Vacation rentals have existed for quite some time. However, in the last handful of years, sites like VRBO, Airbnb, Vacasa and probably others have helped homeowners rent their homes when not in use as well as provided opportunities for people to buy property for the sole or primary purpose of renting it to visitors.
This should not be considered specific legal advice and I am not a lawyer. There are however, precedents that have been set and there are some things to consider whether you’re already in the short term rental business or not.
The following is synopsized and quoted from the November 2023 issue of Michigan Realtor.
The Michigan Court of Appeals have stated the following: The act of renting a property to another for short-term use is a commercial use, even if the activity is residential in nature.
In 2022, the Michigan court systems heard a case on behalf of the Vanderstadt’s and the HOA of a community whose covenants expressly permitted leasing. The HOA claimed they did not permit short term leasing. The Vanderstadt’s initially ignored a cease and desist order from the HOA and off to court they all went. One additional note here is the by-laws of the HOA did not expressly limit commercial use
The initial trial court ruled on behalf of the Vanderstadt’s. The court even found the lawsuit as frivolous and ruled the HOA to pay the Vanderstadt’s legal fees. The HOA appealed.
The restrictive covenants stated the following three things that became important. 1) Each lot in the Premises shall be used only for a single family private residence. Only one structure may be used as a dwelling on any such lot, except that additional living quarters, to be occupied only temporarily or seasonally, may be constructed over a garage. 2) No business of any sort, other than home office activities, shall be conducted from or on any lot within the Premises, and no signage advertising any such business shall be placed on a lot. 3) A lot owner may lease his/her property to a third party, but he/she has full liability for any breach by the tenant of these covenants.
The Court of Appeals did not agree with the Vanderstadt’s that a short term rental is allowable as leasing is expressly allowed by the covenants. They stated the covenants also expressly state “a home may only be used for a single family private residence” and that “no business of any sort may be conducted.”
The lease allowed for up to 16 people including “spouses, parties, children, family members and other friends.” As such, the Court also stated the renters were not required to be members of the single family and therefore was NOT single family use as the covenants required. Additionally, the Court held the use of the property to provide temporary housing to transient guests was business activity operated for a profit and therefore not “residential” in nature. The Michigan Supreme Court denied the Vanderstadt’s request to review the Court of Appeals’ decision.
Many Michigan lower courts have also ruled the short-term leasing of any property is a business or commercial activity and often in violation of potential by-laws and also zoning restrictions for a residential community/property.
In addition to the excerpt above, I have been in legal continuing education as well as private seminars where lawyers have also presented sites such as VRBO, Airbnb and others are automatically commercial by the simple fact they accept credit card payments. This is another thing to keep in the back of your mind and to discuss with your legal representatives before engaging in any short-term rentals.
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