Prohibition on Using Lots for Commercial Purposes Bars Any Rentals

In Bauckham Trust v Petter, an unpublished Michigan Court of Appeals opinion, the defendants were advertising and renting the homes on their lots as vacation rentals.  The declaration of restrictions prohibited using lots for “commercial or manufacturing purposes.”  Plaintiffs sued to stop the vacation rentals; the trial court entered an injunction prohibiting “any” rental of homes.

On appeal, the Michigan Court of Appeals affirmed.  The court held that “[t]he act of renting property to a third-party for any length of time involves a commercial use because the property owner is likely to yield a profit from the activity. Restrictions barring commercial uses of property proscribe a wide variety of activities, even activities that are residential in nature, such as renting to residential tenants for extended periods of time.

This decision is intriguing in its possible ramifications.  Some condominium documents prohibit commercial activities, but also contain provisions allowing rental of units, sometime subject to restrictions.  One can argue that a specific provision allowing rental of units overrides the prohibition on commercial activities.  However, does elimination of the section regarding rentals prohibit any rental of units?  

It does not appear that any party in that case raised the issue of a restraint on alienation.  While courts in other states differ on whether a flat prohibition on rental of property is a restraint on alienation, Michigan courts have not directly addressed the issue.  This case would seem to indicate that, if the restrictions prohibit commercial use, a flat ban on renting is not a restraint on alienation.

© Steve Sowell 2017