MS Appeals Court Affirms Short-Term Rental Did Not Violate Restrictive Covenant on Case of First Impression

This post was authored by Sebastian Perez, J.D.

As online home rental services continue to be an issue for legislatures throughout the country, a Mississippi chancery court invalidated the Lake Serene Property Owners Association’s (“LSPOA”) amended bylaws prohibition on the rental of property for terms less than 180 days and identified such use as residential which complied with the restrictive covenants that ran with the land. This appeal of first impression in Mississippi followed.

The first issue the Court addressed was whether the trial court erred by finding that the Appellee’s listing of the property constituted a commercial use. The covenants governing the LSPOA restricted the use of the property to “residential purposes only.” However, the term “residential purpose” is not defined in the covenants. With no binding precedent, sister-state cases guided the analyses which found a residential purpose when the property was used as a place of abode no matter how short the rental period and any commercial activity and exchange of funds occurred online only. LSPOA contended that the Court should side with the Supreme Courts of Pennsylvania and New Hampshire which found that short-term rentals were considered “transient use” of property and not residential in nature but failed to address that the subject covenants already allowed the rental of property. The Court was not convinced and determined that the salient point was whether the property itself was being used in a manner that a place of abode would be used, not how long the property was being used as a place of abode. The Court affirmed the chancery court’s determination that the Appellee’s use of the property was residential and did not violate the restrictive covenants. 

The second issue the Court addressed was whether the trial court erred by finding the Appellee’s use of the property not classified as a nonconforming use and not in violation of the covenants. The Court looked to its case law on point which disfavored restrictive covenants and where ambiguity existed in the covenant, construction was usually in favor of the person being restricted. LSPOA’s covenants allowed tenants to use the property and common spaces in the same manner as the owner and made no mention of a specific maximum or minimum amount of time a homeowner could rent their property. The Court concluded that the covenants read in their entirety do not prohibit short-term rentals. 

The last issue the Court addressed was whether the trial court erred by finding that the adoption of the property-use rules in the bylaws of the LSPOA was invalid because they constituted an unauthorized amendment to the covenants governing the LSPOA. The Court was guided by controlling precedent where it previously held that the right to amend restrictive covenants is reserved to a board’s members and not held by the board itself. The LSPOA included similar provisions on such amendments. Emphasis was given to the overarching principle that a board of directors of a homeowner’s association should not be able to exercise its rule-making authority to bypass rights reserved to landowners evidenced by covenants. Any rule that conflicted with the rights vested to the landowners through the covenants required an amendment to the covenants, absent language in the covenants to the contrary. The Court determined that the trial court was correct in finding that the amendment to the bylaws by the LSPOA board of directors was in effect an invalid amendment to the LSPOA covenants. 

In conclusion, the Court held that the short-term rental of the subject property did not violate any covenants because it constituted a residential use; the lower court was correct in finding that the covenants did not specify that short-term rentals were prohibited and that the trial court was correct in finding that the adoption of bylaws restricting the rental of the property was an invalid amendment to the covenants. The chancery court’s decision was affirmed.

Lake Serene Property Owners Association, Inc v Esplin, 2022 WL 713417 (MS 3/10/2022)