Short Term Vacation Rentals: Can I rent out my home?

Short term rentals have been getting a lot of attention in northern Michigan lately.  As our region transforms, the combination of tourist demand for lodging and home availability is creating some high prices.  Prices for in-demand locations for the first week of July 2018 on homeaway.com or vrbo.com range from $2,000 to $14,000.  It’s no wonder many residents are wondering if they can rent out their homes, primary or secondary, to make money.

So, you are wondering if you can rent out your home on a short-term basis?  Or perhaps you are wondering whether that neighbor who rents out their home is allowed to do so?  There are three sources of prohibitions on short-term rentals: government ordinances, deed restrictions, and association bylaws.  You need to check out the applicable sources for your property before you can conclude that short-term rentals are permissible.

Government Ordinances.  As of yet there is no statewide statute governing short-term rentals, though bills were introduced, but not passed, in 2017.  Regulation of short-term rentals is thus left to the townships or municipalities governing through zoning ordinances.  Many have, or are adopting, ordinances to control short-term rentals.  The ordinances range from complete bans of short-term rentals in some zoning districts to no regulation at all.  A middle approach is a system where rentals are allowed but limited in scope and conditions, and must be registered with the municipality.

Finding out whether your property is controlled by an ordinance should be relatively easy.  Start with the zoning map of your township or city.  Then access the zoning ordinances, usually available online, to determine if there are any applicable ordinances for short-term rentals.  Another method is to contact the city planner or township zoning administrator.  They are usually helpful and can provide good information for you.

Deed Restrictions.  A deed is a document recording ownership of a property.  Sometimes included in the deed, along with the owners and legal description of the property, are restrictive covenants: restrictions on the use of the property.  This most often occurs when the initial developer created multiple parcels out of a larger piece of land.  The recorded restrictions govern the land and are enforceable by neighboring parcels.  A copy of the deed is usually included in your closing packet.  However, a past deed in the chain of title may not be included.  The way to get all the information is to contact a title company to perform a title search on your property.

If you’ve got all the records in hand, what language should you be looking for?  Recently-created developments may have very specific prohibitions or restrictions on short-term rentals.  However, most deeds do not, but instead have general language regarding property use.  Common language includes “single family residential only” or “no commercial use.”  A recent Michigan Court of Appeals case (Eager v Peasley) has ruled that language in a deed limiting the property use to “private dwellings” and banning “commercial use” is a complete prohibition on short-term rentals.  However, there are some gray areas, including whether the home is occupied by the “owner” during the rental or whether the owner is off-site.  If the restrictive covenants are not clear, you should check with an attorney to help you decide whether short-term rentals are allowed by your deeds.

Association Rules.  Lots in subdivisions and units within condominiums are governed by master deeds and association bylaws.  These regulations are usually much more specific than restrictive covenants.  Some rules (usually in condominiums) actively encourage and regulate short term rentals, while others may attempt to completely bar it.  If the situation is not clear, check in with your association president or board.  If the answer given differs in any way from what the rules state, try to get that response in writing.

One more thing!  You’ve checked out your ordinances and restrictive covenants or association rules and found out that short-term rentals are not allowed, but you look around and know that your neighbors, with the same restrictions, are and have been renting out their properties.  What gives?  In certain situations, particularly with restrictive covenants and association bylaws, past non-enforcement of the rules can lead to a situation called estoppel.  Simply put, in estoppel a Court would recognize the existence and applicability of the deed restriction or association rule, but “estop”, or prevent, a party from enforcing the rule because they have not done so in the past.  A Court ruling on estoppel would look at the particular facts of the case, for instance how many properties have violated in the past, the extent of the violations compared to your violation, and whether the neighbors or association were aware of the violations.  In some situations, short-term rentals may be allowed because the history of the development would make it unfair to prevent them.

Getting the law right before you enter into short-term rental contracts is important.  If you have any questions about short-term rentals in your neighborhood or for your property, please contact us.