STR Restrictions on deed

17 Replies

Hi BP'ers

Has anyone ever come across restrictions on short term rentals on a deed? I was getting ready to sign a contract (in Sullivan County, upstate NY) when my lawyer informed me that it had this restriction. This is what the deed said;

No building nor any lot shall be used for any commercial purpose nor for any trade, business, profession, nor as a rooming house, hotel or boarding house

I was planning to buy this, renovate and then use as a short term rental. There are no STR restrictions in the town, so I'm not sure who, if anyone would enforce this. But I also know that the next door neighbour is a potential complainer so that concerns me

This goes back to 1953 and I was told that only the person who wrote that can remove that restriction

I'd love to know if anyone else has come across this and if they let the sale go or took the risk - or if anyone has thoughts on this

Thanks in advance!

Orly

The rental of real property is not a trade, business or profession it is a right inherent to the ownership of real property. A short term rental is also not a rooming house, hotel or boarding house so you sound good to me but big picture when your attorney runs title they need to go back and find in the deed record exactly when that deed restriction was put on (you mention 1953) and by whom in the chain. Most times things like that originate with some little old lady who wants to control a properties use after they sell but deed restrictions can be removed by a court as a last resort but you have to ask yourself who is alive to enforce the deed restriction if it was put on 68 years ago by some little old lady? Now if it was put on 2 years ago by a seller then yes you have to worry.

A short-term rental is a hotel.  It is highly unlikely that an individual owner placed the restriction on the deed; rather, it was probably a part of the original neighborhood development plan.

If you are putting a hotel next door to single family residences, and your deed prohibits this, you are asking for trouble, a lot of it, and deservedly so.  

I'm always amazed at how people try to figure out how to skirt the rules, having zero consideration for their purpose and the negative consequences on others. 

Originally posted by @Robert Gilstrap :

@Collin H.  A short term rental is not a hotel in any way shape or form. What a ridiculous and myopic statement. 

 Ask your insurance agent or tax accountant.  If they say otherwise, you'd better find a new one.

@Orly Howard , actually, HOAs and developments can and do have deed restrictions like this. The first house I ever bought had an HOA restriction for rental properties, NOT just STR which is a relatively new popular/concept.

Remember, every region, city, state can have different restrictions AND allowances, so there’s no need to get ugly with one another. I’ve studied real estate law in several states from the broker/agent AND developer’s perspective and some things are similar in many places, but just because in YOUR area it says one thing doesn’t make it the same thing everywhere. Terminology in this industry isn’t homogenous, unfortunately…

I'm not a CPA but I have a damn good one and for the vast majority of STR hosts out there short term rental income is taxed identical to any other rental income and is considered a passive income (Sch. E) not subject to self employment tax. Only if you provide "substantial services" does the IRS consider it active income and thus subject to self employment tax (Sch. C). Substantial services are actually laid out by the IRS so such things as providing transportation, daily meals prepared, daily maid service, concierge services, etc.

As to insurance; It just so happens I am also a licensed insurance broker and contrary to what most think you do not necessarily have to have a commercial policy to insure a short term rental. It depends on the insurer and what the policy covers and excludes. Short term rentals are a fairly new animal to most insurance companies (I have no idea why since they've been around forever) and I agree that most vacation rentals at the beach or mountain cabins, etc. the companies running those do have commercial policies and even I have a commercial policy but not because I have to rather because I get better coverage at a cheaper rate. That being said a "commercial" insurance policy doesn't make a property commercial. In general the activity engaged in at a property is what legally determines how it is classified. Hotels are large, usually multistory commercial structures that allow hundreds of guests to stay in separate individual living quarters under one roof. They have lobbies, restaurants, bars, gift, clothing and sundries retail shops, public meeting spaces, public event spaces, parking lots, front desks, 24/7 on site employees sometimes numbering into the hundreds, daily maid services, on site maintenance staff, signage advertising their business, they offer shuttle transportation services, concierge services, etc. 

Short term rental homes are just single family homes where people stay for a shorter duration but engage in the exact same activities that you and I do in our single family homes.  They eat, sleep, watch TV, bathe, play with their kids, surf the internet, work, etc. Same activities just for a shorter duration.

So this is why I'm saying a STR is nothing like a hotel nor is it considered a commercial business (for most hosts) as much as government bureaucrats would like to lump them altogether so they can seek to control every aspect of your existence and collect more fees and taxes.

Where I live most of the POAs have that restriction and will enforce it.  Also, the County considers any property rental of less than 90 days to be a hotel and taxes the income as a hotel (a bed rate).  

You may want to check what the rental definitions are for your location.  If it is less than XX days is it legally considered a hotel for tax rate?  If so, you are operating a hotel, IMO.

And also check if the neighbor's deeds have that restriction.  If so, they know your deed has it and may try to enforce it.

A deed restriction that dealt with an issue in 1953 may no longer be legal in 2021, it's basically like CC&R's. I put CC&R's on a subdivision once, it required homes to be a minimum square footage, type of construction, etc. We did put in the CC&R's a penalty if they were not adhered to, which was the HOA could correct the deficiency and lien the property for the cost. However; rarely do people put in such protections, and Cities and County's aren't going to spend their money dealing with such things. The issue could come up if the neighbor sues you, but if the use isn't illegal in the city, it's doubtful they would prevail and the restriction isn't specific enough in my opinion

Thanks all for the input! @Robert Gilstrap yes I think more than likely the little old lady scenario! - The restriction dates back to when the house was originally built in 1953. So yes I'm curious as to who could enforce that. @John Banaski no HOA but yes it seems like each area has it's own restrictions, rules etc. @Lynnette E. we are pulling the neighbour's deeds now - so far 3 out of 11 on the street have the same

@Robert Gilstrap I am literally saving your post and using it to develop my case against the first city council to come after my right to STR. Very well said.

I reject the premise that STRs make neighbors "worse-off" than a LTR. I think people just like to complain and we all tend to be motivated by fear if we aren't careful. Axe murderers, drug dealers, and party animals may use an AirBnB for a night, but they also might move-in to the LTR across the street for a YEAR. In fact, they did at a 4-plex I just bought. A flipper rehabbed a quaint little home across the street and made it an LTR. I've seen no less than 20 people, children, various pets, and a dozen cars (1 being a 1980's toyota corrolla with 4 shirtless middle-age men packed into it and no catalytic convertor installed). I have nothing against being shirtless or tattoos, but one of these guys had short ripped jean shorts with tattoos on his upper backs of his thighs. I mean, that crossed a line somewhere for me. They put a plastic kitchen table in the front yard. I could go on, but if the city council wants to shut down my STR full of nurses, military families, professors, grandparents visiting, etc...well, I'm calling up my thigh tat friend and offering him a furnished LTR. We'll see which guests the neighbors prefer.

@Alex S. It does seem true that there is a largely unfounded bias against STR's. We advocate on the local and state level here in Georgia and every time we confront a bureaucrat who spouts off all these horrible stories we ask for the data. Show me the police reports, show me the zoning and code enforcement actions, etc. and guess what? It never materializes because it largely doesn't exist. Lots of "well I heard about..." and "one of my friends told me..." stories that are just not true. It sounds logical that if you have lots of people coming in and out of a property there "must" be more problems right? Nope, it's just the opposite. Anecdotal stories are not indicative of how the industry operates and just common sense would tell you that landlords and managers would never put up with the problems because its bad for business and profits.

Long term rentals are FAR more likely to produce negative outcomes because the tenants can't just be kicked out and they have rights under law. Nobody is cooking meth in the bathtub of an Airbnb, nobody is leaving their car up on blocks at an airbnb  but they do all the time in a long term rental.

Originally posted by @Robert Gilstrap :

@Alex S. It does seem true that there is a largely unfounded bias against STR's. We advocate on the local and state level here in Georgia and every time we confront a bureaucrat who spouts off all these horrible stories we ask for the data. Show me the police reports, show me the zoning and code enforcement actions, etc. and guess what? It never materializes because it largely doesn't exist. Lots of "well I heard about..." and "one of my friends told me..." stories that are just not true. It sounds logical that if you have lots of people coming in and out of a property there "must" be more problems right? Nope, it's just the opposite. Anecdotal stories are not indicative of how the industry operates and just common sense would tell you that landlords and managers would never put up with the problems because its bad for business and profits.

Long term rentals are FAR more likely to produce negative outcomes because the tenants can't just be kicked out and they have rights under law. Nobody is cooking meth in the bathtub of an Airbnb, nobody is leaving their car up on blocks at an airbnb  but they do all the time in a long term rental.

I used to live in the community surrounded by the San Bernardino Forest. There were a lot of people who were weekenders, owner who came up on weekends and also short term rentals. BOTH--owners and STR--were a problem. Mainly there because of parking (most places are cabins with little parking, mostly on the street with narrow mountain roads) and the idea that they could borrow whatever they wanted, such as snow sleds, BBQs, etc from the people who lived there. Nothing we left in our yard or porch was safe on weekends. And when they left, they should have packed their trash out, but rarely did. They either dumped it in someone else's trash can, or left their bags by the street to be torn up by bears and coyotes. Trash service there required a payment for each trash can and $1 per bag not in a can. And you could get a fine for not separating the trash for recyclables. So those extra 20 bags a month cost me $20...and a recycle fine! The trash problem ONLY stopped when I returned the trash to the doorstep of the house for the critters to tear up on their property before their next guest. It was noisy, stay up late party time for the weekenders which did not set well for the residents who had to get up to work on Sat and Sun.

It got so bad the County set up a hotline for complaints.  The police could not handle the volume.  When the complaint line was constantly used, they made a rule that these rentals had to post the phone number of the owner so that the neighbors could call them first, then the County got called next when the people did not comply.  It did help once the owners phone number got posted because they were required to answer, and they screened their renters better.  

There is a real reason why communities fight STR and why there are restrictive laws about them. Its not incidental, it a real problem.

@Lynnette E. Lynnette, you actually help make my point. All the things you describe have nothing to do with a short term rental and everything to do with human behavior. So you admit the problems were both with STR renters AND owners (which I appreciate your honesty). So you saw parking was a problem, people "borrowing" (stealing) things was a problem and people not handling trash appropriately in your view. You then mention that it was noisy and "stay up late party time for the weekenders." I would note that you correctly delineate the "residents" from the "weekenders" which you acknowledge were in fact BOTH property owners as well as STR renters. Then you mention complaints and hotlines and the police could not handle the volume.

I guess my retort is this; if laws are being broken that is why we have the police. Complaints do not equate to laws being broken although I absolutely acknowledge they could be one in the same. I say if a law is being broken then cite the person breaking it owner or guest/tenant. If no law is being broken then you should respect their right to do what they want. You may not like late party time but they might. As long as no law is being broken that is their right.

Parking might be a "problem" but again if laws are being broken regarding parking then we have police for that and they can and should cite the people breaking the law. I also note there is a huge difference in a "problem" in one persons view and a law being broken. Again, I acknowledge they could be one in the same but if laws are being broken but police are not citing people then the problem is with law enforcement. If no law is being broken then why are you worrying about it? They have just as much right to park anywhere its legal as you do.

You mention trash and that "ONLY when you returned the trash to the doorstep of the house..." so that presumes you knew where the trash originated that somehow ended up in your can. So either you witnessed it which means you should report the crime of theft of services or else you just guessed which is not so good.

Anyway my point in all of that is all these complaints happen regardless of whether its a short term renter or an owner (by your own admission). So the rental unit itself is not to blame, the person and their behavior is. Homes don't make people commit crimes or act in a certain way the same way that guns don't kill people; humans kill people.

I've often said that all AirBnBs get a bad rap because of the things that happen in South Beach Miami (i.e. murder & drugs).  Though I realize that even that is a broad over-simplification.

If my neighbor is an STR in the town of Shiloh, IL and they throw a party with friends...who cares!? We are human, we cook big meals, turn on music, invite friends/family over, and enjoy ourselves on the weekends. If noise levels are obnoxious, walk over there in person, introduce yourself, explain the concern. 9/10...they'll fix the issue. Don't go creeping through the blinds and calling the police. The police have more important tasks than sorting out whose trash is whose.

Originally posted by Robert Gilstrap:

@Alex S. It does seem true that there is a largely unfounded bias against STR's. We advocate on the local and state level here in Georgia and every time we confront a bureaucrat who spouts off all these horrible stories we ask for the data. Show me the police reports, show me the zoning and code enforcement actions, etc. and guess what? It never materializes because it largely doesn't exist. Lots of "well I heard about..." and "one of my friends told me..." stories that are just not true. It sounds logical that if you have lots of people coming in and out of a property there "must" be more problems right? Nope, it's just the opposite. Anecdotal stories are not indicative of how the industry operates and just common sense would tell you that landlords and managers would never put up with the problems because its bad for business and profits.

Long term rentals are FAR more likely to produce negative outcomes because the tenants can't just be kicked out and they have rights under law. Nobody is cooking meth in the bathtub of an Airbnb, nobody is leaving their car up on blocks at an airbnb  but they do all the time in a long term rental.

@Orly Howard , real estate laws vary a lot from state to state. That being said often a restriction on a deed can be termed a fee tail. Generally fee tails are not permitted if they restrict the use of land, especially if they are perpetual. If it is only in your deed then someone must have standing in order to file to enforce it. The most common fee tails struck down by the courts were the ones that prevented people from selling their house to negroes. It is substantially different when it comes to covenants that are for an entire development. That is part of a common scheme or plan that is intended to keep the value and aesthetics of neighborhoods. Those usually have a HOA or even things that allow anyone in the subdivision to enforce it. They must be reasonable both in word and application.

You have obviously never lived in a rural area.  There are not very many police.  For the weekend evening shift there were 5 officers who are spread out over 30 miles of mountain range. Other times there were 3-4 officers.  Yes, a band and loud music after ten pm is breaking the law.  But the police will be dealing with the vehicle accident, the lost hiker, the rape victim, the assault, the fight at the bar (maybe if they even have time for that) well before they have time to deal with the loud music.  They did not even have time to deal with break-ins.  When my house was broken into they told me to FAX a list of what was taken and they would do a report within three weeks, and what the report number would be. No one came out.  Same for the person who is blocking my driveway or IN my driveway so I can not park, police will not come.  Tow truck won't come without police.

There is little difference between the owners who came up to party at their STR and the people they rented to. Probably why they did not understand the problem and why they did not screen for party rental, vs family rental. In that area a lot of the STR also had owners that used the STR when it was not booked, that personal use was why they bought the property. The rental part allowed them to afford it.

The police did say that they did not consider it theft is your sled was taken, used and left in the neighborhood or if you found someone else's hot dogs on your grill.  Just rude inconsiderate people, no report or charges would be made.  They were busy.  Its still not a nice way to live for the permanent residents.

Trash, yes they would put in next to my property or in my can, or one of the neighbor's can/property right in front of us on Sunday before they left, even with us telling them no and they need to take their trash with them.  And its not hard to figure out where it came from, pizza boxes and beer cans, dumped on Sunday afternoon!  

You won't change my mind and I won't change yours.