South Carolina Court of Appeals Reiterates Importance of Clear Rental Restrictions

I am often asked by homeowners, property managers, and HOA boards to review restrictive covenants to determine whether their community may restrict leasing in some way.  The usual answer is “it depends,” and the South Carolina Court of Appeals made it clear in Community Services Associates, Inc. v. Wall that restrictive covenants must be clear in order to prevent leasing.

Covenants that restrict the free use of property are disfavored by the law.  Therefore, courts in North Carolina and South Carolina require that any restrictive covenant in a homeowners association or condominium be clear and unambiguous.  So long as they are, the courts will enforce them.  However, where restrictive covenants are susceptible of multiple reasonable interpretations, courts are hesitant to enforce the restriction and have tended to adopt the interpretation that least restricts the free use of property.

In the Wall case, Stephen and Maria Wall owned a home on Hilton Head Island that contained a separate guest suite that was accessible only by an outside staircase.  The covenants in the community provided that a guest suite “may not be rented or leased except as part of the entire premises.”  The Walls began listing the guest suite on Airbnb.  When their HOA complained that it was a violation of the covenants the Walls switched to renting the house and moved into the guest suite when the house was rented.  Their HOA then filed suit to enforce the rental restrictions.

The HOA argued that the unmistakable intent of the covenants required that the entire property be rented out.  The Walls, on the other hand, maintained that the covenants as written only prohibited renting out the guest suite separate from the rest of the property.  They pointed out that they were now only renting the rest of the home—not the guest suite.  Because the guest covenants only prohibited renting out the guest suite as its own rental, they were not violating the covenant.  The South Carolina Court of Appeals determined that both were reasonable interpretations of the covenant.  Because they were both reasonable interpretations, the Court was obligated to use the one that least restricted the free use of the property.

The Court dismissed the HOA’s case and affirmed the lower court’s ruling.  In its decision, the Court pointed out that covenants, in order to be enforced, must be clear, explicit, and unambiguous.  If they are, then the court must construe it according to its plain and ordinary meaning.  Where there is no ambiguity, the restrictions will be enforced according to their obvious meaning.  The Court of Appeals reiterated that a restrictive covenant is ambiguous “where it is reasonably susceptible of more than one interpretation.”  And, where that is the case, “all doubts are to be resolved in favor of the free use of the property.”

Communities, managers, and board members can all learn a couple of lessons from this case.  First, the specific language of each restriction is important.  As the South Carolina Court of Appeals revealed in the Wall case, enforcement of the covenant could turn on the exact wording used.  Second, it is essential that restrictive covenants be clear and unambiguous in order to be enforceable.  Even though the HOA’s interpretation of the restrictive covenant in this case was a reasonable interpretation, it lost because it was not the only reasonable interpretation.

I have worked with many communities looking to enforce their rental restrictions or to create new ones.  If you have questions about your covenants or need assistance the attorneys at Black, Slaughter & Black in both Greensboro and Charlotte are glad to review and recommend how to proceed so that your covenants are most likely to be enforceable.