Opinion
NO. 2019-CA-000622-MR
02-14-2020
THE HOFFMAN REVOCABLE TRUST APPELLANT v. BERNARD MARSHALL AND DANA MARSHALL APPELLEES
BRIEFS FOR APPELLANT: Zachary D. Brien Benton, Kentucky BRIEF FOR APPELLEES: Warner T. Wheat Paducah, Kentucky
NOT TO BE PUBLISHED APPEAL FROM MARSHALL CIRCUIT COURT
HONORABLE JAMES T. JAMESON, JUDGE
ACTION NO. 17-CI-00151 OPINION
REVERSING AND REMANDING
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BEFORE: DIXON AND KRAMER, JUDGES; BUCKINGHAM, SPECIAL JUDGE. BUCKINGHAM, SPECIAL JUDGE: The Hoffman Revocable Trust appeals from a declaratory judgment entered by the Marshall Circuit Court in favor of Bernard and Dana Marshall in a case involving the interpretation of subdivision restrictions. We conclude that Hensley v. Gadd, 560 S.W.3d 516 (Ky. 2018), decided by our Supreme Court after the trial court entered its judgment, is dispositive. Therefore, we reverse and remand.
Retired Judge David C. Buckingham sitting as Special Judge by assignment of the Chief Justice pursuant to Section 110(5)(b) of the Kentucky Constitution.
Sledd Creek Subdivision is a residential neighborhood in Gilbertsville, Marshall County, Kentucky. Thomas John Hoffman, III, is the settlor and trustee of The Hoffman Revocable Trust, and it owns three lots (Lots 118, 119, and 120) located on Brooks Lane in the subdivision. Hoffman purchased the lots at various times since 1983.
On July 6, 2016, the Marshalls purchased Lot 123, which is also located on Brooks Lane in the subdivision. The Marshalls' deed to their lot states that the property is "Subject to restrictions, reservations, and covenants as shown in Deed Book 139, Page 203, Marshall County Court Clerk's Office." The Tennessee Valley Authority (TVA) was the grantor in that particular deed, and that deed contained the following restrictions:
This conveyance is made upon and subject to the express condition that the land herein described shall be used only for the purpose of constructing, maintaining, and using a private summer residence thereon or for other purposes of private recreation . . . provided, further, that occupancy of a private residence for private residential purposes at times other than, or in addition to, the summer season shall not be deemed to be a breach of said condition . . . .
For the benefit of all properties in the Sledd Creek Subdivision, which embraces the land described above,
as shown by a map of Plat Book 1, page 65, in the Office of the County Court Clerk, Marshall County, Kentucky, and in order to foster the development and protect the value of all of said land for private recreational purposes, the Grantee (1) will use the land herein conveyed, described as Lot 123 of the said subdivision only for the purpose of constructing, maintaining, and using a private summer residence thereon, or for other purposes of private recreation . . . .
The Marshalls claim that after purchasing the property, they stayed in the residence briefly before moving back to Paducah, where they continue to reside. After purchasing the property, the Marshalls set up an LLC to rent the property and began advertising the property online as a short-term vacation rental. They used Airbnb, Vacation Rental By Owner, and HomeAway.com to attract customers. They named the property "Lincoln Lodge," and named their LLC "Lincoln Lodge LLC." The Marshalls furnished the residence with enough beds to sleep 18 people, and they rented the property 233 out of the first 328 days that they owned it. The property has never been rented for longer than seven nights at any one time.
According to Hoffman, the use of the property has caused disturbances and concern to many of the neighbors in the area, as traffic and noise have increased significantly in the neighborhood. Several of the residents near the property signed a petition attempting to persuade the Marshalls to stop using the property as a vacation rental site.
Hoffman filed a complaint in the circuit court alleging violation of subdivision restrictions, and, following discovery, the matter was submitted for ruling. On September 6, 2018, the circuit court entered its order denying plaintiff's motion for partial summary judgment and entering declaratory judgment in favor of defendants. Therein, the court held: "Defendants' rights with respect to the subject property are hereby stated to include renting the property to private individuals for the purposes of a summer residence or other recreational use." The court examined the meaning of private residence as follows:
The term private means, essentially, not public and not government. The term residence, as it applies to the matter sub judice, means someone having bodily presence at a given place. The covenant does not specify that the owner of the property must be the person who resides in the residence. The conduct the defendants have engaged in regarding the property has not changed the use of the property to something other than private residential use. There is nothing in the covenant nor the definition of the words private or residential that could lead a reasonable person to believe that only the Grantee of the deed may reside at the residence located on the subject real property during any part of the year . . . .
When it is leased, the property is not open to the "public." It is leased to a specific lessor. There is no indication in the record that any lessee has used the property for anything other than private recreation (personal recreation in some form). While the Defendants may allow persons to visit the property and recreate along with the lessees, that conduct is still not conduct by the general public or by the government.
Following the entry of the declaratory judgment in favor of the Marshalls, Hoffman filed a motion to alter, amend, or vacate. While that motion was pending, our Supreme Court rendered an opinion in a similar case in Hensley v. Gadd, 560 S.W.3d 516 (Ky. 2018).
After considering the parties' arguments and the effect of the Hensley case on its declaratory judgment, the circuit court denied Hoffman's motion in an order entered on January 30, 2019. In its order, the circuit court directly addressed Hensley, noting that the Supreme Court in that case had found the restrictive covenant there prevented the property owners from using the property for short-term rentals. Id. at 525. The circuit court here noted that the Court in Hensley had stated the covenant in that case limited use to "residential purposes." Id. at 519.
Hoffman argued to the circuit court that Hensley prohibited the Marshalls from using their property for short-term rentals. The circuit court held, however, that the facts in Hensley differed from those in this case, in that the covenant here does not limit use to residential purposes, as in Hensley, but allows use for "other purposes of private recreation" as well. The circuit court further explained that "even if use of the property was limited to a 'private summer residence,' the Kentucky Supreme Court's holding in Hensley v. Gadd, supra, would not alter the determination of this Court's original order." In short, the circuit court held that the facts in Hensley are sufficiently distinguishable from the facts in this case to warrant a different result.
In Hensley our Supreme Court first noted that "[i]nterpretation or construction of restrictive covenants is a question of law subject to de novo review on appeal." Id. at 521 (citing Triple Crown Subdivision Homeowners Ass'n, Inc. v. Oberst, 279 S.W.3d 138, 141 (Ky. 2008)). The Court in Hensley further stated
Kentucky decisions have recognized that "each case involving restrictions on the use of property, whether it be by reciprocal negative easements contained in conveyances or by a zoning ordinance, must be decided on its merits—on the particular terms of the instrument and the facts of the case."Id. (quoting Robertson v. W. Baptist Hosp., 267 S.W.2d 395, 397 (Ky. 1954)).
In reaching its decision, the Court in Hensley began by stating that the "fact that the restrictions permit rentals does not render the restrictions ambiguous insofar as this case is concerned." Id. at 525. The Court further explained that
[i]n analyzing the restrictions and the facts of this case, we agree with the trial court and with Hensley that one-night, two-night, weekend, weekly inhabitants cannot be considered "residents" within the commonly understood meaning of that word, or the use by such persons as constituting "residential."Id. at 524. The Court also stated it had
no difficulty concluding that short-term rentals are prohibited because Gadd's advertising of such rentals renders his [property] the equivalent of a hotel, which is not a permitted use on his lot. Residential rentals are
permitted. While we might be tempted to opine that a "residential rental" is one month or more, that issue is not before us.Id. at 525.
As to whether the short-term rental of the property constituted a business or commercial use of the property as opposed to a residential use, the Court in Hensley stated
[t]he short-term, transient occupancy of the lot was the business activity carried out upon the lot. The assertion otherwise is akin to a claim that the operation of a Webster County mine occurs in Jefferson County because all the paperwork and financial activity occurs at the Louisville home office of a mining company.Id.
The Marshalls contend that the restrictive covenants in this case do not prevent them from renting their property. They emphasize that their deed to their property does not prohibit the renting of their property and that there is no evidence that either TVA or the persons to whom it deeded the property intended to prohibit such renting.
The circuit court gave great emphasis in its declaratory judgment to the fact that the expressed language in the deeds did not prohibit renting. In fact, our Supreme Court in Hensley noted that renting was not prohibited in that case. Id. Our Supreme Court held, however, that short-term rentals were not permitted as such were not "residential purposes." Id. The Court held that such use of the property with short-term rentals was the equivalent to a "hotel" as that term has been found in Kentucky statutes. Id. at 524. The Marshalls' payment of a transient lodging tax is further indication that the property's use in this case was the equivalent of a hotel, as described in Hensley. Id.
KRS 219.011(3), for example, defines "hotel" as "every building or structure kept, used, maintained, advertised, or held out to the public as a place where sleeping accommodations are furnished to the public, and includes motels, tourist homes, and similar establishments, but excludes boarding houses and rooming houses[.]" (Emphasis added.)
Likewise, regardless of whether the deeds in this case prohibited the renting of the property, short-term rentals violated the restriction which limited use to private residential and private recreation. As the Hensley Court stated: "one-night, two-night, weekend, weekly inhabitants cannot be considered 'residents' within the commonly understood meaning of that word, or the use by such persons as constituting 'residential.'" Id.
In its order denying Hoffman's motion to alter, amend, or vacate, the circuit court's interpretation that Hensley differs from this case hinges on the fact that, in Hensley, another restriction in the deed permitted commercial use, which was defined to include hotels, on another lot. Id. at 522. The court here stated that the Hensley court held that the explicit grant to use one lot for a hotel implicitly prohibited the other lots from doing the same. The court held that Hoffman would have prevailed in this case had the deed prohibited any type of commercial activity on the property. The court also concluded that the language in the deed in this case did not limit the use of the property beyond that of private residence and private recreation and that short-term rentals did not violate those restrictions.
The circuit court was apparently referring to the language in Hensley that "[i]nterpreting every provision of the Deed of Restrictions, as we are required to do, leads to the inescapable conclusion that Gadd is operating a hotel on his property, when such use is permitted only on Lot 1." Id. at 524. We do not construe this language in Hensley as stating that the property owner in that case was prohibited from short-term rentals, which the Court held was the equivalent of a hotel, only because hotel use had been explicitly permitted on another lot in the subdivision. Rather, we conclude the Hensley court held that short-term rentals were prohibited by the clear language of the restriction that limited use to "residential purposes." Therefore, as our Supreme Court in Hensley found short-term rentals to be prohibited by language restricting use to "residential purposes," we conclude that short-term rentals as in this case are prohibited by language limiting use to "private summer residence."
Finally, the circuit court pointed to the language in the restriction in this case stating that usage is limited to "using a private summer residence thereon or for other private recreation[.]" We do not believe that this additional phrase alters the permitted use from private residential to that of a hotel, which is what the Hensley Court found short-terms rentals to be. In other words, in our view use as a hotel does not fall within the meaning of "other private recreation."
The circuit court states that even if the language here had been limited to "private summer residence," its determination in its declaratory judgment would not have been altered.
The judgment of the Marshall Circuit Court is reversed, and this case is remanded for proceedings consistent herewith.
ALL CONCUR. BRIEFS FOR APPELLANT: Zachary D. Brien
Benton, Kentucky BRIEF FOR APPELLEES: Warner T. Wheat
Paducah, Kentucky