In June 2018, Clyde Esplin decided
to offer his residential property for rent on the Airbnb platform. Airbnb, like
VRBO, HomeAway, and other competitors, offers short-term rentals (STRs) of
private homes through an online booking service.
Lake Serene Property Owners Association was formed to enforce residential
covenants. Clyde’s property was burdened by those covenants. The rules allowed
property owners to rent their property without any specified minimum rental
period. Those same rules also limited the use of the properties to residential purposes
and prohibited use of the properties for trade or business.
POA discovered Clyde’s STR listing and sent him a series of letters and email
warnings that the POA would issue fines and take legal action if Clyde
continued in his desire to generate income from his STR. Then, the POA amended
its ByLaws to prohibit property rentals for terms of less than six months.
that amendment, the POA filed a lawsuit seeking to prevent Clyde from using his
dwelling as an STR.
trial court determined that Clyde’s use of his property was residential. Not
commercial. And as a consequence, the court denied the request of the POA for
trial court went further and determined that the amended ByLaws were invalid,
as were all fines and assessments levied by the POA against Clyde.
wait there’s more.
the trial court reversed the POA’s requested injunction, and instead enjoined the
POA from preventing Clyde from renting his property as an STR, harassing his
tenants, and keeping them from using the common-area facilities.
trial court then prohibited the POA from calling the Sheriff’s office for help
in enforcing the POA’s covenants.
that crushing defeat, the POA had little choice but to appeal.
Appellate Court first evaluated the meaning of “residential purposes only.”
Not finding a definition in the POA’s covenants, the Court determined that as
long as the property is used a “place of abode,” it qualifies as a “residential
purpose.” This is true even if the owner or property manager received rental
income from an online payment, and the rental period is only one day.
Appellate Court next took aim at the restrictive covenants, concluding that “Generally,
courts do not look with favor on restrictive covenants.” Not finding a specific
prohibition against STRs, the Court found that Clyde’s proposed STR use of his
residential property is allowed under the covenants.
Finally, the legality of the Bylaws amendment was considered. The Appellate Court determined that the POA Board of Directors could not exercise authority in matters that are reserved for its members. Board members are not allowed to accomplish an “end-around of the covenants.”
wins. Again. The POA loses. Again. See Lake Serene Property Owners
Association Inc. v. Esplin; Mississippi Supreme Court, Case No. 2020-CA-00689-SCT,
March 10, 2022: https://scholar.google.com/scholar_case?case=15834690258425426403&q=lake+serene+property+v.+esplin&hl=en&as_sdt=6,44&as_vis=1.
Lessons / Questions / Observations:
1. Observation. STR use restrictions are being litigated now all over the USA. Cities and towns are also looking at ways to prevent STRs, and if that is not possible, then at least require municipal licenses, permits, and insurance.
2. Lesson. It’s easy to read restrictive covenants and usage rules that prohibit commercial and business use of residential property, and conclude that STRs violate those covenants and rules. But based on this case and others, that may not be the proper analysis. Absent health and safety concerns generally regulated by cities, counties, and States, and matters of public policy such as fair housing typically regulated by the Federal laws and similar State statutes, Courts are reluctant to restrict the rights of property owners.
Stuart A. Lautin, Esq.*
* Board Certified, Commercial (1989) and Residential (1988) Real Estate Law, Texas Board of Legal Specialization
Licensed in the States of Texas and New York
Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.