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Subject: No "Commercial use...." definition in state of North Carolina
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BonnieW6
(North Carolina)

Posts:1


05/05/2021 10:48 AM  
Our Covenants state "No lot shall be used except for single family residential purposes with no commercial use,congregate living or multi family use allowed." Does anyone know of any (law) cases in North Carolina that have challenged this to restrict rentals (long term, short term or vacation rentals)in our neighborhood?
SheliaH
(Indiana)

Posts:4290


05/05/2021 1:33 PM  
I think there are a few posters from North Carolina, but you might speed things up by Googling something like "rentals in HOAs North Carolina" that might start.

That said, you DID move into an HOA where you agreed to comply with its CCRs, so if they say no rentals, the only way I see around it is to appeal for some sort of hardship exemption with the board. There may already be language somewhere else in your CCRs about this, so keep reading. If this is all that's in the documents, you might want to poll your neighbors to see if the CCRs can be amended to allow a certain percentage of rentals.

Usually, HOAs make allowances for hardships, which means a situation like a family is moving out of state and wants to rent out their old home to defray the expense of maintaining two households until the first one sells. The problem with rentals is the people who only care about money and will rent to anyone who can fog a mirror and let them do whatever as long as the check clears. We have a lot of rentals in my community (I live in a townhouse community) and the quality of the renters has gone up and down like a roller coaster since I've lived here. That's why I generally have a dim view of investor-owners (and I'm not alone).

Look around on this website and you will see lots of old conversations about rentals and HOAs ranging from discussions about section 8 housing to Airbnb. You can go ahead and look up the case law if you want, but if renting out your home is what you want to do, you may need some buy-in from your neighbors to get the CCRs amended. And if you do get a hardship exemption to rent out your property, be a decent neighbor and take the time to rent to responsible people. Ultimately YOU will be responsible for their conduct, so you'll want to educate them on the community rules and perhaps add language in the lease stating violation of the CCRs can be grounds for eviction.

JohnC46
(South Carolina)

Posts:11665


05/05/2021 2:19 PM  
Posted By BonnieW6 on 05/05/2021 10:48 AM
Our Covenants state "No lot shall be used except for single family residential purposes with no commercial use,congregate living or multi family use allowed." Does anyone know of any (law) cases in North Carolina that have challenged this to restrict rentals (long term, short term or vacation rentals)in our neighborhood?




I do not see how the above is applicable to rentals. It does not mention rentals.
MelissaP1
(Alabama)

Posts:10590


05/05/2021 2:49 PM  
The intent of that rule isn't for rentals. It is making sure someoe doesn't turn their house into a "Frat house" or an Auto garage. Basically a business. Rental isn't necessarily a "business".

Former HOA President
SheliaH
(Indiana)

Posts:4290


05/05/2021 5:11 PM  
This portion of the CCRs reads - "No lot shall be used except for single-family residential purposes with no commercial use, congregate living or multi-family use allowed." The key word here is "commercial" - if you rent out your home whether you're an investor or doing it to make a little extra money, like an Airbnb, it could be argued you're using the house for commercial purposes (making money) and this isn't allowed - at least this is how I interpret this section.

I suspect others in the OP's community or perhaps the OP is thinking along the same lines and wanted to know if this has been challenged in court in regards to rentals, and that's why I said what I said. If you have several unrelated people living in the same house, that could be interpreted as congregate living (e.g. a group home for intellectually disabled adults or an adult foster care home) and that might be disallowed as well.

This makes me think of something else - the OP might want to check the local zoning codes governing the area to see if that comes into play.
MaxB4
(California)

Posts:1601


05/05/2021 5:12 PM  
Posted By MelissaP1 on 05/05/2021 2:49 PM
The intent of that rule isn't for rentals. It is making sure someoe doesn't turn their house into a "Frat house" or an Auto garage. Basically a business. Rental isn't necessarily a "business".



My accountant would take issue with that!
CathyA3
(Ohio)

Posts:2599


05/06/2021 6:12 AM  
Posted By JohnC46 on 05/05/2021 2:19 PM
Posted By BonnieW6 on 05/05/2021 10:48 AM
Our Covenants state "No lot shall be used except for single family residential purposes with no commercial use,congregate living or multi family use allowed." Does anyone know of any (law) cases in North Carolina that have challenged this to restrict rentals (long term, short term or vacation rentals)in our neighborhood?




I do not see how the above is applicable to rentals. It does not mention rentals.




An increasing number of municipalities are viewing short-term "rentals" as businesses requiring proper licenses, lodging taxes and the like. And in the past we've discussed a few court cases that upheld this view. It boils down to the fact that someone who is staying in a hotel for a few nights can't be said to be living there in any commonly understood meaning of that term - the hotel is not his permanent address, he doesn't get his mail there, etc. Further a guest at a hotel doesn't have the same rights that the state's landlord-tenant laws give to a tenant - for example, the fact that you've been there for a while doesn't give you any right to be there in the future, and the hotel doesn't have to go through formal legal channels to evict you if you don't pay.

I think the language in the OP's CC&Rs would allow longer-term rentals with a formal lease of the entire home (ie, the tenant lists that address as his permanent address with his employer, bank and the IRS, and gets mail delivered there). It should exclude group homes/boarding house style homes (congregate or multi-family use). Commercial use is a bit more vague, although personally I would lump "vacation rentals" under that which in my view includes the Airbnb's and others of that ilk. I think we cloud the issue by referring to these things as "rentals" (and even Airbnb refers to their customers as "guests", not tenants).

I think the OP will probably need to do a deeper dive into North Carolina's case law to see where that state comes down on this (or pay a lawyer for a couple hours of consulting to see where this is likely to shake out). Case law may not matter if a community's CC&Rs prohibit something.
CathyA3
(Ohio)

Posts:2599


05/06/2021 6:32 AM  
Posted By MaxB4 on 05/05/2021 5:12 PM
Posted By MelissaP1 on 05/05/2021 2:49 PM
The intent of that rule isn't for rentals. It is making sure someoe doesn't turn their house into a "Frat house" or an Auto garage. Basically a business. Rental isn't necessarily a "business".



My accountant would take issue with that!



Yeah, I personally even view longer-term, formal rentals as a business - it's just that this is an allowable form of commercial activity in most HOAs/COAs.

Many/most people own rental property through LLCs, which are corporations. They need to take care to keep their personal and business activities separate, otherwise they risk piercing the corporate shield which protects their personal assets from business misadventure. Owners of LLCs who want financing to purchase property have to go to the commercial area of the banks - they can't get the kind of financing that individuals get when they want to buy a house for themselves to live in. And owners of the LLCs make money doing this, which is the whole point. Sure sounds like a business to me.

The fact that long term tenants are generally less of a nuisance to an HOA than clients coming and going regularly doesn't make it any less commercial - it's just that the nature of the business is different.
AugustinD


Posts:1920


05/07/2021 6:17 PM  
Posted By BonnieW6 on 05/05/2021 10:48 AM
Our Covenants state "No lot shall be used except for single family residential purposes with no commercial use,congregate living or multi family use allowed." Does anyone know of any (law) cases in North Carolina that have challenged this to restrict rentals (long term, short term or vacation rentals)in our neighborhood?


See Russell v. Donaldson, 731 S.E.2d 535 (N.C. Ct. App. 2012), at https://casetext.com/case/russell-v-donaldson

Russel v. Donaldson addresses covenants similar to BonnieW6's: only one family residential use is allowed, and no commercial or business use is permitted.

The appeals court's conclusion:
"Under North Carolina case law, restrictions upon real property are not favored. Ambiguities in restrictive covenants will be resolved in favor of the unrestricted use of the land. A negative covenant, prohibiting business and commercial uses of the property, does not bar short-term residential vacation rentals. The trial court did not err in granting defendants' motion for summary judgment and in denying plaintiffs' motion for summary judgment."

I see nothing indicating that this North Carolina appeals court decision has been overruled in the years after 2012.

MelissaP1
(Alabama)

Posts:10590


05/07/2021 6:57 PM  
FYI: I just read my new HOA's CC&R's. There is a line in it that states "Rental is NOT considered a business" per their terms under Rental.

Former HOA President
CathyA3
(Ohio)

Posts:2599


05/08/2021 5:21 AM  
Posted By MelissaP1 on 05/07/2021 6:57 PM
FYI: I just read my new HOA's CC&R's. There is a line in it that states "Rental is NOT considered a business" per their terms under Rental.



You folks may be on a slippery slope. As I'd mentioned to another poster with a rental issue in her community, by the time you decide you have a problem, you've eliminated many of your options for solving it. Time is not your friend in this case.

It clouds our thinking when we refer to Airbnb, hotel-style lodging as "rentals". I think there is a pretty clear distinction between between a short stay at a hotel vs. signing a lease/changing your legal address/moving all of your belongings/etc. And allowing transients undermines one of the reasons for the no-business restriction in residential areas, namely to eliminate the traffic and commotion associated with those businesses. Not to mention that it can change the HOA's risk profile for insurance purposes: there are a lot more strangers coming onto the property and many of them are in town to make whoopee.
MelissaP1
(Alabama)

Posts:10590


05/08/2021 6:48 AM  
I have not even moved in yet in my new HOA and have seen "For Rent signs" out already. Been told that some of them are Developer renting them out. It's a combo of reasons why that is now happening. Rent around here is about the same as building a house. Plus we have a housing shortage. Any Airnb we have are mostly business related rentals. Companies putting up employees for the short term.

My last neighbor was from California. He literally bought the house next door to live in for the 2 year contract he was working here. He sold the house for a profit.

If they are all here for the "Whoopie" then your going to find a lot more kids out there named after my city... LOL!

Former HOA President
AugustinD


Posts:1920


05/08/2021 7:20 AM  
Posted By CathyA3 on 05/08/2021 5:21 AM

It clouds our thinking when we refer to Airbnb, hotel-style lodging as "rentals". I think there is a pretty clear distinction between between a short stay at a hotel vs. signing a lease/changing your legal address/moving all of your belongings/etc. And allowing transients undermines one of the reasons for the no-business restriction in residential areas, namely to eliminate the traffic and commotion associated with those businesses. Not to mention that it can change the HOA's risk profile for insurance purposes: there are a lot more strangers coming onto the property and many of them are in town to make whoopee.
I continue to think the problem is the vagueness and ambiguity of many (pre-airbnb?) covenants on the point. As this forum has discussed at length, the courts seem to be coming down in favor of STRs where the covenants say both 'residential use allowed' and 'commercial use prohibited.'

https://www.hoatalk.com/Search/ForumSearch/tabid/87/forumid/1/postid/288125/view/topic/Default.aspx

https://www.hoatalk.com/Search/ForumSearch/tabid/87/forumid/1/postid/274548/view/topic/Default.aspx

I do agree that, as needed, amending the covenants should be attempted to restrict short term rentals of under ___ (pick your number) days.
CathyA3
(Ohio)

Posts:2599


05/08/2021 7:56 AM  
I expect Augustin is right about the vagueness of covenants. These covenants need better definitions of both "rental" and "business" or "commercial".

Personal opinion: if I'm going to live around tenants, then I want the benefits of being a tenant myself. People who own homes in HOAs/COAs that don't have robust and clear restrictions have the worst of both worlds: the disadvantages of living around transients *and* the responsibilities of home ownership. In fact, it's worse than that: not only do HOA/COA members have home ownership responsibilities, they are also financial and legal partners of others whose interests do not coincide and may even conflict.

I understand why one of our former board presidents sold all his stuff and moved into an RV. So much easier to get away from problem neighbors that way. On the other hand, he now has a home that can get a flat or break down on the highway... :-)
KellyM3
(North Carolina)

Posts:1806


05/10/2021 6:02 AM  
There's a difference between long-term rental and a short-term VRBO/AirBnB rental. Long-term rental supplies a form of stable tenancy.

AirBnB is clearly an investment made by private individuals for the sake of "commercial use." It's a hotel service at its core and, I believe, it's not unreasonable to challenge it if it's causing issue.
AugustinD


Posts:1920


05/10/2021 6:46 AM  
Posted By KellyM3 on 05/10/2021 6:02 AM
AirBnB is clearly an investment made by private individuals for the sake of "commercial use."
"Clearly." Huh. The North Carolina Court of Appeals disagrees with you. From Russell v. Donaldson, 2012,
https//law.justia.com/cases/north-carolina/court-of-appeals/2012/12-183.html:

=== Start Excerpt from 2012 North Carolina Court of Appeals Opinion ===
The covenant at issue states, “No lots shall be used for business or commercial purposes[.]” We must determine if defendants’ rental activity qualifies as a business or commercial purpose in violation of the covenant. We look to the natural meaning of “business or commercial purposes” Hobby & Son, 302 N.C. at 71, 274 S.E.2d at 170. In the instant case, the restrictive covenant and the surrounding context fail to define “business or commercial purpose.” Plaintiff suggests looking at other North Carolina statutes to provide definitions of ambiguous words in the covenant. Plaintiff does not cite any authority in support of this proposition. Rather, when covenants
are ambiguous, as in the instant case, all ambiguities will be resolved in favor of the unrestrained use of the land. Hobby & Son, 302 N.C. at 74, 274 S.E.2d at 181.

i. North Carolina Case Law
Our prior cases in North Carolina have dealt with “affirmative” covenants requiring the use of land for residential purposes. Hawthorne v Realty Syndicate, Inc., 300 N.C. 660, 662, 268 S.E.2d 494, 496 (1980). Plaintiff cites us to Walter v. Carignan, 103 N.C. App. 364 (1991). However, the
instant case deals with a “negative” covenant, prohibiting the use of land for business or commercial purposes. We hold that the cases cited by plaintiff are not sufficiently similar to the
instant case to be binding authority. In the absence of persuasive and binding North Carolina cases, we examine the law of other states.

ii. Negative Covenant Cases from other Jurisdictions
In Yogman v. Parrott, 937 P.2d 1019, 1021 (Or. 1997), the Supreme Court of Oregon held that a restrictive covenant prohibiting the use of property for commercial enterprise was
ambiguous. It held that the owners of the property could use the property for short term rental because the use was “not plainly within the provisions of the covenant.” Yogman, 937 P.2d at 1023.

Similarly, in Silsby v. Belch, 952 A.2d 218, 222 (Me. 2008) the Supreme Judicial Court of Maine held that the owner’s rental use of their property did not violate the covenant’s prohibition
against use “for any commercial purposes” because the covenant did not expressly forbid the activity. Finally, Slaby v. Mountain River Estates Residential Assoc., Inc., __ So.3d __ ,__, 2012 WL 1071634, (Ala. 2012) held that a covenant prohibiting commercial usage of property did not
prohibit the rental of the property on a short term basis for residential purposes. “Neither [the] financial benefit nor the advertisement of the property or the remittance of a lodging tax
transforms the nature of the use of the property from residential to commercial.” Slaby, __ SO.3d at __. Each of these cases deals with negative covenants and fact patterns that are nearly identical to the covenant and facts in the instant case. We find these authorities to be persuasive and hold that the short term rental of the properties does not violate the restrictive covenants.

III. Conclusion
Under North Carolina case law, restrictions upon real property are not favored. Ambiguities in restrictive covenants will be resolved in favor of the unrestricted use of the land. A negative covenant, prohibiting business and commercial uses of the property, does not bar short-term residential vacation rentals. The trial court did not err in granting defendants’ motion for summary judgment and in denying plaintiffs’ motion for summary judgment.
=== End Excerpt ===

The above remains binding on all trial courts in North Carolina.
KellyM3
(North Carolina)

Posts:1806


05/12/2021 8:24 AM  
Augustin,

Nice armchair lawyering via Justia.com!

Clean up the CCRs of the HOA legally and ban AirBnBs if that's what the HOA wants to do.

Geez.

AugustinD


Posts:1920


05/12/2021 8:31 AM  
Posted By KellyM3 on 05/12/2021 8:24 AM
Nice armchair lawyering via Justia.com!
I do not know if this is either sarcasm or chiding, as a response to my correction of your gross misunderstanding of the law in North Carolina. With regards to the case law, a member of the bar would have said the same thing as I posted, adding maybe, "The law is what the court says tomorrow" and "I would have to look at the governing documents to see if there are any loopholes yada, for either position, here. That will be $3000 please for the governing documents review."

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