Short terms rentals have become a new and easy method for some homeowners to generate extra income by renting out their home while they are away for a few days or even a few weeks. In the last 10 years, websites such as AirBNB, Booking.com, FlipKey, HomeAway, Homestay, House Trip, Roomorama, Tripping.com, Trivago, VBRO and VayStays have made securing these transactions easier. Instead of hotels, travelers can stay in someone’s private residence for the duration of their stay. Unfortunately, this is a situation not loved by all. Local governments, landlords, condominium associations, homeowner associations and even private neighbors have expressed increasing concern for short-term rentals because they pose security threats, noise issues, or introduce tourists to an area where they are not desired. As a result, these entities have banned short term rentals in some areas through ordinances, provisions in leases agreements, or even enforcing deed restrictions in a court of law.
Here are the possible legal barriers you may face if you are considering engaging in short-term rentals.
LOCAL BANS BY ORDINANCE OR STATUTE
There is no state law that regulates or prohibits short-term rentals. However, local units of government may try to adopt or enforce zoning ordinances that have the effect of prohibiting short-term rentals. For example, some cities and townships consider it an inappropriate commercial business activity in a residential area, so they will enforce against the homeowners and levy fines or cease and desist orders. These bans generally arise because of complaints filed about noise, increased traffic and resulting depression in home prices.
The courts have generally defended these ordinances and determined that rental activity constituted commercial activity. In Laketon Twp v Advanse Inc, 485 Mich 933; 773 NW2d 903 (2009), the Michigan Supreme Court determined that short-term rentals of a dwelling for a fee is not considered use of the property as a single-family dwelling. Therefore, the defendant’s use of the main residence on his property for rental activity “constituted an impermissible expansion of an existing nonconforming use lawful under [local] ordinance.” Id.
In Concerned Property Owners of Garfield Township, Inc v Charter Township of Garfield, unpublished per curiam opinion of the Court of Appeals, issued October 25, 2018 (Docket No. 342831), several homeowners had filed a lawsuit against the township seeking a court order allowing them to continue using their homes for short-term rentals as they believe it was “grandfathered” under a prior ordinance. In 2015, the township passed an ordinance explicitly prohibiting short-term rentals, but prior to that the existing ordinance was not so explicit. The township disagreed, declaring that the prior ordinance only allowed use of their homes for “family dwelling units” so that alone prohibited short-term rentals. The Michigan Court of Appeals agreed with the township and found the previous ordinance did not allow for short-term rental, so there was nothing that could be “grandfathered” into the new statute. Once again, short-term rentals take a beating under statutory interpretation.
However, there is activity in the Michigan Legislature that would curtail the power of local governments to regulate short term rentals. On October 28, 2021, the Michigan House of Representatives passed HB 4722 by 55-48 which would prohibit local governments from adopting zoning regulations banning short-term rentals. Companion Senate Bill 446 is still making its way through the upper house with similar provisions. Either bill has yet to be passed by the other house or signed by the governor into law. This is not the first time this effort has been attempted through the state legislature and similar bills died in 2017. If passed, local governments would still have the authority to regulate noise, punish traffic violations and restrict the number of occupants in a unit, but outright bans on renting would be prohibited.
Until these bills are passed, local governments still have the power to regulate rental activity in their jurisdictions through zoning ordinances.
RENTAL AGREEMENTS BETWEEN LANDLORDS AND TENANTS
If you are a tenant leasing property with the landlord and you are considering offering short-term rentals, then you should carefully examine your lease agreement before moving forward. Most lease agreements specify that subleasing or assigning an interest in the rental unit is either not allowed without the landlord’s consent or not allowed at all. A short-term rental constitutes a sublease or an assignment even if it is only temporary. However, if the lease agreement is silent on subleasing, then the landlord’s permission is not necessary. A tenant is otherwise in full possession of the premises for the rental period and may quietly enjoy his occupation subject to other limitations in the lease agreement or by law.
However, if subleasing is forbidden by the lease agreement and the tenant enters into a short-term sublease anyway, then the landlord may move to terminate the tenancy based on violation of lease terms. Tenants should examine the lease carefully (preferably with the assistance of legal counsel) before making a decision whether it is prohibited or not.
If you purchased a home in a planned subdivision or you are otherwise subject to a homeowner’s association or condominium association, then you may be subject to restrictions contained in the deed itself or by association rules that prevent using your real estate for short-term rentals. In fact, these entities have challenged short-term rentals in court and prevailed.
In Eager v Peasley, 322 Mich. App. 174; 911 N.W.2d 470 (2017), plaintiffs sought an injunction to preclude the defendant from renting out a lake house for transient, short-term use, arguing that such use violated a restrictive covenant. The defendant’s warranty deed was subject to the following covenants and restrictions:
- “… [T]he premises shall be used for private occupancy only; …that no commodity shall be sold or offered for the sale upon the premises and no commercial use made thereof; …”
- “[T]hat the premises shall be used for private occupancy only; that no building to be erected on said lands shall be used for purposes otherwise than as a private dwelling and such buildings as garage, ice-house, or other structures usually appurtenant to summer resort dwellings are to be at the rear of said dwellings; that such dwellings shall face the lake unless otherwise specified; that no commodities shall be sold or offered for sale upon said premises and no commercial use made thereof ….”
The trial court denied the injunction because it determined that the deed restriction was ambiguous on the topic of short-term rentals. The Michigan Court of Appeals reversed, finding that “transient, short-term rental usage violates the restrictive covenant requiring ‘private occupancy only’ and ‘private dwelling’.” and “‘commercial use,’ which is clearly prohibited in the restrictive covenant, includes short-term rentals even without resorting to technical refinement of what constitutes ‘private occupancy’ or ‘private dwelling’.” Id at 188-89.
In John H Bauckham Trust v Matthew Petter, unpublished per curiam opinion of the Court of Appeals, issued September 19, 2017 (Docket No. 332643), the owners of several lots in the Sunset Shores Subdivision in Casco Township sought an injunction to stop short-term rental activity taking place on lots owned by the defendants. All of the lots in the subdivision were subject to the following deed restrictions:
- “No building shall be erected or maintained on any lot in Sunset Shore, sold by the grantor herein, other than a private residence and a private garage for the sole use of the owner or occupant, except those lots designated as Commercial on the plat map.”
- “No part of said premises shall be used for commercial or manufacturing purposes, except those lots designated as Commercial on the plat map.”
The Michigan Court of Appeals held that short-term rentals violated the “residential use” and the “non-commercial use” deed restrictions in this residential subdivision and an injunction against this activity was proper.
Even if local governments are prohibited in the future from banning short-term rentals under zoning ordinances, these new laws would not affect the enforceability of deed restrictions and association rules in private settings.
THE BOTTOM LINE
There are many ways that short-term rentals could be restricted or banned depending on where you live. Before you engage in this activity, you should consult with skilled legal counsel to make sure you don’t run into unexpected and expensive consequences in your pursuit to make a few dollars.
If you or a loved one have any questions about Michigan property law or need legal representation, then do not hesitate to contact the experienced attorneys at Kershaw, Vititoe & Jedinak PLC for assistance today.