#29307-a-SRJ
2021 S.D. 37
IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA
…
ROBERT WILSON AND SHARLENE
WILSON, Husband and Wife, Plaintiffs and Appellants,
v.
RORY MAYNARD AND KRISTEN
MAYNARD, Husband and Wife, Defendants and Appellees,
…
APPEAL FROM THE CIRCUIT COURT OF
THE FOURTH JUDICIAL CIRCUIT
LAWRENCE COUNTY, SOUTH DAKOTA
…
THE HONORABLE MICHELLE K. COMER
Judge
…
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.
…
CONSIDERED ON BRIEFS
NOVEMBER 16, 2019
OPINION FILED 06/16/21
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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.
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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.
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[¶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.
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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
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“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.
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[¶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 do not violate restrictive covenants” that “requir[e]
property to be used only for residential purposes and prohibiting its use for business
purposes . . . .” Santa Monica Beach Prop. Owners Ass’n, Inc. v. Acord,
219 So. 3d
111, 114 (Fla. Dist. Ct. App. 2017) (citing cases from thirteen jurisdictions that have
held restrictive covenants limiting the use of a property to “residential purposes” do
not prohibit short-term rentals). “If a vacation renter uses a home for the purposes
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of eating, sleeping, and other residential purposes, this use is residential, not
commercial, no matter how short the rental duration.” Wilkinson v. Chiwawa
Communities Ass’n, 327 P.3d 614, 620 (Wash. 2014).
[¶19.] Courts have consistently reached this conclusion regardless of whether
they determine the language “residential purposes” to be ambiguous or
unambiguous. Some “courts have found no ambiguity [in ‘residential purposes’],
reasoning that, as long as the property is used for living purposes, it does not cease
being ‘residential’ simply because such use [for short-term rentals] is transitory
rather than permanent.” Houston v. Wilson Mesa Ranch Homeowners Ass’n, Inc.,
360 P.3d 255, 259 (Colo. App. 2015). The duration of the rental has no bearing on
whether or not the property is used for “residential purposes.” See, e.g., Tarr v.
Timberwood Park Owners Ass’n, Inc.,
556 S.W.3d 274, 291 (Tex. 2018); Wilkinson,
327 P.3d at 620; Lowden v. Bosley,
909 A.2d 261, 268 (Md. 2006); Slaby v. Mountain
River Estates Residential Ass’n, Inc.,
100 So. 3d 569, 579 (Ala. Civ. App. 2012).
[¶20.] Other “courts have recognized ambiguity in [‘residential purposes’] in
cases involving short-term rentals or other situations where those residing in the
property are living there only temporarily, not permanently . . . .” Tarr,
556 S.W.3d
at 289. Nonetheless, “[t]hese courts [have] concluded that, because ambiguities in
restrictive covenants [are] to be construed in favor of the free use of property, short-
term rentals [are] not precluded as inconsistent with residential use.” Houston,
360
P.3d at 258-59. See, e.g., Mullin v. Silvercreek Condo. Owner’s Ass’n, Inc.,
195
S.W.3d 484, 490 (Mo. Ct. App. 2006); Dunn v. Aamodt,
695 F.3d 797, 801-02 (8th
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Cir. 2012); Pinehaven Plan. Bd. v. Brooks, 70 P.3d 664, 667 (Idaho 2003); Russell v.
Donaldson,
731 S.E.2d 535, 538-39 (N.C. Ct. App. 2012).
[¶21.] Here, neither party claims the Covenants are ambiguous. However,
Maynards argue that if this Court determines the Covenants are ambiguous, then
they must be strictly construed. See generally Luedke v. Carlson,
73 S.D. 240, 243,
41 N.W.2d 552, 554 (1950) (stating restrictive covenants should be strictly
construed). Wilsons cite Piechowski v. Case for the contrary proposition that this
Court does not require restrictive covenants to be strictly construed.
255 N.W.2d
72, 74 n.2 (S.D. 1977) (“We regard as dicta only, our statement in Luedke v. Carlson
. . . that restrictive covenants (imposed upon a residential subdivision) are to be
strictly construed in favor of the free use of property.”).
[¶22.] We agree with the view of both parties that “residential purposes” is
unambiguous. While the Covenants do not define “residential purposes,” “failing to
define terms does not automatically result in an ambiguity.” Jackson,
2007 S.D. 37,
¶ 11,
731 N.W.2d at 213. An undefined term in a restrictive covenant “is not
ambiguous if the term has a plain and ordinary meaning and that meaning can be
defined.” Halls v. White,
2006 S.D. 47, ¶ 8,
715 N.W.2d 577, 581. “We may use
statutes and dictionary definitions to determine the plain and ordinary meaning of
undefined words.” Jackson,
2007 S.D. 37, ¶ 11,
731 N.W.2d at 213.
[¶23.] The word “residential” is commonly understood to pertain to “dwelling
in a place for some time.” Residence, MERRIAM-WEBSTER, https://www.merriam-
webster.com/dictionary/residence (last visited Apr. 19, 2021). Therefore,
“residential purposes” may be plainly understood to include the occupation of a
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home or dwelling for an indefinite length of time. We decline Maynards’ request to
strictly construe the Covenants. Instead, we rely on our normal rules of contract
construction to conclude the plain language of “residential purposes” includes short-
term rentals. See Jackson, 2007 S.D. 37, ¶ 9,
731 N.W.2d at 212 (applying our
normal rules of contract construction to a restrictive covenant). See also Halls,
2006
S.D. 47, ¶ 7,
715 N.W.2d at 580; Harlan v. Frawley Ranches PUD Homeowners
Ass’n, Inc.,
2017 S.D. 54, ¶ 7,
901 N.W.2d 747, 750.
[¶24.] The dissent does not suggest any other meaning for the language
“residential purposes,” nor does it offer any contrary authority to the multitude of
cases that have held short-term rentals of a home are a “residential purpose.”
Rather, the dissent suggests that since the Covenants apply to owners of homes in
the subdivision, the owner must live in the home to comply with the Covenants’
“residential purposes” provision. 1 “[W]hen reading the Covenant in its entirety, it is
apparent that the fourth article in the Covenant applies to the owner’s use of Lot
24.” Dissenting Opinion ¶ 39. There is no question that the Covenants apply to the
owners, but the dissent’s reading of this provision would prohibit a homeowner from
leasing the home or allowing someone other than the owner to live in the Property.
This interpretation simply cannot be countenanced under the plain language of the
Covenants.
1. The dissent borrows the word “owners” from the preamble of the Covenants
to suggest that only owners may use the Property for “residential purposes.”
However, the language concerning “present and future owners” in the
preamble merely demonstrates the Covenants’ intent to run with the land
and benefit all present and future owners. A reading of this plain language
does not remotely suggest that the Covenants also require every home in the
subdivision to be owner-occupied.
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[¶25.] Wilsons ask this Court to conclude the receipt of rental income
transforms a property’s use from residential to strictly commercial. Yet, virtually
every other jurisdiction that has examined this issue has held “that receipt of
income does not transform residential use of property into commercial use.”
Houston, 360 P.3d at 260. “When property is used for a residence, there simply is
no tension between such use and a commercial benefit accruing to someone else.”
Lowden,
909 A.2d at 267-68. “[T]he critical issue is whether the renters are using
the property for ordinary living purposes such as sleeping and eating . . . . [T]he
nature of a property’s use is not transformed from residential to business simply
because the owner earns income from the rentals.” Santa Monica Beach Prop.
Owners Ass’n, Inc.,
219 So. 3d at 114-15. See, e.g., Wilkinson,
327 P.3d at 620;
Dunn,
695 F.3d at 801-02; Slaby,
100 So. 3d at 580; Tarr,
556 S.W.3d at 291-92;
Pinehaven Plan. Bd.,
70 P.3d at 667-68; Russell,
731 S.E.2d at 539.
[¶26.] We agree with these nearly universal holdings from other jurisdictions.
The Covenants’ “residential purposes” provision does not prohibit Maynards from
profiting by renting to guests who use the Property as a short-term residence. If the
Covenants intended “residential purposes” to prohibit profit-making activity as
Wilsons and the dissent suggest, then the Covenants would even prohibit a long-
term lease of the Property that generates a profit. There is nothing in the
Covenants that suggests a home owner in Shirt Tail Gulch may not lease a
residence on a short- or long-term basis, or that limits the occupancy of a home to a
single-family.
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[¶27.] Finally, Wilsons and the dissent also focus on the language of the
Covenants, which states that “residential purposes . . . shall include [1] ordinary
home occupations and [2] offices of recognized professions and [3] bed and breakfast
uses . . . .” 2 They argue that Maynards’ use of the Property does not fit within any
of these additional commercial uses permitted by the Covenants. However, the
resolution of this case does not turn on whether Maynards’ use fits within any of
these three uses. Rather, the use of the Property is not prohibited by the Covenants
because it is consistent with the common meaning of “residential purposes.”
[¶28.] Moreover, the Covenants’ inclusion of these three uses does not limit
the meaning of “residential purposes.” Rather, these enumerated uses expand it.
See Am. Sur. Co. of New York v. Marotta, 287 U.S. 513, 517,
53 S. Ct. 260, 261,
77 L.
Ed. 466 (1933) (“‘[I]nclude’ is frequently, if not generally, used as a word of
extension or enlargement rather than as one of limitation or enumeration.”). If the
Covenants were intended to confine the scope of “residential purposes,” the
Covenants could have included additional language to do so. “[O]ur well-
2. Courts have generally held that “home occupations . . . are those
[occupations] ‘customarily’ associated with residential dwellings” and that
may be “appropriate” to base out of a residence. Agnew v. Bushkill Twp.
Zoning Hearing Bd., 837 A.2d 634, 638 (Pa. Commw. Ct. 2003). Some
examples include an animal exhibition business, In re Salton v. Town of
Mayfield Zoning Bd. of Appeals, 983 N.Y.S.2d 656, 658-59 (N.Y. App. Div.
2014), and an operation of a commercial trucking business, Stevens v. City of
Island City, 324 P.3d 477, 480 (Or. Ct. App. 2014). SDCL 34-18-9.1(1) defines
a “‘[b]ed and breakfast establishment,’ [as] any building or buildings run by
an operator which is used to provide accommodations for a charge to the
public, with at most five rental units for up to an average of ten guests per
night and in which family style meals are provided . . . .” To be clear, the
Court does not suggest that Maynards’ use of the Property for vacation
rentals is a “normal home occupation,” an “office of recognized professionals,”
or a “bed and breakfast.”
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established rule [is] that in ascertaining the parties’ intent, we will not rewrite [a
contract or covenant] or add to its language.” Edgar v. Mills, 2017 S.D. 7, ¶ 29,
892
N.W.2d 223, 231.
[¶29.] It is undisputed the Property is used to eat, sleep, and enjoy
recreational activities. Therefore, short-term vacation rentals are a residential
purpose consistent with the Covenants. Maynards’ construction of a multi-bedroom
vacation home on the Property is also consistent with the provision in the
Covenants requiring construction of only “family or residential recreation type
dwellings.” Finally, Wilsons failed to make any showing that short-term rentals of
the Property “fundamentally alter the character of Shirt Tail Gulch.” Because
Maynards did not breach the Covenants, the circuit court properly granted their
motion for summary judgment and denied Wilsons’ motion for injunctive relief.
[¶30.] We affirm.
[¶31.] GILBERTSON, Retired Chief Justice, and KONENKAMP, Retired
Justice, concur.
[¶32.] KERN and DEVANEY, Justices, dissent.
[¶33.] KONENKAMP, Retired Justice, sitting for SALTER, Justice,
disqualified.
[¶34.] MYREN, Justice, not having been a member of the Court at the time
this action was submitted to the Court, did not participate.
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KERN, Justice (dissenting).
[¶35.] While I agree that the Covenants’ language is unambiguous, I disagree
with the majority’s interpretation allowing the Maynards to engage in what is
undoubtedly a prohibited commercial endeavor. Such a reading ignores the
provisions of the Covenants, which must be read as a whole to provide context and
definition for the “residential purposes” provision.
[¶36.] Regarding the term “residential purposes,” much of the circuit court’s
opinion and the Maynards’ brief focus on how the renters use the three-story house
in question. However, this analysis fails to consider the Covenants as a whole and
instead defines the term in isolation. The fourth declaration in the Covenants
provides:
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.
[¶37.] “Contract interpretation is a question of law reviewed de novo.”
Charlson v. Charlson, 2017 S.D. 11, ¶ 16,
892 N.W.2d 903, 907 (citation omitted).
“In order to ascertain the terms and conditions of a contract, we examine the
contract as a whole and give words their plain and ordinary meaning.” Id. ¶ 16, 892
N.W.2d at 908. “We are required to give effect to the language of the entire
contract, and particular words and phrases are not interpreted in isolation.” Jones
v. Siouxland Surgery Ctr. Ltd. P’ship,
2006 S.D. 97, ¶ 15,
724 N.W.2d 340, 345
(citation omitted).
[¶38.] In South Dakota, “servitude[s] should be interpreted to give effect to
the intention of the parties ascertained from the language used in the
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instrument[.]” Brandt v. Cnty. of Pennington, 2013 S.D. 22, ¶ 13,
827 N.W.2d 871,
875 (quoting Restatement (Third) of Property (Servitudes) § 4.1(1) (2000)). “The
rule that servitudes should be interpreted to carry out the intent of the parties and
the purpose of the intended servitude departs from the often expressed view that
servitudes should be narrowly construed to favor the free use of land.” Restatement
(Third) of Property (Servitudes) § 4.1 cmt. a (2000). This rule “is based in the
recognition that servitudes are widely used in modern land development and
ordinarily play a valuable role in utilization of land resources. The rule is
supported by modern case law.” Id.
[¶39.] In keeping with this standard of review and by examining the entire
document, the proper context of the fourth declaration in the Covenants is more
fully understood. 3 Notably, before the list of Covenants, an introductory preamble
provides:
The following declarations constitute covenants to run with the
land and with the above described property, and shall be
binding upon all parties and persons having an interest in said
property, for the benefit of and limitations on all present and
future owners of said property, so long as said declarations
remain in effect as hereinafter provided.
(Emphasis added.) Likewise, the first declaration of the Covenants provides in part
that the Covenants, “shall inure to the benefit of each owner thereof, and for the
further purpose of creating and keeping the above-described property, insofar as
possible, desirable, attractive, free from nuisance and suitable in architectural
3. See Tarr, 556 S.W.3d at 289 (reasoning “‘residence’ is a term of multiple
meanings” . . . but “the appropriate meaning can be discerned from ‘the
context in which it is used’” (citations omitted)).
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design, materials and appearance, and for the purpose of guarding against fires and
unnecessary interference with the natural beauty of the lots, for the mutual benefit
and protection of the owners of all lots, and the surrounding and adjacent property.”
(Emphasis added.) Therefore, when reading the Covenants in its entirety, it is
apparent that the fourth article in the Covenants applies to the owner’s use of Lot
24. 4 The recitals within the Covenants are valuable in discerning the intended
limitations the Covenants placed on the uses of the lots. See Jennings v. Rapid City
Reg’l Hosp., Inc., 2011 S.D. 50, ¶ 11,
802 N.W.2d 918, 922 (reasoning that the
recitals in a contract showed the contracts’ clearly expressed intent to benefit
employees.)
[¶40.] To support its contrary interpretation, the majority opinion focuses on
how the renters use the property. And the primary authority relied upon by the
majority is based upon this same interpretation. The majority relies on Santa
Monica Beach Property Owners Association, Inc. for the proposition that when
“determining whether short-term vacation rentals are residential uses of the
property, the critical issue is whether the renters are using the property for ordinary
living purposes such as sleeping and eating[.]”
219 So. 3d at 114 (emphasis added)
(citations omitted); see also Majority Opinion ¶ 25. Even though other courts have
read covenants this way, borrowing that interpretation here, would violate the
4. The majority opinion claims that this language merely shows the Covenants’
intent to run with the land and benefit all present and future owners. While
this is true, it cannot be denied that the language also shows the intent to
enforce the Covenants’ provisions as “limitations on all present and future
owners[.]” (Emphasis added.) The Maynards’ status as owners of Lot 24
places them under the obligation to use Lot 24 for residential purposes.
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plain, unambiguous language of the Covenants at issue here and the canon of
construction, which prohibits courts from reading the provisions of the Covenants in
isolation.
[¶41.] Moreover, the Maynards admit in their brief that they “are not aware
of any reported case that has involved similar language as paragraph four of the
Covenants.” This is not surprising. Not only do all covenants differ, but so do the
ordinances, state laws, and judicial precedents in each jurisdiction under which
they will be interpreted. This is well exemplified in Santa Monica Beach Property
Owners Association, Inc., where the decision of the Florida District Court, holding
that a short-term vacation rental was a permitted residential purpose, was based on
an interpretation of the servitude favoring the free, unrestricted use of the property.
Importantly, this standard is directly contrary to our own, which provides that “[a]
servitude should be interpreted to give effect to the intention of the parties
ascertained from the language used in the instrument . . . and to carry out the
purpose for which it was created.” Restatement (Third) of Property (Servitudes) §
4.1(1) (2000); Brandt, 2013 S.D. 22, ¶ 13,
827 N.W.2d at 875; see also supra ¶ 38.
Other courts’ interpretations of differing covenants are not controlling here.
Rather, the text of the Shirt Tail Gulch Covenants controls.
[¶42.] The majority opinion suggests that there must be some “meaning for
the language ‘residential purposes’” supported by authority from other
jurisdictions. 5 See Majority Opinion ¶ 24. But by relying solely upon this approach,
5. The North Dakota Supreme Court, in Hill v. Linder, had occasion to analyze
a covenant containing the restriction that property be used for “residential
(continued . . .)
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the majority opinion skips the important step of examining the Covenants’ plain
meaning within its unique and specific context. The Covenants here place plain
limitations on how the owners use their property. Bypassing this crucial step and
relying on the myriad of decisions interpreting specific covenants from other
jurisdictions is unhelpful to the analysis of the four corners of the Covenants at
issue under our applicable law. If the Covenants here are truly unambiguous, as
the majority opinion and both parties assert, then “the intent of the parties can be
derived from within the four corners of the contract.” Gores v. Miller, 2016 S.D. 9, ¶
15,
875 N.W.2d 34, 39. Accordingly, we examine the use of the property by the
owners, as set forth in the parties’ statements of undisputed material fact.
[¶43.] The Maynards live in Spearfish, South Dakota, and have never made
Lot 24 of Shirt Tail Gulch their personal residence. They built this property for the
specific purpose of using it for a vacation rental business. This is apparent from the
terms of their construction loan for the project which required the Maynards to
“maintain insurance against rent loss” and assign the rents to the financier in case
of default. The property is owned by a corporate entity, Alpine Adventures. The
________________________
(. . . continued)
purposes only.” 2009 N.D. 132, ¶ 13,
769 N.W.2d 427, 432. The court held
that the phrase prohibited homeowners from operating a licensed day-care
facility in their home because the day-care was not an incidental business
use. In so concluding, the court reasoned “that the usual, ordinary and
incidental use of property as a residence does not violate a covenant
restricting use of the property to residential purposes only, but that an
unusual and extraordinary use may constitute a violation, and that an
incidental business use does not violate a covenant for residential purposes
only as long as the business use is casual, infrequent or unobtrusive.” Id. If
we were to apply a similar approach here, the record reveals the Maynards’
use of Lot 24 is a commercial business that is neither casual nor infrequent
and certainly not incidental to a residential purpose.
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Maynards advertise the rental property on their own website as well as on third-
party websites and have developed a limited “vetting process” to screen potential
renters. Their projected gross revenue from the property is nearly $60,000 per year,
with nightly rentals ranging from $500 per night to $1200 per night. The Maynards
charge customers sales tax on the rentals. Lot 24 is advertised as being “[b]uilt
with large groups in mind,” and “boast[ing]” five master suites.
[¶44.] The three-story house is rented out approximately 92-120 nights per
year. During the summer months, the property is rented out nearly every day. To
protect against loss occurring on the property, the Maynards carry commercial
insurance for Lot 24 and the rental. Reviewing just this cursory enumeration of
undisputed facts, it can hardly be said that the Maynards have anything other than
a “commercial” venture. See The American Heritage College Dictionary 280 (3rd ed.
1997) (defining commercial as “[e]ngaged in commerce” or “[h]aving profit as chief
aim.”). Undoubtedly, the Maynards’ use of their property does not fit one of the
permitted residential purposes. 6
[¶45.] Further meaning and context of “residential purposes” can be derived
from the Covenants’ inclusion of three specific uses of Lot 24 which have
commercial characteristics. The Covenants identify these uses in the fourth
declaration, to wit: “normal home occupations and offices of recognized professions
and bed and breakfast uses allowed under State and County laws and regulations.”
6. The Maynards’ commercial use of their property is in stark contrast to the
Wilsons’ use of their neighboring property. The Wilsons bought their house
in Shirt Tail Gulch in 2007, to use as their personal residence upon their
retirement and spent nearly $1 million renovating and constructing additions
to their home.
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The Maynards make no claim that they use the property as an office of a recognized
profession. And as discussed below, the short-term vacation home rental activity
occurring on Lot 24 does not fit within the other two permitted uses—normal home
occupations or as a bed and breakfast— which the majority opinion concedes. See
Majority Opinion ¶ 27.
[¶46.] The circuit court held that the Shirt Tail Gulch Covenants’ phrase
“normal home occupations” permits short-term vacation home rentals. To reach
this conclusion, the court reasoned that “the drafters’ inclusion of [a bed and
breakfast facility] is telling” because “[i]t demonstrates that the covenant was not
designed to prohibit short-term rentals,” and “[i]t is inconsequential that vacation
rentals are not expressly listed as a permissible use because they fall within the
meaning of ‘normal home occupations.’” Further, the court reasoned that, although
the term “vacation rental” is missing from the permitted commercial type uses
expressly listed in the fourth declaration of the Covenants, the word “includes,”
preceding the listed uses, should be interpreted to mean that the “examples
enumerated in the text are intended to be illustrative, not exhaustive.”
[¶47.] The circuit court misinterpreted both the meaning of a normal home
occupation and the significance of the inclusion of the bed and breakfast use in the
Covenants. Bed and breakfast establishments are defined in SDCL 34-18-9.1(1)-(3)
as:
(1) “Bed and breakfast establishment,” any building or buildings
run by an operator which is used to provide accommodations for
a charge to the public, with at most five rental units for up to an
average of ten guests per night and in which family style meals
are provided;
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(2) “Family style meal,” any meal ordered by persons staying at
a bed and breakfast establishment which is served from common
food service containers, as long as any food not consumed by
those persons is not reused;
(3) “Operator,” the owner or the owner’s agent, who is required
to reside in the bed and breakfast establishment or on contiguous
property.
(Emphasis added.)
[¶48.] Here, the operators—the Maynards—allow more than ten guests per
night, do not serve family style meals, and do not live in the home on Lot 24. The
Maynards’ use of Lot 24 is far from being a bed and breakfast use as their
commercial use meets none of the criteria. Although the circuit court concluded
that the drafter’s inclusion of the bed and breakfast exception means that Lot 24
was allowed to be rented on a short-term basis other than as an actual bed and
breakfast, there is only one “bed and breakfast” use as defined by South Dakota law.
Importantly, SDCL 34-18-1(17) defines a “Vacation home establishment” which
specifically excludes bed and breakfast enterprises as follows:
“Vacation home establishment,” any home, cabin, or similar
building that is rented, leased, or furnished in its entirety to the
public on a daily or weekly basis for more than fourteen days in
a calendar year and is not occupied by an owner or manager
during the time of rental. This term does not include a bed and
breakfast establishment as defined in subdivision 34-18-9.1(1)[.]
(Emphasis added.) The circuit court ignored this statute when it held that
“[v]acation rentals and bed and breakfasts are similar enterprises.” The canon of
construction “expressio unius est exclusio alterius,” which is to say, “the expression
of one thing is the exclusion of another” applies here. See Aman v. Edmunds Cent.
Sch. Dist. No. 22-5, 494 N.W.2d 198, 200 (S.D. 1992). The fourth declaration in the
Covenants permits bed and breakfast uses in accordance with state law. Vacation
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home establishments are not included. The circuit court erred by conflating the two
separately defined uses into one permitted use.
[¶49.] This leaves the question of whether the Maynards’ use of Lot 24
constitutes a “normal home occupation.” The circuit court erred when it held that
the Maynards’ use of the property constituted a normal home occupation because
the renters are using Lot 24 as any homeowner would have used it. The court held
that a renter’s use of Lot 24 mirrors a homeowner’s use because: “they sleep, cook,
eat, drink, and gather there. This use has not destroyed the expected character of
the Shirt Tail Gulch neighborhood[.]”
[¶50.] However, the circuit court cited no authority for the definition of a
normal home occupation nor cited any authority holding that a vacation home
rental business is a normal home occupation and instead crafted its own definition.
[¶51.] The majority opinion defines “home occupations” as being an
occupation “‘customarily’ associated with residential dwellings” that may be
“appropriate” to base out of a residence. See Agnew, 837 A.2d at 638. See also
Majority Opinion ¶ 27 n.2. Significantly, in every decision cited by the majority,
defining or distinguishing a home occupation, the owner lived in the home. 7 Here,
7. See Agnew,
837 A.2d at 635 (owner lived in house where his roofing business
was located); In re Salton, 983 N.Y.S.2d at 658 (owner lived in house where
his animal exhibition business was located); Stevens, 324 P.3d at 478 (owner
lived on same property where his operation of a commercial trucking business
was located); Sanantonio v. Lustenberger, 901 N.Y.S.2d 109, 110 (N.Y. App.
Div. 2010) (owner lived in same home where a professional hairdressing
business was located); and Williams v. Lexington Cnty. Bd. of Zoning
Appeals, 776 S.E.2d 749, 750 (S.C. Ct. App. 2015) (owner lived in a home with
an adjacent dog grooming business on the property).
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the Maynards do not live and never have made their personal residence in the
house on Lot 24.
[¶52.] The Maynards further attempt to blur the difference between how they
are using Lot 24 and what a normal home occupation allows. They claim that their
short-term vacation rentals are permitted because they are similar enough to a bed
and breakfast commercial use and a normal home occupation. But a normal home
occupation is far different from a bed and breakfast use. 8 The two uses are listed
separately in the Covenants, and if they were interpreted to mean the same thing,
enumerating “normal home occupations” and “bed and breakfast” would be
superfluous. Additionally, a vacation home rental is not a normal home occupation
even if the renter’s use of Lot 24 could be conducted entirely within the structure.
See Agnew, 837 A.2d at 638 n.11 (compiling cases where home businesses were
found not to be “home occupations” despite the business being done entirely inside
the home). As the majority opinion acknowledges, 9 a short-term vacation rental
business is different from a normal home occupation. The circuit court erred in its
classification of the Maynards’ use of Lot 24 as such.
8. Courts have concluded that bed and breakfast commercial arrangements are
not properly classified as normal home occupations. See Reynolds v. Zoning
Hearing Bd. of Abington Twp., 578 A.2d 629, 631 (Pa. Commw. Ct. 1990) (“A
Bed and Breakfast [was] not [c]learly incidental or secondary to the use of the
dwelling for dwelling purposes and is therefore not a home occupation. It is
more like a boarding house or a hotel . . . than a traditional undefined type of
home occupation such as a craft shop, dressmaker or seamstress occupation.”
(citation omitted)). See also Town of Sullivans Island v. Byrum, 413 S.E.2d
325, 328 (S.C. Ct. App. 1992) (holding “a Bed & Breakfast is not a home
occupation.”).
9. See Majority Opinion ¶ 27 (“[T]he resolution of this case does not turn on
whether Maynards’ use fits within any of these three uses.”).
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[¶53.] The majority opinion suggests that the “reading of this provision would
prohibit a homeowner from leasing the home or allowing someone other than the
owner to live in the Property.” See Majority Opinion ¶ 24. Obviously, the
Covenants’ inclusion of the bed and breakfast use as “allowed under State and
County law and regulations,” contradicts this claim because, under the statutory
framework for a bed and breakfast use, the homeowner could lease out rooms so
that others may live temporarily on the property. Furthermore, the majority
opinion suggests that our conclusion would prohibit any profit-making motive the
Maynards would have, such as long-term lease agreements. However, our focus
must be on giving effect to the intent of the Covenants as clearly expressed in view
of the surrounding circumstances. Under the majority opinion’s reading of the
Covenants, very little stands in the way of the Maynards operating any type of
lodging establishment 10 on Lot 24 so long as the renters simply eat, sleep, and live
on the premises on a short-term basis.
[¶54.] Although the Covenants do not define residential purposes, in each of
the permitted commercial uses detailed in the Covenants, the owner must live in
the home where the commercial activity occurs. This also evinces the intent of the
Covenants to permit some types of commercial uses and not others. Short-term
vacation rentals are not listed within the enumerated exception to “residential
10. A “lodging establishment” is defined in SDCL 34-18-1(7) as “any building or
other structure and property or premises kept, used, maintained, advertised
or held out to the public to be a place where sleeping accommodations are
furnished for pay to two or more transient guests. The term includes hotels,
motels, cabins, bed and breakfast establishments, lodges, vacation home
establishments, dude ranches, and resorts[.]”
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purposes,” and nothing in the Covenants reveals an intention to allow them.
Without question, the Maynards’ commercial purpose for Lot 24 far exceeds the
plain language of the Covenants. The majority opinion sidesteps this and, instead,
relies on interpretations from other courts, interpreting unique covenants under
their applicable jurisprudence, state laws, and ordinances.
[¶55.] The Maynards’ operation of a short-term vacation rental on Lot 24
fundamentally alters the residential nature of the Shirt Tail Gulch subdivision and
violates the restrictive covenants protecting it. I would reverse and remand with
instructions to enjoin the Maynards from operating a vacation home rental
business.
[¶56.] DEVANEY, Justice, joins this writing.
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