In Michigan, many condominium documents contain a limitation that a Unit may be used for “residential purposes” only. Historically, an owner or the developer of a parcel of property could impose reasonable building, use, and occupancy restrictions on a parcel of property subject to public policy limitations. Kaczynski v. Lindahl, 5 Mich App 377; 146 NW2d 675 (1996). Lately, the term “residential purpose” or “residential use” has taken on new meaning with the growth of home offices, short-term rentals, internet re-sale home businesses or otherwise conducting limited business activities in the Unit such as tutoring, babysitting, Craigslist sales, piano lessons, Tupperware sales, Rodan and Fields, etc.
What is considered residential use? What is considered commercial use? Do local zoning ordinances adequately address these distinctions? Is there a breaking point when something is ordinarily a residential use, but then ‘crosses the Rubicon’ into non-residential or even commercial, industrial or business use? Some governing documents state that units should be used “primarily for residential purposes.” Does the word “primarily” impact the analysis? Michigan case law contains a myriad of general rules and exceptions to the general rules. This article explores some insights of Michigan law and some considerations when reviewing these matters.
Restrictions Section of the Condominium Bylaws
The “residential use” restriction is most often contained in the Restrictions section of the Condominium Bylaws, often Article VI of the Condominium Bylaws. How is a Board of Directors to decide whether an activity in a co-owner’s condominium unit is considered “residential use”?
In Beverly Island Ass’n v. Zinger, 113 Mich App 322; 317 NW2d 611 (1982), the Michigan Court of Appeals analyzed a ‘residential purpose’ restriction and held that a licensed family daycare facility is a residential use. The Court held that public policy considerations relating to the encouragement of family daycare centers was consistent with residential use. Similar Michigan Court of Appeals decisions in McMillan v. Iserman, 120 Mich App 785; 327 N.W.2d 559 (1982) and Craig v. Bossenbery, 134 Mich App 543; 351 N.W.2d 596 (1984), held that adult foster care facilities (a/k/a group homes) are not considered commercial use.
However, twenty years later in Terrien v. Zwit, 467 Mich 56, 58 (2002), the Michigan Supreme analyzed whether “covenants permitting residential uses, and expressly prohibiting commercial, industrial, or business uses, preclude the operation of a ‘family day care home.”‘ Id. In that case, the Michigan Supreme Court distinguished the decision in Beverly Island, by holding that because 1) the covenants permitted residential use of the lots only and 2) the covenants expressly prohibited commercial, industrial or business uses, then in that case the Court held that “The operation of a ‘family day care home’ for profit is a commercial or business use of one’s property.” Interestingly, the Michigan Supreme Court stated “A covenant barring any commercial or business enterprises is broader in scope than a covenant permitting only residential uses.” Thus, it appears important to the Michigan Supreme Court if the restrictions are merely ‘residential use’ as opposed to specifically prohibiting commercial or business uses.
In another recent example, the Michigan Court of Appeals held that short-term rentals constitute commercial use and thus deed restrictions barring commercial use precluded the usage of short-term rentals. See, i.e., Eager v. Peasley, 322 Mich App 174; 911 NW2d 470 (2017). Also, in O’Connor v. Resort Custom Builders, Inc., 459 Mich 335; 591 NW2d 216 (1999), the Michigan Supreme Court held that “residential purpose” deed restriction does not permit time-share ownership of single-family homes. Finally, the erection of a church has been deemed to violate a covenant for residential purposes. Abrams v. Shuger, 336 Mich 59; 57 NW2d 445 (1953).
Potential Exceptions / Defenses
Michigan Courts have historically analyzed various defenses such as laches, waiver, change of conditions and estoppel to residential use deed restrictions. Each of these potential defenses requires a thorough, case-by-case analysis and the cases are too numerous to discuss in this article. For example, if the owners of the restricted parcel acquiesce for a long time in improper use, and the improper use does not result in any detriment to the surrounding area, the court may consider the restrictions waived. Burns v. Beckenhauer, 368 Mich 516; 118 NW2d 263 (1962). As another example, where owners in a residential subdivision acquiesce in the violation of restrictions and the character of the neighborhood has changed, building and use restrictions may not be enforced. Hamburger v. Kramp, 268 Mich 611; 256 NW 566 (1934). However, more recent cases tend to strictly uphold deed restrictions such as Wisniewski v. Kelly, 175 Mich App 175; 437 NW2d 25 (1989) where the Michigan Court of Appeals determined that a homeowners association had the right to make certain decisions pertaining to long-standing deed restrictions. See also, Eager v. Peasley, supra. Thus, each case must be analyzed on its own merits.
Residential v. Non-residential: Questions and Considerations
When considering the spectrum of residential use versus non-residential use, some questions arise to attempt to narrow the focus of the inquiry:
- Is a co-owner permitted in using a home office to conduct business (i.e. selling things out of the home, Craigslist, piano lessons, tutoring, Tupperware sales, Rodan and Fields, etc)?
- If I work from home from a home office a few hours a night, but mostly go into work, would that be considered non-residential or commercial/business use?
- Is the unit being advertised/marketed as a commercial business?
- How often and to what degree is the activity being complained of happening?
- Is there an increase in the usage of the common elements, such as parking, and if so, what is the extent of the impact?
- Does the activity require a license to perform work there?
- What impact does the offending action having on the neighborhood?
- What are the zoning requirements for the location from the local municipality?
- What is considered “incidental use” for purposes of zoning requirements?
- Does it matter whether the alleged offender has a commercial insurance policy?
- Does the offending conduct increase the cost of insurance to the condominium association?
- Is the offending conduct a nuisance from a legal perspective?
- Are other co-owners engaging in the same or similar behavior?
These are but some of the questions that our office routinely considers when reviewing questions regarding residential and non-residential use. Because Michigan case law has an intricate web of cases stating general rules and then subsequent cases providing various exceptions or differentiating the general rules, it is important to analyze each case on its specific facts and merits with an experienced real estate attorney.
Joe Wloszek is a Member of Hirzel Law, PLC where he focuses his practice on condominium and homeowner’s association law, commercial litigation, commercial real estate, large contractual disputes, and related real estate matters. Mr. Wloszek has been a Super Lawyers Rising Star in Real Estate Law from 2013-2019, an award given to only 2.5% of the attorneys in Michigan each year. He was also named a Top Lawyer in commercial law by DBusiness Magazine in 2014 and a Michigan Top Lawyer in real estate law by Michigan Top Lawyers in 2016. He is a Certified Real Estate Continuing Education Instructor through the State of Michigan and the former Chair of the Oakland County Bar Association Real Estate Committee. He can be reached at (248) 478-1800 or firstname.lastname@example.org