Court Rules That HOA’s Ambiguous Covenants Cannot Bar Short-Term Rentals

This case involved a dispute between a homeowner’s association (“Association”) and several homeowners (“Owners”) over whether Association’s restrictive covenants prohibited Owners from using their properties as short-term rentals through platforms like Airbnb and VRBO. Association filed suit against Owners to enjoin them from using their homes for short-term rentals. Association argued that its 2013 Amended and Restated Declaration of Covenants, Restrictions, and Easements prohibited short term rentals through restrictions on commercial use and requirements for single-family residential purposes. Owners disagreed, contending the covenants did not expressly ban short-term rentals, and that for over a decade, Association allowed such use without objection.

Both parties moved for summary judgment. The trial court ruled in favor of the homeowners, finding the relevant provisions in the covenants ambiguous and therefore unenforceable for the purpose of banning short-term rentals. Association appealed the trial court’s judgment in favor of Owners.

The appellate court agreed with the trial court’s conclusion finding that:

1. Tennessee courts strictly construe restrictive covenants because they limit an owner’s right to use their property. If a covenant is ambiguous, meaning it can reasonably be interpreted in more than one way, it will be construed against the party seeking to enforce the restriction.
2. Association’s covenants permitted: