Forshee v. Neuschwander, 2016AP1608

Citation2018 WI 62,914 N.W.2d 643,381 Wis.2d 757
Decision Date05 June 2018
Docket NumberNo. 2016AP1608,2016AP1608
Parties Richard FORSHEE, Judith Timmerman, Verlan E. Edwards, Robert R. Olson, Mary L. Edwards on behalf of Verlan & Mary Edwards LLP and Jean Forshee, Janet A. Olson, Plaintiffs-Respondents-Petitioners, v. Lee NEUSCHWANDER and Mary Jo Neuschwander, Defendants-Appellants.
CourtUnited States State Supreme Court of Wisconsin

For the plaintiffs-respondents-petitioners, there were briefs filed by Linda I. Coleman, John R. Carlson, and Spears, Carlson, & Coleman, S.C., Washburn. There was an oral argument by Linda I. Coleman.

For the defendants-appellants, there was a brief filed by Anne Berleman Kearney, Joseph D. Kearney, and Appellate Consulting Group, Milwaukee. There was an oral argument by Anne Berleman Kearney.

An amicus curiae brief was filed on behalf of the Wisconsin REALTORS Association by Cori Moore Lamont and Wisconsin REALTORS Association, Madison.

PATIENCE DRAKE ROGGENSACK, C.J.

¶ 1 Lee and Mary Jo Neuschwander purchased property on Hayward Lake in Hayward, Wisconsin. They renovated the large house and began renting it to vacationers on both short-term and long-term bases. Several neighboring property owners (the "Neighbors") objected to the use of the property as a vacation rental. They brought suit in Sawyer County Circuit Court, claiming that a restrictive covenant that encumbers all lots in the subdivision of which Neuschwanders' property is a part, precludes short-term rentals of property.1

¶ 2 The Sawyer County Circuit Court held in favor of the Neighbors and enjoined Neuschwanders from further short-term rentals, except for the Birkebeiner weekend.2 The court of appeals reversed. Forshee v. Neuschwander, 2017 WI App 43, 377 Wis. 2d 162, 900 N.W.2d 100. The Neighbors petitioned for review, which we granted.

¶ 3 We review a single issue: Whether the short-term rental of the Neuschwanders' property constitutes "commercial activity" under the restrictive covenant that encumbers their property. We conclude that the term, "commercial activity," which is undefined in the covenant, is ambiguous. Therefore, we narrowly interpret it and conclude that it does not preclude either short-term or long-term rentals of Neuschwanders' property. Accordingly, we affirm the decision of the court of appeals.

I. BACKGROUND

¶ 4 The Neuschwanders' property was purchased by the Louisiana Pacific Corporation in 1984 and 1985. It consists of two lots of a 15-lot subdivision that was originally owned by four individuals. All lots in the subdivision have been encumbered by a restrictive covenant that provides:

1. No dwelling can be erected on said property with a living space of less than 1,000 square feet.
2. There shall be no subdivision of existing lots.
3. There shall be no commercial activity allowed on any of said lots.

¶ 5 Louisiana Pacific built the first house in the subdivision. It is a large building that Louisiana Pacific used to provide short stays to clients, vendors, politicians and employees. The house was used for everything from single-night events to month-long stays, as well as serving as a corporate social center.

¶ 6 In 2014, the Neuschwanders bought the property and expended a substantial amount of money renovating the large house. While the Neuschwanders used the property themselves on occasion, the primary use has been the rental of the property to vacationers on both short-term and long-term bases through the website VRBO (Vacation Rental By Owner).3

¶ 7 Neuschwanders' property consists of two lots equaling 2.2 acres and a large house. It is located on a peninsula in Lake Hayward in the City of Hayward, Wisconsin. It is accessible via a narrow, private road that Louisiana Pacific built. There are a number of other residents in the subdivision, several of whom filed this action. Each of their homes was built after Louisiana Pacific's construction of the now-Neuschwander house.

¶ 8 The Neuschwanders' house is large, about 4,000 square feet, and able to sleep up to 15 people. When renting the property, the occupants treat the house in the same way that an owner would: They sleep, cook, eat, and recreate in their preferred manner. During the course of renters' stays the Neuschwanders do not provide any services to renters. For example, there is no maid or room service of any type.

¶ 9 The Neighbors' complaint alleged that the restrictive covenant that proscribes "commercial activity" was violated by short-term rentals of the property. They sought injunctive relief to prevent the Neuschwanders from "further violating the restrictions placed upon [their property]." Upon the parties' competing motions for summary judgment, the circuit court agreed with the Neighbors and concluded that short-term rentals of the Neuschwanders' property violated the restrictive covenant.

¶ 10 The circuit court explained that the unstated "purpose of the restrictive covenant was to ensure and maintain a quiet neighborhood where people would know their neighbors," and that the Neuschwanders' short-term rentals violated that purpose. The circuit court enjoined the Neuschwanders from using their property for short-term rentals except for the Birkebeiner weekend.4 The Neuschwanders appealed.

¶ 11 On appeal, the Neuschwanders alleged that the restrictive covenant is ambiguous and that the circuit court improperly considered extrinsic evidence in coming to its conclusion. In a published opinion,5 the court of appeals agreed with the Neuschwanders, concluding that the restrictive covenant is ambiguous and that it did not bar short-term rentals. Accordingly, the court of appeals reversed the circuit court's summary judgment and lifted the injunction on the Neuschwanders' use of their property.

¶ 12 The Neighbors sought review of the court of appeals' decision, which we granted. For the reasons explained hereafter, we affirm the court of appeals.

II. DISCUSSION
A. Standard of Review

¶ 13 We independently review a grant or denial of summary judgment by applying the same standards used in the circuit court and the court of appeals, while benefitting from the discussions of both courts.

Sands v. Menard, 2017 WI 110, ¶ 28, 379 Wis. 2d 1, 904 N.W.2d 789 ; Dufour v. Progressive Classic Ins. Co., 2016 WI 59, ¶ 12, 370 Wis. 2d 313, 881 N.W.2d 678. Summary judgment is appropriate where there is no genuine issue of material fact and the movant has established the right to judgment as a matter of law. Wis. Stat. § 802.08(2) (2015–16);6 Sands, 379 Wis. 2d 1, ¶ 28, 904 N.W.2d 789.

¶ 14 Interpretation of a restrictive covenant is a question of law that we review independently of prior court decisions. Zinda v. Krause, 191 Wis. 2d 154, 165, 528 N.W.2d 55 (Ct. App. 1995). Whether the language employed in a restrictive covenant is ambiguous is also a question of law that we independently decide. Id.

B. Restrictive Covenants
1. General principles

¶ 15 Covenants come in various forms, and are characterized by the nature of the burden or benefit imposed. Restatement (Third) of Property: Servitudes § 1.3(3)cmt. e. (Am. Law Inst. 2000). A covenant becomes a servitude on the land if either its burden or its benefit runs with the land. Id. cmt. a. "A restrictive covenant is a negative covenant that limits permissible uses of land." Id. § 1.3(3).

¶ 16 Public policy of the State of Wisconsin "favors the free and unrestricted use of property." Crowley v. Knapp, 94 Wis. 2d 421, 434, 288 N.W.2d 815 (1980).

"Accordingly, restrictions contained in deeds and in zoning ordinances must be strictly construed to favor unencumbered and free use of property." Id. (citing McKinnon v. Benedict, 38 Wis. 2d 607, 619, 157 N.W.2d 665 (1968) (further citations omitted) ). Consequently, in order to be enforceable, deed restrictions that limit the free use of property "must be expressed in clear, unambiguous, and peremptory terms." Id. at 435, 288 N.W.2d 815.

¶ 17 In resolving contests about the meaning of a restrictive covenant in a deed, we do not look for amorphous general intent, but rather, we determine the meaning of the restriction by the words actually used. Id. at 438, 288 N.W.2d 815. Construction of a covenant is necessary when the covenant is ambiguous. Id. at 434, 288 N.W.2d 815 (citing Bollenbeck v. Vill. of Shorewood Hills, 237 Wis. 501, 297 N.W. 568 (1941) ); see also Peterson v. Gales, 191 Wis. 137, 139-40, 210 N.W. 407 (1926) (construing "house" as an ambiguous term such that the restrictive covenant did not prohibit the use of the property as a machine shop). If the words employed in the restrictive covenant are ambiguous, we resolve disputes about the meaning of the restriction in favor of the free use of the property. Crowley, 94 Wis. 2d at 438 n.3, 288 N.W.2d 815 (citing Schneider v. Eckhoff, 188 Wis. 550, 556, 206 N.W. 838 (1926) (providing that because "the language used in the restriction is doubtful in meaning ... all doubt, under the general rule, should be resolved in favor of the free use [of land]") ).

¶ 18 On the other hand, if the meaning of a restrictive covenant clearly can be ascertained from the words of the covenant itself, its restrictions will be enforced. See Zinda, 191 Wis. 2d at 166, 528 N.W.2d 55 ; see also Voyager Vill. Prop. Owners Ass'n v. Johnson, 97 Wis. 2d 747, 749, 295 N.W.2d 14 (Ct. App. 1980) (concluding that "camping equipment" clearly included camping trailers).

2. The restrictive covenant

¶ 19 Currently, individuals who rent and occupy the Neuschwanders' residence on both short-term and long-term bases use the property in a manner similar to how an owner uses his or her own house. They buy their own food, cook their own meals, make their own beds and recreate as the house's location provides, just as a property owner would.

¶ 20 As we consider those uses, we review a restrictive covenant that declares that "[t]here shall be no commercial activity allowed on any of said lots." The key term in the covenant, as focused on by the parties in their briefs and at oral...

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