ME Sup. Court Finds Short-Term Rentals Violate Covenant Against Business Activity

This post was authored by Sebastian Perez, Esq.

Erik S. Townsend (“Townsend”) appeals a decision regarding the use of his property in Cushing, Maine. The trial court found that Townsend’s short-term rentals violated a deed restriction limiting property use to private residential purposes by one family. Townsend appealed to the Supreme Judicial Court of Maine (the “Court”).

The subject property (the “Property”), located on a peninsula in Cushing, is part of a residential subdivision and subject to a restrictive covenant (the Covenant”). The Covenant restricts property use to private residential purposes by one family. The Property, encompassing a 5-acre lot with 5 bedrooms, 5 bathrooms, and a guest cottage, has not been his full-time residence since the 1970s, though he continues to store personal belongings there. In 2019, Townsend commenced renting the Property for short-term intervals to one group at a time through online platforms like Vrbo and Airbnb. The Morgan’s and Ward, Townsend’s neighbors (the “Neighbors”), filed a complaint against him, alleging violations of the Covenant. They contended that Townsend’s rentals, noise associated with them, and trash left on neighboring properties constituted breaches of the Covenant. Townsend, in turn, counterclaimed that the Neighbors were also in breach. The trial court granted summary judgment in favor of the Neighbors on their claims for declaratory and injunctive relief, though denying judgment on the nuisance claim. On a case of first impression for, the Court interpreted the meaning of a restrictive covenant concerning short-term rentals facilitated by online platforms. The Court, reviewing the deed restriction as a matter of law, emphasized the importance of ascertaining the parties’ intent. It interpreted key terms within the covenant, such as “private” and “residential purposes,” to determine whether Townsend’s rentals violated the Covenant. While acknowledging the potential adverse effects of short-term rentals on the neighborhood’s residential character, the Court primarily focused on whether Townsend’s activities constituted a “trade or business” under the Covenant. The Court concluded that Townsend’s pattern of rental activity amounted to a business operation, thus violating the covenant. Accordingly, the Court agreed the “Neighbors” were entitled to injunctive relief to prevent future violations. However, the Court found the injunction against Townsend to be vague and lacking specificity. It suggested defining “short-term rental” and setting limits on rental days per year to clarify compliance with the covenant. The court recommended drawing from municipal ordinances, state laws, and tax regulations to establish such limits.

The Court affirmed Townsend’s violation of the covenant but vacated the vague injunction. The case was remanded for the lower court to redefine the injunction with greater specificity, possibly involving an evidentiary hearing and party recommendations.

Morgan v Townsend, 2023 WL 5689342 (ME 9/5/2023).