Dispute as to the application of restrictive covenants to a short-term rental property; Interpretation of restrictive covenants; O’Connor v Resort Custom Builders; Eager v Peasley; “Commercial purpose” & “commercial activity”; Declaratory relief under MCR 2.605; Attorney fees

The court held that the trial court erred by granting defendant-property owner summary disposition of plaintiff-association’s claim that it was violating a restrictive covenant precluding short-term leases, and by denying summary disposition for plaintiff. Plaintiff sued defendant alleging defendant was violating a restrictive covenant precluding property owners from using their properties for short-term rentals. Defendant countersued, seeking a declaration that the lease of the property did not constitute a commercial purpose or that leasing the property was exempt from the commercial purposes prohibition, and seeking reasonable attorney fees and expenses. The trial court granted summary disposition for defendant and although it declined to find plaintiff’s complaint was frivolous, it determined defendant was entitled to attorney fees as provided for in the covenants to the prevailing party. On appeal, the court agreed with plaintiff that the trial court erred by granting defendant summary disposition because “the restrictive covenants, when read as a whole, require that leasing or renting comply with the single-family private residence and business restrictions and defendant’s short-term rentals violate those provisions.” It found that “[c]ontrary to the trial court’s conclusion, defendant did not require and enforce a single-family residence provision. Rather, it apprised its lessees that the rental property was limited to 16 people and that family members were included in the computation of 16 people. The lease did not seek to enforce the single-family private residence requirement of the restrictive covenants. There was no indication that lessees were required to identify and name their ‘single-family’ members or certify that single-family occupancy occurred.” The court then concluded that while “leasing of the premises was permitted, it did not allow a lot owner to deviate from using the premises as a single-family residential home. Advertising the property on the worldwide web for lease to up to 16 people on a year-round basis changed the character of the use from single-family residential into a business operation of the premises.” Further, the attempt “to consider parol evidence does not result in a deviation from the interpretation in accordance with the plain language.” In light of this conclusion, “defendant was not entitled to attorney fees and costs.” Reversed and remanded for entry of summary disposition for plaintiff.