Wilson v. Maynard

• Decision Date: 16 June 2021
• Docket Number: #29307
• Court: South Dakota Supreme Court
• Parties: Robert WILSON and Sharlene Wilson, Husband and Wife, Plaintiffs and Appellants, v. Rory MAYNARD and Kristen Maynard, Husband and Wife, Defendants and Appellees

961 N.W.2d 596

Robert WILSON and Sharlene Wilson, Husband and Wife, Plaintiffs and Appellants,

v.Rory MAYNARD and Kristen Maynard, Husband and Wife, Defendants and Appellees,

#29307

Supreme Court of South Dakota.

CONSIDERED ON BRIEFS NOVEMBER 16, 2019

OPINION FILED June 16, 2021

LONNIE R. BRAUN of Thomas, Braun, Bernard & Burke, LLP, Rapid City, South Dakota, DWYER ARCE of Kutak Rock, LLP, Omaha, Nebraska, Attorneys for plaintiffs and appellants.

STEVEN J. MORGANS of Myers Billion, LLP, Sioux Falls, South Dakota, Attorneys for defendants and appellees.

JENSEN, Chief Justice

[¶1.] Rory and Kristen Maynard (Maynards) built a home in a residential development near Deadwood, South Dakota, and rented the home to short-term guests. The owners of an adjacent property, Robert and Sharlene Wilson (Wilsons), sued Maynards alleging that Maynards violated restrictive covenants limiting use of properties in the development to "residential purposes." The circuit court granted summary judgment in favor of Maynards, holding that short-term rentals were a residential purpose, and denied Wilsons’ request for injunctive relief. We affirm.

Facts and Procedural History

[¶2.] In the early 1990s, Jon Mattson purchased a 160-acre tract of land near Deadwood, South Dakota. He divided the land into 33 lots and created a residential development called Shirt Tail Gulch subdivision. In 1997, Mattson established a declaration of restrictive covenants (Covenants), which were filed with the Lawrence County Register of Deeds, for purchasers of Lots 1 to 31 in the subdivision. The stated purpose of the Covenants was for "creating and keeping the above described property, insofar as possible, desirable, attractive, free from nuisance ... for the mutual benefit and protection of the owners of all lots, and the surrounding and adjacent property."

[¶3.] Among the Covenants’ 32 provisions, the provision central to this case states:

No lot may be used except for residential purposes, which shall include normal home occupations and offices of recognized professions and bed and breakfast uses allowed under State and County laws and regulations.

Another provision states that "[a]ll construction shall be new construction and shall be restricted to family or residential recreation type dwellings and attached or detached garages." The Covenants may be amended by a majority vote of the subdivision lot owners.

[¶4.] In 2007, Wilsons purchased a home on Lot 25 of Shirt Tail Gulch subdivision. Wilsons intended to use the home as a vacation home and eventually as a retirement home. In 2016, Maynards bought Lot 24, which was adjacent to Wilsons’ home.

[¶5.] In the summer of 2016, Maynards began construction of a three-story home (Property) with five master bedrooms, five master bathrooms, and a half-bath on the lot. The Property could house up to fourteen people. Maynards intended to rent the Property to short-term guests for profit. Maynards also owned several other commercial rental properties and hotels in the Deadwood and Lead area. They owned and operated two real estate holding companies, Legendary Investments and Alpine Adventures, to manage their rental properties.

[¶6.] In October 2016, Wilsons’ attorney sent a letter to Maynards requesting that Maynards provide assurance that they did "not intend to use the [P]roperty in any manner that violates the Covenants, for instance by using it as a rental property." Maynards did not respond to the letter and continued construction. In April 2017, Rory Maynard told Robert Wilson that Maynards intended to rent the Property to short-term guests and did not intend to use the Property for a bed and breakfast business.

[¶7.] Wilsons filed this action for declaratory judgment in May 2017, seeking a determination that Maynards’ use of the Property for short-term rental income was prohibited by the Covenants. Wilsons also sought temporary and permanent injunctive relief prohibiting Maynards from renting the Property on a short-term basis. Following a hearing, the circuit court determined that Wilsons had not established that they would suffer irreparable harm and denied their motion for a preliminary injunction.

[¶8.] In June 2018, Maynards began renting the Property to short-term guests. They used several vacation rental websites to advertise the Property. On one of the websites, they advertised that the Property was "built with large groups in mind." Maynards testified that they use various social media platforms to "make a determination of who the [renters] are before we rent to them." Maynards stay at the Property a few nights a year, but it is undisputed that they primarily use the Property for short-term rentals.

[¶9.] Maynards rented the Property nine times in 2018. In 2019, they rented the Property nearly every day between June and September. During the 2018 and 2019 Sturgis Motorcycle Rallies, they rented the Property to twelve guests at once; and the Property has housed as many as twenty guests at a time. Maynards charge $500 for weekday stays, $650 for weekend stays, and up to $1,200 per day during the Sturgis Rally.

[¶10.] In November 2019, Wilsons and Maynards both moved for summary judgment. Wilsons argued short-term rentals were "an unambiguously commercial purpose" that violated the residential purpose provision of the Covenants. Maynards argued that short-term rentals were a residential purpose consistent with the Covenants.

[¶11.] Following a hearing, the circuit court denied Wilsons’ motion for summary judgment and granted Maynards’ motion. The court concluded the language of the Covenants was unambiguous and looked within the "four corners" of the Covenants to determine whether short-term vacation rentals were a "residential purpose." It held that the Property's "design [and use] for residential recreational activities such as cooking, eating, drinking, sleeping, and gathering" was consistent with "residential purposes." Additionally, the court determined that the renters’ use of the Property for eating, sleeping, and other ordinary living activities was a "normal home occupation" permitted by the Covenants. In the court's view, the fact that Maynards earned profit from renting the Property did not change the residential character of how renters used and enjoyed the Property, and nothing in the Covenants prohibited short- or long-term rentals or restricted the number of guests. The court further concluded that the Covenants expressly allowed the Property to be rented on a short-term basis because it permitted "bed and breakfast" businesses.

[¶12.] The circuit court also rejected Wilsons’ argument that vacation rentals violated the Covenants’ purpose to keep the subdivision free from nuisance. It held that "associated traffic" from renters "should be expected in any neighborhood." Short-term rental of the Property was not a nuisance merely because "the individuals occupying [it] differ on a given night." The court also held that Maynards complied with the Covenants’ provision requiring construction of only "family or residential recreation type dwelling[s]" because "[n]othing about the character of the [Property] suggests that it was not designed for families to occupy."

[¶13.] Wilsons appeal, arguing that the circuit court erred in holding short-term rentals did not violate the Covenants. Wilsons also claim that the circuit court erred in denying their request for a permanent injunction preventing Maynards from renting the Property.

Analysis and Decision

[¶14.] "We review grants of summary judgment under the de novo standard of review. We decide whether genuine issues of material fact exist and whether the law was correctly applied[, and w]e will affirm a circuit court's decision so long as there is a legal basis to support its decision." State v. BP plc , 2020 S.D. 47, ¶ 18, 948 N.W.2d 45, 52 (internal citations omitted). "The [circuit] court's interpretation of a covenant is a legal question which we review de novo." Jackson v. Canyon Place Homeowner's Ass'n, Inc. , 2007 S.D. 37, ¶ 7, 731 N.W.2d 210, 212.

[¶15.] "The interpretation of a restrictive covenant involves the same rules of construction for contract interpretation. When the wording of the covenant is unambiguous, ‘its meaning must be determined from the four corners of the instrument without resort to extrinsic evidence of any nature’." Id. ¶ 9. "[A] covenant is ambiguous if we have a genuine uncertainty as to which of two or more meanings is correct." Id. When language of a restrictive covenant is unambiguous, we consider the plain meaning of the words in the covenant. See id. ¶ 14 ; Coffey v. Coffey , 2016 S.D. 96, ¶ 8, 888 N.W.2d 805, 809.

[¶16.] Wilsons cite Edwards v. Landry Chalet Rentals, LLC in support of their argument that short-term rentals of the Property are not a "residential purpose" under the language of the Covenants. 246 So. 3d 754, 756 (La. Ct. App. 2018). In Edwards , restrictive covenants provided that "[n]o lot shall be used except for residential purposes" and also specifically prohibited commercial uses, stating that "[n]o lot shall be used for any commercial purpose ...." Id. at 755. The Edwards court held that short-term vacation rentals of a single-family dwelling on a lot were not a residential purpose because the renters were transient and because the defendant's rental of the property for "ongoing profit-making activity" was a commercial purpose. Id. at 758.

[¶17.] Maynards respond that Edwards is distinguishable because the Covenants explicitly permit some commercial or profit-making activity. Further, Maynards ask this Court to adopt the majority view of "dozens of courts around the country" that have held use of a property for eating, sleeping, and recreation for any duration is determinative as to whether the property is used for "residential purposes," regardless of the property owner's receipt of rental income.

[¶18.] "[C]ourts in a number of other states ... have almost uniformly held that short-term vacation rentals...