The vacation rental market has exploded in recent years due to the popularity of online sites such as Airbnb, VRBO, and HomeAway. While these sites have created a booming marketplace for homeowners and renters alike, they have also created a myriad of legal and governmental quagmires. One of these complex issues is restrictive covenants and land use.
A restrictive covenant is a type of agreement that limits permissible use of land. Generally, a restrictive covenant agreement is recorded so that potential purchasers of real estate are aware that there are restrictions on what they, as landowners, can or cannot do with the real estate.
In a recent Wisconsin Supreme Court decision, Forshee v. Neuschwander, 2018 WI 62, restrictive covenants that prohibited “commercial activity” were held to be ambiguous and unenforceable.
In the Forshee case, the issue was that the landowners were renting their property to vacationers. The question that the Wisconsin Supreme Court analyzed here was whether the prohibition against “commercial activity” included short-term and long-term rentals. Wisconsin law requires that restrictive covenants must be expressed in clear, unambiguous, and peremptory terms in order to be enforceable. The Court held that the phrase “commercial activity” was susceptible to more than one reasonable interpretation and, therefore, ambiguous. The Court ultimately decided that prohibition against commercial activity did not preclude either short-term or long-term rentals and the landowners could continue engaging in such activities.
The Forshee case could be setting a larger stage for landowners to have the ability to void any restrictive covenant that is ambiguous. If you own land that has restrictive covenants, you might want to closely examine those covenants as not all of them may be enforceable against you.
For developers, it is in your best interest to review those restrictive covenants again and make sure they are clear and convey exactly what you intend. At minimum, you should review those restrictive covenants that are most important to the development. Having restrictive covenants drafted right the first time is crucial because subsequent landowners will be bound to the covenants as originally drafted. If the language in the covenants does not clearly convey what the restriction is, that restriction will likely be determined by a court to be unenforceable.