Stephen and Maria Wall have a pretty “suite” deal going on inside their Hilton Head home, and the state Court of Appeals has ruled against the property owners’ association claiming that the couple’s subleasing is an impermissible business.
The Walls, who bought the Seaside Plantation residence in 1998, began renting out a second-floor room in 2012. They advertised the room, accessible only by an outside staircase, online as an “organic B&B,” according to court records, and cooked breakfast for their guests. When the owners’ association, Community Services Associates, expressed concern that the rental activity violated long-standing restrictive covenants, the Walls moved themselves into the second-floor guest suite and began renting their entire first floor. They changed the listing from “B&B” to “whole house” and stopped cooking breakfast for renters.
In September 2014, CSA sought injunctions against the Walls’ alleged inn, pointing specifically to two paragraphs of the covenants that authorize the short-term rental of an entire residence, but not part of it.
In their answer, the Walls denied operating a bed and breakfast, and stated that they lived in the guest suite when their whole house was rented.
In May 2015, the master-in-equity, Marvin Dukes III, denied CSA’s request for injunctive relief and dismissed the complaint. Dukes also declined to consider as evidence a letter written by Maria Wall and published by the local newspaper concerning the benefits of an Airbnb (the online marketplace for short-term rentals where the Walls advertised) versus a new Hilton Head hotel.
Open to interpretation
On appeal, CSA raised three questions: Did the master misinterpret the the applicable parts of the covenants? Was Maria Wall’s newspaper letter relevant to the issues in the case? And did the master err by finding that the Walls’ residence had only one kitchen, as mandated by the covenants?
Unanimously, the appeals court answered no to all three.
According to paragraph five of the covenants, Seaside Plantation homes may include additional quarters, so long as the dwelling does not overcrowd the site and it is not used for business. Paragraph six states that a guest suite cannot include a kitchen and “may not be rented or leased except as part of the main premises.”
Judge John Geathers noted that when the terms of a contract are reasonably susceptible of more than one interpretation, the contract is ambiguous. When a contract is ambiguous, “all doubts are to be ‘resolved in favor of free use of the property,’” he added, quoting language from 2006’s Hardy v. Aiken.
Geathers found that while the express terms of paragraph six require a residence with a guest suite to be rented in its entirety when the guest suite is rented out, nothing in either applicable paragraph,“by their express terms or by plain and unmistakable implication, require a residence with a guest suite to be rented in its entirety in every circumstance.”
“In other words, it is not enough for the implication to be reasonable — it must be unmistakable,” Geathers wrote.
Letter of the law
Technically, the Walls did not rent out their guest suite; they lived in it. Short-term rentals do not violate the requirement that all lots be used for residential purposes.
The impermissible “kitchen” in the guest suite, where the Walls sometimes cooked meals and washed dishes, consisted of a hot plate, a toaster oven and a mini-refrigerator. This does not a kitchen make, the court found. A kitchen, even by CSA’s definition, is a room used “exclusively” for preparing and cooking food. The master found, and the court agreed, that the “dormitory-style portable appliances” the Walls used to store and prepare food in their guest suite does not create a kitchen.
Lastly, the court agreed with the master that Maria Wall’s letter, which referenced Airbnb’s sustainable business model, was not an admission that the Walls’ activities violated the covenants, and was therefore irrelevant to the issues at hand.
It’s unclear whether any covenant revisions are in the cards or whether CSA will further seek relief. An attempt to speak with the appellant’s attorney, F. Ward Borden of Jones, Simpson & Newton in Bluffton was unsuccessful.
But the Walls’ attorney, Drew Laughlin of Laughlin & Bowen in Hilton Head, said the court applied well-established law in “properly” finding that his clients are not circumventing the letter of the covenants.
“Put simply, the covenants, as written, did not, by their express terms or by plain and unmistakable implication, prohibit what my clients are doing,” Laughlin wrote in an email.
The nine-page decision is Community Services Associates, Inc. v. Wall (Lawyers Weekly No. 011-085-17). A digest of the opinion is available online at sclawyersweekly.com.
Follow Heath Hamacher on Twitter @SCLWHamacher