HYATT (SCOTT), ET AL. VS. (IVA)
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RENDERED: AUGUST 28, 2009; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2008-CA-001474-MR
SCOTT HYATT;
SUSAN HYATT
v.
APPELLANTS
APPEAL FROM MARSHALL CIRCUIT COURT
HONORABLE DENNIS R. FOUST, JUDGE
ACTION NO. 07-CI-00002
IVA COURT
APPELLEE
OPINION
AFFIRMING
** ** ** ** **
BEFORE: KELLER, STUMBO, AND VANMETER, JUDGES.
KELLER, JUDGE: This is an appeal from an order of the Marshall Circuit Court
which enjoined the appellants, Scott and Susan Hyatt, (hereinafter the Hyatts),
from renting their vacation home, located on Kentucky Lake. The court found that
the Hyatts were in violation of a restrictive covenant contained in the deed
prohibiting commercial or manufacturing activity. In the appeal, the Hyatts argue
they have not violated the restrictive covenant as the rental of their vacation home
does not rise to the level of a commercial purpose. Alternatively, the Hyatts assert
that even if their behavior violates the deed, the character of the subdivision has so
changed that to do equity, the restriction should be nullified. We disagree with the
Hyatt’s contentions, and therefore affirm the Marshall Circuit Court’s judgment
due to the reasons set forth below.
FACTS
A bench trial was held in June of 2008. As the parties do not dispute
the facts found by the court, we will reiterate those facts which are pertinent below.
In the trial court, the appellant, Iva Court, and ten others1 (hereinafter the owners),
owned homes located in the Sherwood Shores Subdivision. Citing various
complaints against renters of the Hyatt’s home, including blocking access to
driveways, trash, and vulgar language, the owners sought to enforce a restrictive
covenant found in their collective deeds. The relevant portions of the restrictions
are set out as follows:
1. No building shall be erected or maintained on
any lot in Sherwood Shores other than a private residence
and a private garage for the sole use of the owner or
occupant, except those lots designated as commercial on
the plat.
2. No part of said premises shall be used for
commercial or manufacturing purposes, except those lots
designated as commercial on the plat map.
The court found that the Hyatts had created a copyrighted website at
www.bestkylakevacation.com advertising the rental of their fully-furnished home
1
Due to the appellee’s failure to name the additional parties in the notice of appeal, the
additional persons associated with the case in the trial court are not per se parties to this appeal,
however, we shall refer to them in the plural so as to avoid confusion.
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for up to three (3) couples or two (2) families. The rental included the use of their
home and private dock for periods of two (2) nights up to one (1) week. The
Hyatt’s charged a security deposit, a cleaning fee, an additional amount for pets,
and included a charge of 10% Kentucky sales tax. Tenants entered into a written
rental agreement, which included a specific check-in and check-out time, a
$300.00 damage deposit, and a $10.00 per person charge for each additional person
over the age of ten (10). The Hyatts provided linens, paper products, and other
amenities for which there were other fees. The form specifically designated that
the “rental is for vacation purposes only.”
In addition to producing a witness who testified that he also advertised
his Sherwood Shores property for rent, the Hyatts testified that there were five (5)
to six (6) other properties, possibly in Sherwood Shores, that they believed
likewise rented on substantially the same basis as their own. The court found that
the Hyatt’s tax returns for 2006 and 2007 listed the rents paid as income, and
deducted as expenses the cleaning, maintenance, repairs, supplies, utilities,
insurance, legal and professional fees, as well as depreciation of the property.
Additionally, the Hyatts paid the required Marshall County tourist and convention
commission monthly transient room tax, and the Kentucky sales use and transient
room tax, as is required of motels, hotels, and persons renting their property.
When analyzing the restrictive covenant, the court found that the
phrase “commercial or manufacturing purposes” was not ambiguous and therefore
there was no need to scrutinize it further. The court stated, “[r]enting or leasing a
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home on a daily or weekly basis, paying business taxes, and depreciating the asset
for income tax purposes are all characteristics of a ‘commercial purpose.’ The
court further found that the fact that other residents may be renting their property
in the same way that the Hyatts were, did not make the phrase ambiguous. Lastly,
the court found that the subdivision’s character had not changed sufficiently to
warrant waiver of the restrictive covenant pursuant to Kentucky law. Therefore,
the court enjoined the Hyatts from continuing to rent their property in violation of
the restrictions.
As stated above, the Hyatts argue to this Court that their behavior in
renting their property does not constitute commercial activity, but that even if it
did, the restriction should not be enforced as there has been a change in the
character of the neighborhood such that it is no longer possible to accomplish the
purpose intended by the covenant.
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STANDARD OF REVIEW
We agree with both parties that interpretation of the restrictive
covenant is a question of law appropriate for de novo review by this Court.
Colliver v. Stonewall Equestrian Estates Ass'n, Inc., 139 S.W.3d 521, 522-23 (Ky.
App. 2004). Furthermore, as the parties agree that there are no factual disputes, we
will concentrate our evaluation as to whether the Hyatts were entitled to a
judgment in their favor as a matter of law.
ANALYSIS
The Hyatts urge us to look to other jurisdictions for our analysis of
this matter, as they believe that there is not a Kentucky case that resolves the
specific question of whether short-term rental of property is a “commercial
purpose.” While we believe the cases from Oregon and Virginia cited by the
Hyatts are noteworthy, we do not agree that they reflect the state of the law in our
Commonwealth. Therefore, we look to our precedent, where the essential rule
when attempting to construe ambiguous restrictive covenants is that the party’s
intention governs. See Glenmore Distilleries v. Fiorella, 273 Ky. 549, 554, 117
S.W.2d 173, 176 (1938). If known, the surrounding circumstances of the
development are likewise an important consideration when ambiguous language
creates a doubt as to what the creators intended to be prohibited. Brandon v. Price,
314 S.W.2d 521, 523 (Ky. 1958). Thus, the construction may not be used to defeat
the obvious intention of the parties though that intention be not precisely
expressed. Connor v. Clemons, 308 Ky. 9, 213 S.W.2d 438 (1948).
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Kentucky has approached restrictive covenants from the
viewpoint that they are to be regarded more as a
protection to the property owner and the public rather
than as a restriction on the use of property, and that the
old-time doctrine of strict construction no longer applies.
Highbaugh Enterprises Inc. v. Deatrick and James
Construction Co., 554 S.W.2d 878, 879 (Ky. App. 1977).
Colliver v. Stonewall Equestrian Estates Ass'n, Inc., 139 S.W.3d 521, 523 (Ky.
App. 2003).
Indeed, in 1952, our Supreme Court noted:
[W]e are among the jurisdictions which adhere to the
concept that such restrictions constitute mutual,
reciprocal, equitable easements of the nature of
servitudes in favor of owners of other lots of a plot of
which all were once a part; that they constitute property
rights which run with the land so as to entitle
beneficiaries or the owners to enforce the restrictions,
and if it be inequitable to have injunctive relief, to
recover damages. Crutcher v. Moffett, 205 Ky. 444, 266
S.W. 6; Starck v. Foley, 209 Ky. 332, 272 S.W. 890, 41
A.L.R. 756; Doll v. Moise, 214 Ky. 123, 282 S.W. 763;
Bennett v. Consolidated Realty Co., 226 Ky. 747, 11
S.W.2d 910, 61 A.L.R. 453.
Ashland-Boyd County City-County Health Dept. v. Riggs, 252 S.W.2d 922, 924-25
(Ky. 1952).
In Ashland-Boyd the question presented was whether or not a
governmental health clinic for indigents violated a restriction against the erection
of a “‘business house of any kind.’” The Supreme Court sought first to define
business prior to holding that a health clinic is not a business:
The term ‘business’ has a broad meaning and
significance and may be used with many different
connotations. It refers generally to a trade or occupation
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or to commercial, industrial and professional
engagements.
Id. at 925-26.
In Connor v. Clemons, 308 Ky. 9, 213 S.W.2d 438 (1948), the
construction of a church was proposed on land where the deeds prohibited a
“building or structure to be used for business purposes” and provided that “[n]ot
more than one structure to be used for residential purposes shall be erected on any
one lot.” Id., 308 Ky. at 10, 213 S.W.2d at 439. Holding that the two restrictions
when read together raised an ambiguity, the Supreme Court reasoned:
When the grantor specifically prohibits the use of
property for a particular purpose, the more reasonable
construction would be that no other uses are prohibited.
At least an intention to further extend the limitations is
very doubtful. It is at this point that we must apply the
rule of strict construction against a restraint on the free
use of land.
Id., 308 Ky. at 12, 213 S.W.2d at 440.
Only then, when faced with an ambiguity, did the Supreme Court
opine that a church was not a business, and that its erection did not violate the
restriction. Such is what we must do in the instant matter; that is, decide if the
restriction and/or its language are ambiguous, define what is prohibited, and then
decide if the actions of the Hyatts rise to the level of behavior sought to be
prohibited.
The trial court found that the restriction is unambiguous and that it
clearly sought to prevent any commercial or manufacturing activity within the
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subdivision, except where originally authorized. While we agree with the trial
court on this issue, we nevertheless undertake to further define the term
commercial as it is ordinarily used in legal documents. Black's Law Dictionary,
7th edition, 1999, does not define commercial, but does use the term within its
definition of business:
Business. A commercial enterprise carried on for profit;
a particular occupation or employment habitually
engaged in for livelihood or gain.
BLACK'S LAW DICTIONARY, 7th edition, 1999.
Merriam-Webster’s 2009 Online Dictionary defines commercial as of
or relating to commerce, which is defined as the exchange or buying or selling of
commodities on a large scale involving transportation from place to place, and is
synonymous with business. There can be no doubt that the Hyatts define their
rental enterprise as a business. The Hyatts cannot label the rental of their vacation
home one thing to the Internal Revenue Service and characterize it to the contrary
to this Court.
The Hyatts urge us to note that the people who rent their property
engage in the very same recreational activities as do the owners or their guests who
reside in the dwellings within the Sherwood Shores subdivision. While this may
indeed be the case, it is not what the tenants do to occupy their time while on the
property that is forbidden, it is the fact that the property is being held out for
remuneration in much the same manner as a hotel or motel that is restricted. The
creators of the subdivision plainly intended to restrain deed-holders from engaging
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in anything more than recreation while using their property. Such is the privilege
of the creators. That the other property owners seek to enforce the protections of
the restrictive covenants is their right.
What is equally clear is that the Hyatts have gone to a great deal of
trouble to treat their vacation property as a business. The rental agreement,
copyrighted web-site,2 check-in and check-out times, and the supply of various
sundries to tenants, underscore the appropriateness of this commercial
classification. Further, the fact that the Hyatts are required to pay the same taxes
as is required of motels and hotels only emphasizes the business-related nature of
their endeavor. It is unmistakable that the Hyatts have violated the restrictive
covenant as the trial court found.
Our analysis cannot stop here however; as the Hyatts have alleged that
the neighborhood’s character has so changed that to enforce the covenants as
written would violate equity. Kentucky case law simply does not support their
argument. Before enforcement is prevented in equity, change in the character of a
neighborhood intended to be created by restrictions must be so drastic as to render
the original purpose or intent impossible:
The fact and circumstances must be examined to
determine whether the change of the character of the
neighborhood is sufficient to vitiate the restrictions; or, to
state the question in other terms, whether the ‘scheme of
development’ contemplated by the restrictions has been
abandoned sufficiently to operate ipso facto as a vitiation
of the restrictions.
2
Presumably the Hyatts are attempting to prevent competition from other businesses by the use
of copyright laws.
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Logan v. Logan, 409 S.W.2d 531, 534 (Ky. 1966); see also Goodwin Bros. v.
Combs Lumber Co., 275 Ky. 114, 120 S.W.2d 1024 (1938).
Despite the other witnesses for the Hyatts, who testified that they are
also engaged in renting property in Sherwood Shores, the trial court did not find
evidence of such an abandonment of purpose as to render the restrictions obsolete.
We discern no abuse of discretion in this finding. The neighborhood has not
abandoned the original intention of a purely residential area, which is evident by
simply counting the parties involved on either side of this lawsuit.
For the foregoing reasons, we affirm the Marshall Circuit Court’s
judgment enjoining the appellant’s from any further commercial activity, including
the rental of their home.
ALL CONCUR.
BRIEF FOR APPELLANTS:
BRIEF FOR APPELLEE:
Dennis L. Null, Jr.
Mayfield, Kentucky
G. Eric Long
Benton, Kentucky
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