Houston v. Wilson Mesa Ranch Homeowners Ass'n, Inc.

• Decision Date: 13 August 2015
• Docket Number: Court of Appeals No. 14CA1086
• Parties: David HOUSTON, Trustee of the David Houston 1997 Trust dated October 6, 1997, Plaintiff–Appellee, v. WILSON MESA RANCH HOMEOWNERS ASSOCIATION, INC., a Colorado nonprofit corporation, Defendant–Appellant.
• Court: Colorado Court of Appeals

360 P.3d 255

2015 COA 113

David HOUSTON, Trustee of the David Houston 1997 Trust dated October 6, 1997, Plaintiff–Appellee,

v.WILSON MESA RANCH HOMEOWNERS ASSOCIATION, INC., a Colorado nonprofit corporation, Defendant–Appellant.

Court of Appeals No. 14CA1086

Colorado Court of Appeals, Div. III.

Announced August 13, 2015

Solomon Law Firm, P.C., Joseph A. Solomon, Telluride, Colorado, for Plaintiff–Appellee.

Dewhirst & Dolven, LLC, Miles M. Dewhirst, Jeffery D. Bursell, Denver, Colorado; Garfield & Hecht, PC, Mary Elizabeth Geiger, Glenwood Springs, Colorado, for Defendant–Appellant.

Opinion

Opinion by JUDGE VOGT^*

¶ 1 In this dispute regarding the scope of restrictive covenants, defendant, Wilson Mesa Ranch Homeowners Association, Inc., appeals the district court's judgment on the pleadings in favor of plaintiff, David Houston, Trustee of the David Houston 1997 Trust dated October 6, 1997. We affirm.

I. Background

¶ 2 Wilson Mesa Ranch is a subdivision in San Miguel County. The subdivision is subject to protective covenants that are enforced by the Association's board of trustees. The covenants provide, as relevant here, that “the lands within Wilson Mesa Ranch [are intended to] be developed and maintained as a highly desirable scenic and secluded residential area;” that all tracts designated on the recorded plats by number “shall be residential tracts;” and that “[n]o lands within Wilson Mesa Ranch shall ever be occupied or used for any commercial or business purpose nor for any noxious activity and nothing shall be done ... on any of said lands which is a nuisance or might become a nuisance to the ... owners of any of said lands.”

¶ 3 Houston owns a single-family residence in the subdivision. Beginning in December 2012, Houston began renting out the property for short-term vacation rentals. He advertised the residence on the website of VRBO, a company that facilitates the booking of such rentals. When the board learned that Houston had been renting out the residence, it adopted an amendment (“Section 11”) to its administrative procedures that prohibited Association members from renting out their properties for periods of less than thirty days without prior board approval. Section 11 also provided for a $500 fine for each violation of this prohibition.

¶ 4 The board notified Houston of its adoption of Section 11 and ordered him to comply with it. Houston objected to Section 11 as an unlawful attempt to amend the covenants. The board responded that short-term rentals were a commercial use that was already prohibited under the covenants, and that Section 11 was simply adopted to clarify the board's position and set forth procedures for seeking an exception to the prohibition.

¶ 5 After the board denied Houston's request to continue leasing the property on a short-term basis, he took two additional rental reservations through VRBO. The board treated these reservations as anticipatory breaches of the covenants and Section 11 and fined Houston $500 for each reservation.

¶ 6 Houston then filed this action, seeking a declaration that the Association could not bar the short-term rental of his property based on the commercial use prohibition in the covenants. The Association counterclaimed for a declaration that the covenants barred rentals of less than thirty days; that Section 11 was enforceable against Houston; and that Houston was in violation of the covenants and Section 11 by advertising, and taking reservations for, short-term rentals of his property. The Association also sought a permanent injunction requiring Houston to comply with the covenants and Section 11.

¶ 7 Both parties moved for judgment on the pleadings pursuant to C.R.C.P. 12(c). In a detailed written order, the district court entered judgment in favor of Houston and dismissed the Association's counterclaims. It reviewed the covenant language, found no Colorado case law that was “dispositive on the issue of whether a prohibition on commercial use bars short term rentals or conversely whether the requirement of residential use is somehow inconsistent with short term rentals,” and reviewed cases from other jurisdictions that the parties had cited. The court concluded that nothing in the covenants prohibited short-term rentals, either expressly or by implication; that the covenant language was ambiguous regarding the permissibility of short-term rentals; and that, because such ambiguity required that all doubts be resolved in favor of the free and unrestricted use of property, the covenants did not prohibit or limit Houston's short-term vacation rentals. It also found that Section 11's “differentiation between forbidden ‘short term’ rentals and permitted ‘long term’ rentals [was] arbitrary and ... not plainly within the confines of the [c]ovenants;” thus, the fines imposed against Houston were not enforceable.

II. Discussion

A. Standards of Review and Applicable Law

¶ 8 Our review is de novo, both because the district court's judgment was a judgment on the pleadings, see Melat, Pressman & Higbie, L.L.P. v. Hannon Law Firm, L.L.C.,2012 CO 61, ¶ 17, 287 P.3d 842, and because the court construed a written instrument. See In re Estate of Foiles,2014 COA 104, ¶ 20, 338 P.3d 1098.

¶ 9 We construe restrictive covenants according to their plain language, interpreting them as a whole and keeping in mind their underlying purpose. See Evergreen Highlands Ass'n v. West,73 P.3d 1, 3 (Colo. 2003); Good v. Bear Canyon Ranch Ass'n,160 P.3d 251, 253 (Colo. App. 2007). A covenant will be enforced as written if it is clear on its face. Good,160 P.3d at 253. However, if there is any ambiguity or doubt as to the meaning of a covenant, we must adopt the construction that favors the unrestricted use of property. Id.at 253–54; see also Double D Manor, Inc. v. Evergreen Meadows Homeowners' Ass'n,773 P.2d 1046, 1048 (Colo. 1989).

B. Scope of the Covenants

¶ 10 It is undisputed that the covenants do not expressly prohibit short-term rentals of residences within Wilson Mesa Ranch. The issue is whether such rentals are prohibited by necessary implication based on covenant language that (1) Wilson Mesa Ranch is to “be developed and maintained as a ... residential area,” with all subdivision tracts to be “residential tracts,” and that (2) “[n]o lands within Wilson Mesa Ranch shall ever be occupied or used for any commercial or business purpose.” The Association contends that the district court erred in failing to construe the “commercial use” prohibition as precluding unapproved rentals of less than thirty days, and in failing to recognize that such short-term rentals are inconsistent with the covenants' “residential use” requirement. We disagree.

¶ 11 We are aware of no Colorado case that has addressed the meaning of prohibitions against “commercial use” or requirements of “residential use” in the context of short-term rentals of residences. With the exception of Double D Manor,discussed below, Colorado case law discussing these terms in other contexts affords little guidance in resolving the issue before us.

[360 P.3d 3]

Like the district court, we find the two Colorado cases on which the Association relies—Jackson & Co. (USA), Inc. v. Town of Avon,166 P.3d 297, 298–300 (Colo. App. 2007), and E.R. Southtech, Ltd. v. Arapahoe County Board of Equalization,972 P.2d 1057, 1059–60 (Colo. App. 1998)—to be distinguishable. The Jacksondivision concluded that a duplex with six individual bedroom-bathroom suites, used for short-term vacation rentals, qualified as a “lodge” under the definition of that term in a municipal ordinance; thus, such short-term rentals were impermissible under the ordinance and a subdivision plat that explicitly prohibited the use of property within the residential subdivision as a lodge. There is no such explicit prohibition in the covenants here.

¶ 13 In Southtech,the division held that, for property tax purposes, rentals of space in a large housing complex for less than thirty days should be taxed as a “hotel-type commercial use,” while longer rentals should be taxed as “apartment-type residential” use. The division relied on constitutional and statutory provisions that excluded “hotels and motels” from the definition of “residential real property” for property tax purposes but included “apartments” in that definition. Again, the covenants at issue here do not contain similar definitional language.

¶ 14 We therefore look to the plain meaning of the covenant language, and we find guidance in cases from other jurisdictions that have applied this language in situations involving short-term rentals of residential property.

1. Requirement That Subdivision Tracts Be “Residential”

¶ 15 “Residential” is defined as “used, serving, or designed as a residence or for occupation by residents.” Webster's Third New International Dictionary1931 (2002). “Residence” means “the act or fact of abiding or dwelling in a place for some time; an act of making one's home in a place.” Id.; see also The American Heritage Dictionary of the English Language1483 (4th ed. 2000) (defining “residential” as “[o]f, relating to, or having residence,” or “[o]f, suitable for, or limited to residences,” and defining “residence” as “[t]he place in which one lives; a dwelling,” or “[t]he act or a period of residing in a place”).

¶ 16 “ ‘Residential use,’ without more, has been consistently interpreted as meaning that the use of the property is for living purposes, or a dwelling, or a place of abode.” Lowden v. Bosley,395 Md. 58, 909 A.2d 261, 267 (2006); see also Mullin v. Silvercreek Condo. Owner's Ass'n,195 S.W.3d 484, 490 (Mo. Ct. App. 2006)(A place used for “residential purposes” is, according to its plain and ordinary meaning, “one in which people reside or dwell, or which they make their homes, as distinguished from one which is used for commercial or business purposes.” (quoting Blevins v. Barry–Lawrence Cnty. Ass'n for Retarded Citizens,707 S.W.2d 407, 408 (Mo. 1986))).

¶ 17 Although “residential” unambiguously refers...