MICHIGAN COURT OF APPEALS RULES IN FAVOR OF TOWNSHIP IN ZONING ORDINANCE DISPUTE OVER SHORT-TERM RENTALS

BACKGROUND

On October 25, 2018, the Michigan Court of Appeals issued an unpublished opinion in the matter of Concerned Property Owners of Garfield Township, Inc v Charter Township of Garfield, unpublished per curiam opinion of the Court of Appeals, issued October 25, 2018 (Docket No. 342831). The Garfield case involved the interpretation of a zoning ordinance that addressed short-term rentals of residential properties in certain districts. In Garfield, a number of homeowners frequently rented out their homes for short-term intervals, usually for about one week in duration. In September 2013, the Garfield Township Zoning Administrator expressed an opinion that the zoning ordinance then in effect, called “Ordinance 10”, permitted short-term rentals.

A few months later, a new Zoning Administrator for the Township took a different position and expressed her opinion that “one-week rentals are not for residential purposes . . . [and] that short term rentals or other transient uses are prohibited” under Ordinance 10. Beginning in 2014, the Township sent letters to many of these homeowners informing them that short-term renting of their homes was in violation of the township’s zoning ordinance.

In 2015, the township passed a new ordinance called “Ordinance 68”, which replaced Ordinance 10. All of the parties involved in the Garfield case agreed that the new ordinance prohibited short-term rentals. However, the homeowners filed a lawsuit against the Township in September 2017, seeking a court order allowing them to continue using their homes for short-term rentals under a legal doctrine called “prior nonconforming use.” The homeowners essentially asked to be “grandfathered” under the previous ordinance as Michigan law does not allow a municipality to enforce ordinances retroactively.

If a zoning ordinance allows a certain use of a property, any later amendment or replacement to that ordinance that prohibits the activity cannot be enforced against an owner that was lawfully using the property for the newly prohibited purpose before the new ordinance took effect. This is called a “prior nonconforming use.” “A prior nonconforming use is a vested right in the use of particular property that does not conform to zoning restrictions, but is protected because it lawfully existed before the zoning regulation’s effective date.” Lyon Charter Twp v Petty, 317 Mich App 482, 489; 896 NW2d 477 (2016). “To be protected, the nonconforming use must have been legal at one time; a use that violates the zoning ordinances since its inception does not draw such protection.” Id.

THE COURT’S DECISION

The trial court ruled in favor of the Township on the basis that short-term rentals were not permitted under the old ordinance. Since the trial court interpreted Ordinance 10 to prohibit short-term rentals, the homeowners’ argument that they had a prior nonconforming use and should be allowed to continue to rent under the new ordinance was rejected. The trial court issued an order prohibiting the homeowners from renting their homes for short-term intervals. The homeowners filed an appeal.

On appeal, the court’s primary task was the interpretation of the old ordinance. The Court of Appeals relied on the ordinance’s definition of “single-family dwelling” as a “dwelling unit designed for exclusive occupancy by a single family” and the definition of “dwelling unit” as a “building or portion thereof designed exclusively for residential occupancy by one (1) family.” The ordinance also defined “family” to include relationships of a “non-transient domestic character,” but to exclude those “whose domestic relationship [was] of a transitory or seasonable nature or for an anticipated limited duration of a school term or other similar determinable period.”

The Court of Appeals relied on the above definitions in reaching its decision that short-term rentals were prohibited under the old ordinance. Specifically, the Court held “Because short-term rentals are inherently transitory, by limiting the use to ‘family’ dwelling units, Ordinance 10 plainly prohibited short-term rentals. Thus, because appellants’ prior rentals violated Ordinance 10, they do not qualify as a prior nonconforming use.”

The Court of Appeals also based its decision that short-term rentals were prohibited under the old ordinance by its use of the term “residential occupancy.” Although “residential occupancy” was not defined in the ordinance, the Court cited the Michigan Supreme Court case of O’Connor v Resort Custom Builder, Inc, 459 Mich 335, 345-346; 591 NW2d 216 (1999) which excluded uses of a transitory nature from the definition of a “residence.” The O’Connor case defined “residence” as “a place where someone lives, and has a permanent presence, if you will, as a resident, whether they are physically there or not.”

The Court of Appeals relied on this definition in support of its holding that the short-term rentals involved in this case did not establish the type of permanence needed to be considered a single-family dwelling. Therefore, the Court of Appeals ruled that the prior use of the properties by the homeowners under Ordinance 10 was prohibited. The Court of Appeals affirmed the trial court’s decision.

In a Concurring Opinion, Judge Murphy of the Michigan Court of Appeals agreed with this decision but based on a different reason. Judge Murphy relied on the ordinance’s definition of “family” as persons who are “domiciled together . . . in a dwelling unit.” Since Michigan courts have defined “domicile” to mean “the place where a person has his true, fixed, permanent home, and principal establishment, and to which, whenever he is absent, he has the intention of returning”, Judge Murphy reasoned that “A family renting a dwelling for a short period is not domiciled together in the dwelling.”

CONCLUSION

The Garfield case is another in a recent line of cases in Michigan upholding a restriction on short-term rentals. In 2009, the Michigan Supreme Court ruled that short-term rentals of a dwelling for a fee is not considered use of the property as a single-family dwelling. See Laketon Twp v Advanse Inc, 485 Mich 933, 773 NW2d 903 (2009). In 2010, the Michigan Court of Appeals defined a person’s residence as “the place where a person has his home, with no present intention of removing and to which he intends to return after going elsewhere …” and that “use of the property to provide temporary housing to transient guests is a commercial purpose.” See Enchanted Forest Prop Owners Ass’n v Schilling, unpublished per curiam opinion of the Court of Appeals, issued March 11, 2010 (Docket No. 287614), p 7.

More recently in 2017, the Michigan Court of Appeals, in two separate opinions, again upheld restrictions banning short-term rentals. See John H Bauckham Trust v Matthew Petter, unpublished opinion of the Court of Appeals, issued September 19, 2017 (Docket No. 332643); See also Eager v Peasley, 322 Mich App 174, 188–89; 911 NW2d 470, 478 (2017). In Bauckham, the Court held that short-term rentals violated the “residential use” and the “non-commercial use” deed restrictions in a residential subdivision and issued an injunction banning short-term rentals. Id. In Eager, the Court held that “transient, short-term rental usage violates the restrictive covenant requiring ‘private occupancy only’ and ‘private dwelling’.” and “‘Commercial use,’ which is clearly prohibited in the restrictive covenant, includes short-term rentals even without resorting to technical refinement of what constitutes ‘private occupancy’ or ‘private dwelling’.” Id.

Accordingly, Michigan has taken a unique and rather firm stance on restrictions prohibiting short-term rentals. Michigan courts have taken this stance regardless of whether the ban on short-term rentals comes from an ordinance adopted by a municipality or arises from private deed restrictions. In light of the current position taken by Michigan courts, condominium and homeowners associations should not hesitate to take legal action to enforce their governing documents in the event a homeowner is violating restrictions by renting out their home for short-term intervals. Similarly, anyone who wishes to utilize residential property for investment purposes by renting the home on services such as Airbnb, VRBO, and Homeaway should carefully review the zoning ordinances of the municipality where the property is located.

Brandan A. Hallaq is an attorney with Hirzel Law, PLC where he dedicates the majority of his practice to representing condominium and homeowner’s associations. He frequently litigates cases involving contract disputes, shareholder/member disputes, quiet title actions to determine interests in property, enforcement of restrictive covenants, real estate foreclosure actions, and bankruptcy matters representing creditors. He also has experience preparing documents for business and real estate transactions including purchase agreements, franchise agreements, loan/financing documents and commercial and residential leases and mortgages. In 2018, he was recognized as a Rising Star by Super Lawyers, a designation that is given to no more than 2.5% of attorneys in the State of Michigan. Mr. Hallaq obtained his Juris Doctor degree, cum laude, from Wayne State University Law School where he served as an editor on the Wayne Law Review. He can be reached at (248) 478-1800 or at bhallaq@hirzellaw.com.

“Necessary” Farm Operations under the Right to Farm Act: Township of Williamston v. Sandalwood Ranch, LLC

Introduction 

The Michigan Court of Appeals recently provided clarity regarding interpretation of the term “farm operations” under the Michigan Right to Farm Act, (“RTFA”), MCL 286.741, et seq., in Williamston Twp v Sandalwood Ranch, LLC, ___ Mich App __; ___ NW2d ___ (2018) (Docket No. 337469).  In its decision, the Court of Appeals held that in order for a use to be protected under the RTFA that use must be “necessary” for farm operations under the RTFA, and while “absolute necessity” was not required, such a use must be more than just a matter of convenience to warrant protection.

Background 

In December 2014 the Township of Williamston filed a nuisance per se lawsuit against defendants Sandalwood Ranch, LLC, (“Sandalwood”) and Alec and Sarah Kolenda.  The individual defendants owned and operated Sandalwood, a commercial horse-boarding facility and lived in a house located on the property.  In addition, however, they also maintained an apartment within a building that contained horse-stalls and an indoor arena.  They then rented this apartment to a third-party for reduced rent.  In exchange, this third-party was expected to perform a necessary “night check” on the horses being boarded.  The Township filed the lawsuit because the maintenance of a second dwelling on the property violated the Township’s Zoning Ordinance.

The defendants did not dispute that the Township’s Zoning Ordinance only permitted one dwelling per farm and prohibited living quarters within the arena building.  Instead, the defendants claimed that the use of the apartment was protected by the RTFA.  First, they claimed that the apartment was within the building that contained the arena, and that, therefore, any use of the building fell within the definition of a protected “farm” as defined by § 2(a) of the RTFA, MCL 286.472(a).  Second, they claimed that the use of the apartment was “necessary” in connection with the boarding of horses, a protected activity, and that, therefore, such use was also a protected “farm operation” as defined by § 2(b) of the RTFA, MCL 286.472(b).  Both the trial court and the Court of Appeals disagreed with the defendants, rejecting the defendants’ attempt to apply § 2(a) and disagreeing with their characterization of the use of the apartment as “necessary” for protected farm operations under § 2(b).

Analysis 

To successfully assert the RTFA as a defense, a party must prove two conditions: (1) the challenged condition or activity constitutes a “farm” or “farm operation,” and (2) that the farm or farm operation conforms to the relevant generally accepted agricultural and management practices.  Section 2(a) of the RTFA defines a “farm” as: the land, plants, animals, buildings, structures, including ponds used for agricultural or aquacultural activities, machinery, equipment, and other appurtenances used in the commercial production of farm products.  MCL 286.472(a). Section 2(b) of the RTFA defines “farm operations” as: the operation and management of a farm or a condition or activity that occurs at any time as necessary on a farm in connection with the commercial production, harvesting, and storage of farm products . . . .  MCL 286.472(b).

Both the Court of Appeals and the trial court first rejected the defendants’ attempt to include the apartment within § 2(a)’s definition of a protected farm on the basis that it was located in the arena building.  As stated by the Court of Appeals, “[s]uch a holding would immunize unlawful activity simply because it occurs within a farm building.”  Sandalwood Ranch, Slip Op. at 5.  In determining whether the apartment was entitled to protection, the critical inquiry was whether “the use of that apartment building in connection with the business of boarding horses [wa]s a protected ‘farm operation’ under § 2(b).”  Id.  In other words, determining whether a particular use was protected under the RTFA required a determination that the proposed use was actually connected to the underlying protected activity, i.e., that the proposed use was a “farm operation” as defined by § 2(b).

With respect to § 2(b), the defendants were unable to factually establish that their use of the apartment was “necessary” in connection with the boarding of horses.  In interpreting the word “necessary,” the Court of Appeals did not go so far as to require that a party show that the proposed use is “absolutely necessary,” but did hold that a use that is a mere “matter of convenience” is insufficient to warrant protection as a “farm operation,” even if such use is connected to protected farm operations.  The relationship between the defendants and the third party performing the “night check” was too loose of an arrangement, and the defendants were not able to establish that the use of the apartment itself was required for a third party to perform “night checks.”  The Court of Appeals found these factors and the defendants’ use of the apartment as a means of generating rental income important in rejecting the defendants’ argument.

Summary

Sandalwood Ranch is significant because it establishes an outer boundary of the types of activities that can be protected under the RTFA.  There was no question that the use of the apartment by the defendants was connected to their protected farm operations.  There was no dispute that a “night check” would have fallen within the definition of a protected “farm operation” under § 2(b) nor does this issue appear to have been contested by the Township.  Further, by allowing a third party to reside in the building arena who assisted in performing the required “night checks,” the defendants saved themselves some time and effort in the performance of the boarding activities.  However, if a party intends to rely upon the RTFA as a means to protect certain activities or uses, then that party must be able to establish that the activity or use sought to be protected has a significant enough connection to the protected “farm operations” to be considered “necessary” for such “farm operations,” a showing that the defendants were unable to make.

 

Matthew W. Heron is a Member at Hirzel Law, PLC where he concentrates his practice in real estate, community association law, condominium law, real estate litigation, and zoning and land use.  Mr. Heron also has extensive experience in a variety of litigation matters, including insurance coverage, non-compete agreements, automotive supplier disputes, and breach of contract.  He routinely appears in both federal and state courts throughout Michigan and has argued before the Michigan Court of Appeals and the Court of Appeals for the Sixth Circuit.

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