Restriction on Commercial Use Versus Rental Property

Visitor Question: In our HOA we have a covenant against commercial use of a lot or home in our neighborhood, which is in Kentucky. This is a lakefront subdivision and we have a party with two houses in the development who has decided to use the properties as rentals. He has advertised them online and is actively marketing the properties. I have two questions:

1) Is the restriction against commercial use enough to stop the rentals?

2) Do you know what percentage of homeowners are required to change the restrictions?

Thank you.

Editors Reply: As you probably know if you have read our general page on deed restrictions, you will need an attorney to stop any proposed action that is covered under the deed restrictions. Alternatively, if the HOA board will be the one pursuing the action, they will need to use their attorney.

Here are some general things to keep in mind as you prepare to take this to an attorney. It seems somewhat unlikely to us that rental of the properties to a year-round tenant would be found to be a commercial use. This could vary depending on Kentucky law and court cases, and the specific wording of your deed restriction though.

It is likely to be well-established and not controversial in the legal community whether or not a year-round rental constitutes a commercial use in Kentucky. That much can probably be determined even with a two-minute phone call or conversation with an attorney you or your neighbors happen to be acquainted with.

Often when deed restrictions mean to prohibit renting out a property, they use plain language prohibiting "renting" or "sub-leasing," rather than resorting to language about commercial use.

Since you indicate you are in a lakefront subdivision, perhaps you are asking about short-term rentals to different parties during the year.

In that event, the case is much stronger that this would constitute a commercial use. This is especially true if the owner does not intend to occupy the properties himself or herself at all during the year. Since there are two properties, it is likely that at least one will not be owner-occupied at all during the year.

The percentage of homeowners that is required for a change in the restrictions is set up in the restrictions document itself. You should have a copy, so read to see what it says about changing them. Typically language about changing the restrictions would be near the end of the document.

Sometimes these percentages are very high, even up to requiring unanimous consent, and sometimes the HOA board can change them. Read what it says about who is required to be consulted about changes too, since the original owner setting up the deed restriction often has an overweight influence in how they are administered.

If you have a pretty new subdivision where all lots have been sold, and where the original developer now no longer has any influence over the HOA, changing the deed restriction could be somewhat easy and straightforward if the percentage required to be in agreement is not too high.

Then things become more chaotic when the original owner who set up the restrictions still has a voice, but perhaps that owner now has passed away and has a group of heirs who must agree.

So as you can see, there really are no generalizations about whether it is easy or difficult to change a deed restriction. The details of the way the deed restriction was set up will govern that. In a few states in the U.S., state law limits deed restrictions in some way, but in most states, whatever a deed holder writes can be enforced.

To get ready to talk to an attorney, read what you can of the deed to see about definitions of commercial use and methods of changing the restrictions. Then consult an attorney. If you are lucky, you might have one living in the subdivision who would be willing to take a quick look at the situation and waive the fee. This is really not complicated law and should not warrant a big fee.

As usual we have to say that we are planners, not attorneys.

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