plaintiffs) in the town of Cushing, Maine, sued their neighbor (the defendant) over the latter’s rental of his oceanfront property via Airbnb and Vrbo. According to court records, the defendant marketed his property “for large groups” starting in 2019. Over a roughly two-year period, about 59 different groups of up to 32 people stayed on the defendant’s property.
The plaintiffs' lawsuit alleged these short-term rentals violated a restrictive covenant in the deed to the defendant’s property. The three lots belonging to the plaintiffs and the defendant, respectively, contained identical language in the original deeds stating,
The premises herein conveyed shall not be used or occupied for any purpose other than for private residential purposes and no trade or business shall be conducted therefrom; and no building, structure, trailer, mobile home, object or thing whatsoever other than a private dwelling house for use and occupancy by one family and such out buildings as are usual, customary and appurtenant to a private residence shall be erected or placed thereon, and not more than one such dwelling shall be erected or placed on said lot[.]
The plaintiffs said the defendant violated this covenant in a number of ways:
- He built more than one house on the property;
- He used the property to lodge transient guests;
- He allowed dozens of people who were not part of the same family to use the property at the same time; and
- He used the property to operate a business.
The defendant denied violating the restrictive covenant. But he also counter-sued the plaintiffs, claiming that if he violated the covenant, then do did they. Both sides then moved for summary judgment.
The trial court granted the plaintiffs' motion and issued an injunction against the defendant. The judge held the language of the restrictive covenant “unambiguously limited [the defendant]’s property and the structures on it to use and occupancy by one family.” And despite this language, the defendant nevertheless used the property “to conduct a full-scale commercial business” renting the property to large groups “with no effort by him to determine whether each group constituted a family.”
The defendant appealed to the Supreme Judicial Court. In September 2023, a divided Court upheld the judgment in favor of the plaintiffs but directed the trial judge “to be more specific” on how the defendant can comply with the terms of the restrictive covenant moving forward.
SJC: Defendant Carried on Prohibited “Trade or Business”
Associate Justice Andrew M. Horton, writing for the four-judge majority, noted this was the first time Maine’s highest court considered the effect of a restrictive covenant in a deed on the use of residential property for short-term rentals. This particular covenant required answering three questions:
- Do short-term rentals violate the restriction of the property to “private residential purposes”?
- Did the defendant conduct a “trade or business” using the property?
- What does it mean for “one family” to occupy the structure?
On the first question, Horton said a number of other state supreme courts that previously considered this same issue found that short-term property rentals were not “consistent” with the use of property for private residential purposes. But the question was also a close one. Indeed, Horton said that to interpret the restrictive covenant here to to mean that “only persons legally domiciled at the property may spend the night there” would effectively outlaw homeowners from having overnight guests at all. So in that sense, the restriction on “private residential purposes,” standing on its own, did not necessarily prevent the defendant from using his property for short-term rentals.
That said, Horton agreed with the plaintiffs and the trial court that the defendant did violate the part of the covenant forbidding the use of the property to conduct a “trade or business.” In this case, the plaintiff rented his property 59 times over 28 months. And while Horton declined to establish a bright-line rule that a certain number of short-term rentals constituted conducting a trade or business, in this case he was satisfied that was what the plaintiff was doing. There was a clear “pattern of use, maintenance, advertising, and holding out of his property” as a rental house to meet the business definition of a “hotel.”
On the final issue–the “one family” restriction–Horton said it was impossible to construe that term “strictly or literally.” As previously noted, such a reading would ban the defendant from having any overnight guests. Furthermore, Horton pointed out the definition of “family” has evolved in the decades since the covenant was written. But more to the point, there was insufficient evidence before the trial court to establish whether any of the groups that stayed in the defendant’s house were not family.
Dissent Cited Failure to Draw a Bright Line
Associate Justice Andrew M. Mead, joined by Chief Justice Valerie Stanfill, dissented from the majority’s opinion. Mead’s dissent squarely focused on the sole ground cited by Horton in upholding the judgment–the finding that the defendant’s rentals constituted a “trade or business” as defined by the restrictive covenant. Specifically, Mead took issue with the majority’s failure to establish any “rationale or qualitative standards” for how to define a “trade or business” in the context of short-term rentals.
Mead noted that rental of privately owned vacation properties was a “well-established practice in Maine.” So how many rentals were necessary before it became a business that violated a restrictive covenant like the one at issue here? Mead said he was not satisfied by the Court’s answer, which was essentially, “It’s in the eye of the beholder.” In a footnote to his majority opinion, Justice Horton replied that in this case, the defendant exclusively rented his property to short-term guests, so it was clearly a business. It would be up to the trial court on remand to establish more precise qualitative standards as part of a revised injunction.
Speak with an Experienced Real Estate Attorney
Even without the unusual kind of restrictive covenant seen in the case above, short-term rental property owners throughout the country must stay up-to-date on changes in the law that may affect their rights. If you are such a property owner, it is best to seek counsel from a qualified real estate attorney in your area.
Disclaimer: This post is provided for informational purposes only. The author is not an attorney and nothing in this post should be construed as legal advice. You should always consult a licensed and qualified attorney in your state about any legal matter.