Abandoned Covenants

Started by HughO • 81 replies • 2062 views

💬 Join us to post & get advice from 50,000 HOA & Condo leaders.

⚡ Takes 30 seconds

Already a member? Log in

HughO (Pennsylvania)
Posts: 57

Posted:

I bought property 13 months ago that has a set of covenants carrying with the land. One of those covenants has not been enforced for 17 years. Now that I moved in all of a sudden a homeowner is threatening to get the other homeowners together and sue me. I’ve read that an abandoned covent that has never been enforced is then expired and no longer a part of the binding covenants.

Here’s the covenant:

No lot shall be used for commercial activity or business

I do have guests from Vrbo staying at the house. I charge well below market rate. Guests only stay at the house a maximum of 120 days.

What experience do y’all have in this area?

Your thoughts are much appreciated.

AugustinD
Posts: 5,144

Posted:

-- How do you know the covenant has never been enforced? Are there specific instances you can cite where an owner has had a short term rental and no other owner objected?

-- You are correct that, under certain conditions, a court may rule a covenant to be abandoned.

-- The courts have questioned whether a short term rental (for residential purposes including vacationers) is actually a business or commercial activity. Here's one example where the court would rule in your favor: http://www.nlrg.com/legal-content/the-lawletter/property-do-short-term-vacation-rentals-violate-covenant-prohibiting-commercial-activity-or-use . IIRC there are other examples.

-- Is this the rural Georgia HOA about which you posted in another thread? If so, in a court of law, the fact that it is rural and large lots would likely help your position a bit. 'When a covenant is ambiguous, the rule is to err on the side of free enjoyment of property.' Especially when the enjoyment does not discernably impact neighbors.

HughO (Pennsylvania)
Posts: 57

Posted:

Hey Augustin,

Yes it’s the same property.

Two homes were rented via Vrbo and self managed by two owners of homes. They are no longer owners and now my house is the only one left being rented.

I have first hand knowledge from those prior owners that the Covenant was never enforced.

Thank you for link to the example.

HughO (Pennsylvania)
Posts: 57

Posted:

Four of the twenty owners have complained about what they believe too cars parking on my property. They don’t like people enjoying themselves and making noise till 10:30 at night. They don’t like that strangers to them are on the roads.

AugustinD
Posts: 5,144

Posted:

Hugh, let's say these two homes were rented in about the last five years, and no one objected. Then --

-- I doubt this is long enough to have legal meaning as far as abandonment is concerned.

-- two examples may not be enough.

-- does the proposed abandonment of this covenant radically change the nature of the community? I think not. This goes against you.

You can google on {abandoned covenants} and turn up more.

Perhaps the only questions remaining are (1) whether renting is "commercial or business" activity; and (2) is the latter phrase so ambiguous (in the case of residential renting usage of the home) that contract law requires erring on your side? Internet attorneys seem to be split, with most saying that a community wanting to restrict rentals should be specific so as not to have to deal with litigation one way or the other.

HughO (Pennsylvania)
Posts: 57

Posted:

Sorry about not being clear. For 17 years the covenant has not been enforced.

I don’t understand why if I’m not radically changing the environment with my rental that this would go against me.

The other owners never enforced the covenant. They are only now seeking legal action against me. A new owner.

I agree on your last point. Nowhere in the covenant does it define and term let alone commercial activity or business. However, the IRS does define it and it does not include rentals of a residential property.

AugustinD
Posts: 5,144

Posted:

Quote:

Posted By HughO on 12/16/2019 10:31 AM
Four of the twenty owners have complained about what they believe too [many?] cars parking on my property. They don’t like people enjoying themselves and making noise till 10:30 at night. They don’t like that strangers to them are on the roads.

For the sake of peace, consider putting in your lease a "quiet hours" requirement: No loud noises yada from 9 PM to 9 AM.

Consider writing your neighbors as follows:

---------------------------
Dear Neighbors,

I understand that you object to my renting my home. The covenants for our subdivision do not address renting specifically. One covenant prohibits "commercial activity" and "business." Another covenant states that each lot is for "single family residential purposes only." Nationwide, I understand the courts have at times ruled that either a rental is not a violation of such covenants, or that the wording of such covenants is too ambiguous to make them enforceable. I am not sure if Georgia case law is dispositive on the issue.

I have re-written the lease I use to restrict renters to quiet hours from 9 PM to 9 AM. I intend to strictly enforce this. If you hear objectionable noise during these hours, please let me know.

Sincerely,

--------------------------

Your neighbors could try to amend the covenants to prohibit renting, but it appears that, for an amendment like this to succeed, the vote must be 100% in favor. See https://andersentatecarr.wordpress.com/2010/01/12/hoa-leasing-restriction-update/

HughO (Pennsylvania)
Posts: 57

Posted:

Yep 😀 I have exactly that same quiet hours in the contract, house guide, and three reminder emails I send prior to their stay and on the day of their stay.

Out of ~30 guests, only 4 I’ve herd were loud till 10:30 pm.

Thank you for the letter content. I like it very much.

HughO (Pennsylvania)
Posts: 57

Posted:

Would I be grandfathered in even if all but me agree to the division and clarification of the covenant in question.

HughO (Pennsylvania)
Posts: 57

Posted:

Would I be correct in thinking that because my vote would be against a revised covenant would constitute being less than 100% acceptance of the vote for change?

AugustinD
Posts: 5,144

Posted:

Posted By HughO on 12/16/2019 10:59 AM
I don’t understand why if I’m not radically changing the environment with my rental that this would go against me.

When covenant abandonment has come up in other threads, I started reading discussions of the case law. One criterion for "abandonment" appears to be that it has to be obvious from driving the land that the covenant prohibiting xyz is not being enforced. That is, a reasonable person would buy there in the belief that no such covenant prohibiting xyz existed. This argues for the property values being un-affected by the lack of enforcement of the covenant. Consider:

1.
"The party relying on the waiver defense must show that the previous conduct or violations had affected the architectural scheme of the area so as to render the enforcement of the restriction of no substantial value to the property owners." -- from https://www.caidc.org/when-covenants-arent-enforced/

2.
"A uniform covenant is abandoned when existing violations of the covenant would lead a reasonable person to believe that the covenant has been abandoned and is no longer enforceable.
...

The abandonment principle, on the other hand, is that the burdened party reasonably relies on the impression that the covenant is no longer enforceable. Even though the covenant may be recorded, the burdened party actually didn’t have notice that the covenant still burdened the property, because circumstances indicated that the owners had stopped enforcing the covenant.
-- from https://www.dummies.com/education/law/property-law-abandoning-a-covenant/

These discussions are often referring to highly visible architectural modifications that ostensibly and obviously violate a land's covenants. But a person driving around the land would likely think the covenant had been abandoned. In your case, when one drives around the subdivision, it is not obvious that your home (or the prior two homes) is violating the covenant prohibiting commercial and business activity.

I do not see mention of the IRS definition per se in court cases. But I am betting the IRS's reasoning and the court's reasoning, regarding what is "commercial activity" may be similar.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

I say just because a Covenant has not been enforced, it is not abandoned and it can be enforced.

HughO (Pennsylvania)
Posts: 57

Posted:

Thank you Augustin. Your effort is much appreciated.

HughO (Pennsylvania)
Posts: 57

Posted:

I respectfully disagree John. Especially since now that I own the house they are looking to sue me. Isn’t this discrimination? I’ve been very nice to them. I’ve taken many steps to limit the rental to respectable people. I run background checks. They are in a much better situation than they were with the prior owners. Smells like discrimination to me. Maybe because I’m from PA. 🤣

AugustinD
Posts: 5,144

Posted:

Quote:

Posted By HughO on 12/16/2019 11:14 AM
Would I be correct in thinking that because my vote would be against a revised covenant would constitute being less than 100% acceptance of the vote for change?

I think a court is far more likely than not to see it thusly and side with you. (Though if push comes to shove, an attorney may advise your neighbors thusly, and you all will never go to court.)

This particular issue has come up a lot nationwide. Whether Georgia courts have addressed whether renting is a commercial or business activity is still not clear to me yet. If Georgia courts have ruled residential renting is a commercial or business activity, you are out of luck. So far, from reading discussions on the case law nationwide, I would not bet one way or the other.

Possibly important aside: If I am reading some of the chatter correctly, the appeals court in Wisconsin said in part that the owner of the lot was not making money from rental of the lot itself. Rather the owner was making money from the rental of the house on the lot? The court said the covenant was too ambiguous and so ruled in favor of the landlord. Double check me on this.

HughO (Pennsylvania)
Posts: 57

Posted:

I was thinking the same on your last point. It’s probably a stretch but it’s nice to have someone thinking along the same lines.

Also, I read something about if I’m renting below the market price then this is not a business since a business is in business to make money. I’m renting for about $20 less than the Vrbo defined market rates.

HughO (Pennsylvania)
Posts: 57

Posted:

Quote:

Posted By HughO on 12/16/2019 11:34 AM
I was thinking the same on your last point. It’s probably a stretch but it’s nice to have someone thinking along the same lines.

Also, I read something about if I’m renting below the market price then this is not a business since a business is in business to make money. I’m renting for about $20 less than the Vrbo defined market rates.

Also, I’m only covering my expenses. I’m in the red by $5k so I’m not making anything.

GenoS (Florida)
Posts: 4,276

Posted:

Quote:

Posted By AugustinD on 12/16/2019 10:20 AM
-- The courts have questioned whether a short term rental (for residential purposes including vacationers) is actually a business or commercial activity.

In Florida an apellate court had a case where they ruled that when a place is rented, even for profit, the nature of the use is still residential and residential use restrictions in a community's covenants were not sufficient to curb short-term rental activity.

I don't think covenants ever become abandoned. I don't think they're discriminating. I think you've got a good case in court and that's where you'll likely end up. If you win (and if you're lucky) they might end up having to pay your legal and attorney fees.

AugustinD
Posts: 5,144

Posted:

Quote:

Posted By HughO on 12/16/2019 11:34 AM
I was thinking the same on your last point. It’s probably a stretch but it’s nice to have someone thinking along the same lines.

FWIW, I do not think it's a stretch. I think the courts are all about trying to parse language. This includes identifying when the language cannot be parsed and is just flat out ambiguous. The courts say whoever wrote the contract (covenants in this case) has to be clear, or else disputes will result in a ruling against the entity that wrote the covenants. It is a rule of contract law. It helps deter those who write contracts from being mischievous.

"Lot" means lot. Sure two sides going to court over this will debate whether "lot" includes any residence on it. But to me, just the fact that debate on a single word is occurring leans towards a judge saying, "One could conclude that the developer meant that one cannot grow crops on the lot and then sell these crops commercially. Or raise pigs on the lot, fatten them up, and then sell the pigs at market. This is quite different from putting a house on a part of the lot and renting the house. The developer could have been more specific. If the developer wanted no rentals of homes on lots, he or she could have said as much. He/she was not."

Quote:

Posted By HughO on 12/16/2019 11:35 AM
Also, I’m only covering my expenses. I’m in the red by $5k so I’m not making anything.

From a bit of reading in the last hour or so, I think you are right: No profit = no business.

HughO (Pennsylvania)
Posts: 57

Posted:

Awesome. Thank you for your thoughts on the matter Augustin.

What is FWIW?

HughO (Pennsylvania)
Posts: 57

Posted:

Gino, thank you for the Florida info. Would you happen to have the case? CNN

SheliaH (Indiana)
Posts: 6,964

Posted:

As Augustine said, you don’t know if the covenants have been enforced, as you’ve only been there 13 months. Covenants can be enforced by one homeowner against another, so if this goes to court, it may be the court will agree with you or them. Your neighbors may not have enforced the "no home business" rule against the previous owners, but maybe that's because they didn’t have tenants that made a racket at 10:30 pm. And some people just don’t like strangers going in and out of the community (your renters may be ok, but what about their friends?)

As for amending the CCRs to allow rentals, that could happen and you might be able to persuade enough folks to do it - check your documents to see what percentage is needed and perhaps concentrate on the remaining number who aren’t involved in this at all. However, if they decide to ban short term rentals, that doesn’t necessarily mean you’ll be grandfathered in if they decide to ban short term rentals. This isn’t the same as, say, changing an exterior change rule, like banning sheds going forward, but letting the others stay until the house is sold or transferred, or the current one falls apart and has to be removed.

It’s great that you’re doing your due diligence by running background checks and establishing house rules (I wish some of the landlord/owners in my community would do the same!), but frankly, you made a business decision for whatever reason to rent out your home, and whether you make money or it or not isn’t the HOA’s problem (even if it’s below market value). Some people just don’t like rental homes in their community no matter who does it, so perhaps you should consider sitting down with the neighbors who object (get someone to serve as a mediator) to see if something else has happened that you don’t know about and can be resolved without going to court. Otherwise, a judge may end up being the one who decides if the covenant was truly abandoned or not.

If it is not right do not do it; if it is not true do not say it. Marcus Aurelius

JohnT38 (South Carolina)
Posts: 1,631

Posted:

AugustinD, this may be a silly question but why wouldn't they argue that when they say no businesses allowed this includes non profit businesses as well? I'm asking because we have a similar potential issue so I'm following this thread with interest.

GeorgeS21 (Florida)
Posts: 3,808

Posted:

This sort of thing going in around the country as folks rent out their homes for a few days at a time.

If I had invested in what appears to be a rural, quiet area and my neighbors started short term leasing, I might consider suing.

You’re gonna end up in court it sounds like, so lawyer up.

Be interesting to see what rationale your neighbor use ... they might get lucky.

AugustinD
Posts: 5,144

Posted:

Quote:

Posted By JohnT38 on 12/16/2019 12:01 PM
AugustinD, this may be a silly question but why wouldn't they argue that when they say no businesses allowed this includes non profit businesses as well?

First, and truly speaking as a layperson, I recognize that "non profit" is a bit of a loaded term. Doesn't it just mean that the entity cannot retain profits, ultimately distributing the profits to the business's owners or shareholders? Yet a non profit on a lot at a HOA can be just as much of a nuisance as a for profit business. For example, many non profits operate to provide adult education, like literacy and GED classes. The clients need a lot of parking space. Much usage of the roads occur. John, is there some member at your HOA saying his or her nonprofit business is not as noxious as a for profit business? I disagree. Further, I think it is a business, pure and simple, and if the covenants say no business in any home in the HOA, then for good or bad, this includes nonprofit businesses.

(Now Hugh might weigh in and say, "Hey, Aug, you posted above that my not making a profit means I am not a business, and so not covered by the covenant." Right, but Hugh's short term residential rental is also not a non profit (sic)?)

Aside: Given there is a real dispute where John is, with said dispute directly affecting people's lives, and possibly livelihoods given that salaries are typically paid to nonprofit employees, I see no silliness to this question.

AugustinD
Posts: 5,144

Posted:

Quote:

Posted By SheliaH on 12/16/2019 12:00 PM
perhaps you should consider sitting down with the neighbors who object (get someone to serve as a mediator) to see if something else has happened that you don’t know about and can be resolved without going to court. Otherwise, a judge may end up being the one who decides if the covenant was truly abandoned or not.

I agree, in part because trial court judges get the law wrong all the time. Then one has to pay for an appeal. It is worth reading more about real-live covenant lawsuits and how many tens of thousands of dollars are spent by each side. Often it is more than a hundred thousand dollars per side. Plus years of one's life. The good attorneys will help parties to a dispute avoid court.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Earlier poster said:

but frankly, you made a business decision for whatever reason to rent out your home, and whether you make money or it or not isn’t the HOA’s problem (even if it’s below market value)

Making money or not as defining a business is a fool's argument. Your argument should be abandoned Covenant due to no enforcement. Do not be surprised if the association comes up with some "old" communication with an owner on the same subject and shoots your abandoned argument in the ass.

GenoS (Florida)
Posts: 4,276

Posted:

Quote:

Posted By HughO on 12/16/2019 12:00 PM
Gino, thank you for the Florida info. Would you happen to have the case? CNN

It was a 2017 case, "Santa Monica Beach P.O.A. v. Acord, (Fla. 1st DCA, April 28, 2017)". The ruling was addressed here and here. An internet search will turn up a lot more on the case because it the ruling was significant and prompted a lot of dicsussion. The actual opinion is online here at the 1st District Court of Appeals website.

One of those articles speculates that a specific restriction against short-term rentals might have worked in the HOA's favor, but there was none and the general "no business or commercial activity" prohibition wasn't good enough to stop the rentals.

HughO (Pennsylvania)
Posts: 57

Posted:

Wouldn’t enforcement be more than a text, email, face to face discussions. Never saying you must stop. Shouldn’t it be in a formal letter? Possibly notorized. Maybe even a Sheriff getting involved delivering an injunction? Otherwise is a covenant then not enforced?

HughO (Pennsylvania)
Posts: 57

Posted:

Thank you Geno

AugustinD
Posts: 5,144

Posted:

Quote:

Posted By HughO on 12/16/2019 12:23 PM
Wouldn’t enforcement be more than a text, email, face to face discussions. Never saying you must stop. Shouldn’t it be in a formal letter? Possibly notorized. Maybe even a Sheriff getting involved delivering an injunction? Otherwise is a covenant then not enforced?

I for one agree. If the HOA did not take legal action to stop the other rentals, and the rentals continued, then the covenant was not enforced.

AugustinD
Posts: 5,144

Posted:

Quote:

Posted By HughO on 12/16/2019 11:59 AM
What is FWIW?

"FWIW" means "for what it is worth."

Nice citation, Geno.

George, if the covenants were clear that short term rentals were not allowed, I would join your suit. But if not, then so far the case law seems to be running in favor of Hugh.

HughO (Pennsylvania)
Posts: 57

Posted:

Here’s a crazy thought. Since I’m charging just to cover the mortgage and the consumables such as propane, water, electric that each guest uses, couldn’t I claim I’m not renting the house but rather inviting guests to stay. I do this for family and friends to.

I make friends, subsequently guest, that I invite to my home. I meet them on all sorts of medium, while volunteering, at the bar, golfing, work, Facebook, Pinterest, Vrbo, AirBnB. I’m a social person 🤣

Is this a lame defense or do you think it has some weight to it?

Thank you all for your thoughts. This is an amazing forum made up of what I’ve experienced as a group of very intelligent people.

AugustinD
Posts: 5,144

Posted:

Quote:

Posted By HughO on 12/16/2019 1:09 PM
Here’s a crazy thought. Since I’m charging just to cover the mortgage and the consumables such as propane, water, electric that each guest uses, couldn’t I claim I’m not renting the house but rather inviting guests to stay. I do this for family and friends to.

I make friends, subsequently guest, that I invite to my home. I meet them on all sorts of medium, while volunteering, at the bar, golfing, work, Facebook, Pinterest, Vrbo, AirBnB. I’m a social person 🤣

Is this a lame defense or do you think it has some weight to it?

I think at a minimum you can use this argument to persuade the opposition that, if they want to sue you, this will be one expensive legal fight. Just be sure you can live with some of your neighbors loathing you?

By any chance do your county's land use regulations say that "short term rentals" qualify as "residential use" and so do not violate "residential use" zoning? I saw an article where this point was made for a certain county.

GeorgeS21 (Florida)
Posts: 3,808

Posted:

Augustin,

I'm not saying I would win the suit against the short term renting owners, I'm just saying lots of things can happen - and, if the short term nature of the rentals really irritated me, I would probably sue and see what happened.

Expensive, yeah, but so is peace and quiet :-)

GeorgeS21 (Florida)
Posts: 3,808

Posted:

Hahahah ... yeah, Hugh, I don't think that idea is gonna work.

You're just looking for angles to get past something - something that your neighbors must really not like.

BTW, if I were one of the neighbors, I would be out gathering agreement from other neighbors to support the lawsuit - while the number of parties to the suit probably won't change the outcome, it will be a LOT less expensive for them - than for you. Does your state award court costs?

HughO (Pennsylvania)
Posts: 57

Posted:

I don’t know about those county specific laws. But, the county did give me a license to rent the house. I’ll look into this and let you know what I find for others benefit.

HughO (Pennsylvania)
Posts: 57

Posted:

I’ll have to check into the court cost state award or not.

JohnT38 (South Carolina)
Posts: 1,631

Posted:

If the county gave you a license does that imply it's a business?

HughO (Pennsylvania)
Posts: 57

Posted:

I don’t believe so. It’s their way of just making sure I pay taxes.

Also, the house is in my name. There’s no business associated with it.

GeorgeS21 (Florida)
Posts: 3,808

Posted:

I'm feeling better about my chances of reducing the noise from short term renters :-)

HughO (Pennsylvania)
Posts: 57

Posted:

LOL

HughO (Pennsylvania)
Posts: 57

Posted:

Another point to make is I only have guests there 120 days a year. I’m there and family and friends are there about 200 days a year. I’ve read irs and GA state law that indicates in this situation it is considered a residence and not a business.

GeorgeS21 (Florida)
Posts: 3,808

Posted:

Hugh,

It would be great if you could let us know the outcome.

Remember, you don’t have to convince us, just a judge.

SteveM9 (Massachusetts)
Posts: 3,699

Posted:

Quote:

Here’s the covenant:
No lot shall be used for commercial activity or business

Well, its not abandoned.... Its still a valid covenant. And your neighbors can sue you and win.

PS.
An abandoned covenant would be all the neighbors doing commercial activity and no one says anything for many years. I dont see that happening here.

Again, you would have to convince a judge....

HughO (Pennsylvania)
Posts: 57

Posted:

Oh I will let y’all know.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Keep in mind that considering the covenant abandoned is a defense for a court of law.

The court may or may not agree with you.

Unless you are considering going through the expense and energy of a legal case based on principal, you need to ask yourself if this is worth the effort.

If it is, start gathering information (copies of ads showing others are doing the same, relevant court cases within your State (as cases outside of your State don't have to be considered by the court), shop for an attorney, etc.).

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Posted By GeorgeS21 on 12/16/2019 1:37 PM
Hahahah ... yeah, Hugh, I don't think that idea is gonna work.

You're just looking for angles to get past something - something that your neighbors must really not like.

BTW, if I were one of the neighbors, I would be out gathering agreement from other neighbors to support the lawsuit - while the number of parties to the suit probably won't change the outcome, it will be a LOT less expensive for them - than for you. Does your state award court costs?

I agree. He is looking for angles. If some neighbors band together and get the HOA to join, he is not only outnumbered but more importantly, he is out dollared $$$$$$$$$$$

HughO (Pennsylvania)
Posts: 57

Posted:

I just believe there are many things with this so call HOA that in effect render it nonexistent. There’s no board. No annual meetings. One unelected person makes all decisions. No legal entity with GA SOS. and other issues.

How can covenants exist for a nonexistent organization.

AugustinD
Posts: 5,144

Posted:

Quote:

Posted By HughO on 12/16/2019 4:21 PM
I just believe there are many things with this so call HOA that in effect render it nonexistent. There’s no board. No annual meetings. One unelected person makes all decisions. No legal entity with GA SOS. and other issues.

How can covenants exist for a nonexistent organization.

Covenants (with no HOA) date back to early 1800s England. They have been enforceable in the courts for at least 150 years. Homeowner associations have only gained prominence in the last 60 years or so. By my reading, you and your fellow landowners have no HOA. You do have covenants. It is not unusual at all.

🎯 You've read this entire discussion

Join the conversation with 50,000 HOA & Condo Leaders:

✓ Ask follow-up questions
✓ Share your experience
✓ Get expert advice
✓ Access 350,000 discussions

Create Free Account →

⚡ Takes 30 seconds

Already a member? Log in here