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Restrictive Covenants Prohibiting Short-Term Rentals Upheld by Virginia Court of Appeals

March 07, 2024

Short-term rentals such as those listed on sites like Air B&B and VRBO are becoming more and more common across the Commonwealth. However, short-term rentals are controversial.  On one hand, they offer vacationers or business travelers an alternative to traditional hotels. They also provide an income source to homeowners who can rent out their homes (or portions of their homes) for short periods of time.  

On the other hand, many of the short-term rental homes are located in established, family-style neighborhoods. Not surprisingly, many neighborhood residents are less than pleased to find that their neighbor’s home has been converted into a rental property for transient occupants.  Short term rentals are often associated with nuisances, such as loud parties and guests coming and going at all hours of the night.

Local Ordinances and Regulations

Due to the controversial nature of short-term rentals, it should come as no surprise that may localities have enacted – or are in the process of enacting – local ordinances to regulate this type of business.  For example, the City of Virginia Beach has strict requirements for operating short term rentals which can be found here.  Similarly, the City of Norfolk has short term-rental regulations which can be found here. Property owners wishing to operate their homes as a short-term rental would be well-advised to check the local regulations prior to listing any property for rent.  However, while many larger metropolitan cities in the Commonwealth have adopted clear rules and regulations concerning short-term rentals, many smaller towns and counties have not yet passed such laws.

Covenants Enforced by Property Owners’ Associations

Property owners need to be aware that local ordinances are not the only potential impediment to the operation of short-term rentals. This type of business may also be prohibited by covenants, enforced by Property Owners’ Associations (POAs), which restrict what property owners can do with their land even if such uses are otherwise legal. Covenants of this nature are considered contracts between the POA and the homeowner, and the POA has the power to enforce the covenants under contract law.

For example, many POAs enforce covenants which limit the size or type of fencing and other architectural designs allowed in the neighborhood. Some neighborhoods have covenants which prohibit homes from being used as short-term rentals. If this is the case, a homeowner may be prevented from using his/her home as a short-term rental, even if such use is authorized by local laws.

Restrictive Covenants in the Chain of Title

In neighborhoods without a POA where short term rentals are not prohibited by local regulations, are objecting neighbors simply out of luck with no way to challenge the operation of short-term rental businesses in their neighborhoods?  

Perhaps not. This is because, even in neighborhoods without a POA, it is a possible that another type of restrictive covenant could affect how the property is used.  In some instances, restrictive covenants are present in deeds located in the homeowners’ chain of title. These covenants can restrict certain uses of land, even if there is no neighborhood POA to enforce the restrictions. The potential presence of restrictive covenants within the chain of title is just one of many reasons that every potential home buyer should engage the services of a professional real estate attorney to review a thorough title search prior to closing on a real estate deal. If restrictive covenants are recorded anywhere in the chain of title, the homeowner is considered to have legal notice of the restrictions, even if the restrictions are not specifically spelled out in the homeowners’ deed.

If restrictive covenants are present in the chain of title, Virginia law allows neighbors to file suit in the Circuit Court to enforce the covenants. It can be difficult to win such a case, because in Virginia the free use of land is favored by the Courts and any ambiguity in the restrictive covenants will likely be interpreted against the party bringing suit.  However, if the restrictive covenants are clear and unambiguous, they can be enforced.

The Court of Appeals of Virginia recently decided just such a case.  In Kooiman v. Ornoff, 2024 Va. App. LEXIS 42 (Cir. Ct 2024), a Plaintiff purchased a waterfront home in Isle of Wight County.  Several years later, the Plaintiff’s neighbor, a building contractor by trade, purchased an empty lot next door to the Plaintiff and built a large house on the lot. Both properties were burdened by restrictive covenants recorded in the respective chains of title which prevented certain uses of the property. The restrictive covenants included two separate restrictions which did not explicitly address short-term rentals, but arguably prohibited the homes from being used for that purpose. Those restrictions were as follows:

Restriction #1Said real estate shall be used solely and exclusively for residential purposes, and no structure shall be erected, altered, placed, or permitted to remain on said real estate, other than a single family dwelling, not to exceed two stories in height, a private garage of not more than two cars, and appurtenant outbuildings incidental to residential use.  (emphasis added)

Restriction #4:  No trailer, basement, tent, shack, garage, barn boat house or other outbuilding erected or placed on said real property shall at any time be used as a residence, temporarily or permanently. (emphasis added)

The Plaintiff’s neighbor constructed a large home on the neighboring lot. Notwithstanding the restrictive covenants in his chain of title, the Plaintiff’s neighbor constructed an apartment in the basement and began advertising the apartment as a short-term rental on various platforms such as Air B&B and VRBO. The basement apartment was rented out several times a week, which caused disturbances to the Plaintiff whose house was located very nearby. The Plaintiff filed suit in the Circuit Court seeking an Injunction preventing the neighbors from using the basement as a separate residence and/or short-term rental. 

At trial, the Defendants argued that their basement was not a separate residence in violation of the restrictive covenants, but instead was an integral part of their home. They also argued that the covenants were too vague to prohibit short term rentals in light of Virginia’s presumption in favor of free use of land. The Plaintiff maintained that the restrictions were unambiguous and clearly prohibited the use of the basement as a separate residence, including its use as a short-term rental.

The Circuit Court agreed with the Plaintiff and issued an Order prohibiting the Defendants from using the basement as a separate residence (including its use as a short-term rental). The Defendants appealed.

The Court of Appeals affirmed the Circuit Court, finding that the restrictive covenants were not ambiguous and therefore must be enforced. In its Opinion, the Court of Appeals distinguished this Isle of Wight case from other Virginia cases in which restrictive covenants had been found to be too vague to prohibit short-term rentals. Unlike those cases, the Court of Appeals found that in the Isle of Wight case, the two separate restrictive covenants – when construed together – unambiguously prohibited the establishment of separate residences in the basement, even for short periods of time. Therefore, the use of the basement as a short-term rental was a violation of the restrictive covenants which could be enforced by the Plaintiff.

Bryan Peeples is a Pender & Coward attorney focusing his practice on maritime and riparian law, worker’s compensation and civil litigation.

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