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Don’t Like That VRBO Vacation Rental Next Door? Read Your Covenants Before You Complain!

Vacation travel isn’t just about hotel rooms anymore. VRBO.com and Airbnb.com are often the first places people look for lodging when traveling out of town. But what if it is the house next door to yours that is suddenly on the short-term rental market? Before you complain, you need to read your subdivision’s covenants.

There are probably few of us who haven’t used, or at least heard of, vacation rental websites like VRBO.com and Airbnb.com, which connect travelers to short-term rental properties in communities across the country and the world. Many folks would much prefer renting a private home rather than a block of hotel rooms for their family reunion, Razorback football weekend or bachelor party. But what do the neighbors think?

A group of neighbors in Hot Springs was unhappy enough to file a lawsuit when the owners of a 5,000 square foot house on a 6.07 acre lot near Lake Hamilton listed their property on VRBO.com. The neighbors claimed that putting the house on the rental market violated the subdivision’s bill of assurance, or covenants, which stated that none of the lots shall be used “for other than residence purposes” and, further, that none of the lots shall be used “for any commercial purpose, including motels, tourist courts, motor hotels, hotels, garage apartments, apartments, etc.” The circuit court agreed with the neighbors and granted an injunction against the owners, prohibiting the rentals. However, the Arkansas Supreme Court reversed the lower court and ruled for the homeowners, finding that the covenants did not specifically prohibit rentals. Vera Lee Angel Revocable Trust v. Jim O’Bryant & Kay O’Bryant Joint Revocable Trust, 2018 Ark. 38 (February 8, 2018).

In reaching its decision, the Supreme Court began by noting that Arkansas law does not favor restrictions on land and, thus, any restrictive covenants against limitations on the free use of land must be strictly construed. The court found that renting the property did not change the essential character of the house as a “residence.” As for whether the short-term rental of the property violated the restriction against using the property for commercial purposes, the court said that the examples of commercial uses set out in the bill of assurances were different from the use of the property as a single-family dwelling and that the receipt of rental income did not “transform the character” of the surrounding subdivision. Relying on case law from Virginia, Maryland and Alabama, the Arkansas Supreme Court found that while the covenants prohibit the property from being used for any “commercial purposes”, they are silent with regard to rental of the property. Therefore, consistent with the principle that such covenants must be strictly construed in favor of the unfettered use of property, the court concluded that the lack of a specific restriction against rentals of the property compelled a ruling in favor of the landowners.

So, whether you are considering buying a house or thinking about putting your house on the vacation rental market, be sure, first, to read very carefully any applicable subdivision covenants. As for developers and attorneys tasked with drafting such covenants, remember that any use which is not specifically prohibited in the covenants will, in all likelihood, be allowed.

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