Lowden v. Bosley

ELDRIDGE, J. The issue in this case is whether a restrictive covenant, which requires that building lots within a 59-lot subdivision along Deep Creek Lake in Garrett County, Maryland, be used for “single family residential purposes only,” prohibits the owners of homes on those lots from renting their homes to residential tenants on a short-term basis. We shall hold that the restrictive covenant is unambiguous and that it does not prohibit the short-term rental to a single family of a home. I. The plaintiffs-appellants, James and Angela Lowden, in September 2003, purchased lots 11 and 11A in the Stilwater subdivision along Deep Creek Lake in order to build a vacation home. That same month, four other lots in the Stilwater Subdivision were purchased by the defendants-appellees, MBC-TEK Lake Properties, LLC, Daniel and Angela Bosley, and James and Deborah Cline.

The following April, the defendants-appellees Rick and Jill Dansey acquired two lots. All of these defendants-appellees subsequently built large homes on their lots, and several of their homes are available to vacationers as short-term residential rental properties. The Stilwater subdivision was originally part of a larger tract of land owned by New Glen Properties, LLC, which had subdivided and sold various waterfront and water access lots during 2003 and 2004. All lots were subject to restrictive covenants recorded in June 2003 by New Glen in a Declaration of Covenants, Conditions and Restrictions.

That Declaration ⁶¹ stated that the purpose of the subdivision was to “develop or cause to be developed on the Property a residential community.... ” The Declaration contains a provision entitled “uses” which restricted the use of the property. Section 8.1 of the Declaration states as follows (emphasis added): “Uses. All lots shall be used for single family residential purposes only. No structure of a temporary character whether a basement, tent, shack, trailer, camper, or other out-building will be placed on any Lot at any time as a permanent or temporary residence.” Article 8 of the Declaration also contains provisions restricting the subdivision of lots, the posting, storage, and keeping of certain items on the property, and the necessity of the Architectural Committee’s approval before a home could be built and for various other activities concerning the property.

Additionally, § 2.7 of the Declaration, entitled “Delegation of Use,” states as follows (emphasis added): “Delegation of Use. Any Owner may delegate, in accordance with the Bylaws, his right of enjoyment to Common Areas and facilities to members of his family, his tenants or contract purchasers who resides on a Lot.” The Lowdens, in May 2004, after learning that the individual defendants intended to offer their homes as short-term vacation rentals or sell them to others who would offer the homes as short-term rentals, instituted the present action by filing in the Circuit Court for Garrett County a complaint for injunctive relief, damages and a declaratory judgment. The Lowdens named as defendants New Glen, MBC-TEK Lake Properties, the Bosleys, the Clines, the Danseys, the Garrett County Board of County Commissioners and the county planning and zoning agency. The Lowdens’ principal contention was that § 8.1 of the Declaration prohibited the rental of the homes on a short-term basis because such use was contrary to a “single family residential purpose.” The Lowdens further claimed that New Glen and the defendant lot owners were prohibited from renting their properties under new zoning provisions applicable to the Deep Creek Lake Watershed area and that seeking an exception under the new regulations ⁶² would breach § 8.1 of the covenant. 1 The count against the County Commissioners and the county zoning authorities was based upon the contention that certain provisions of the Garrett County zoning laws were unconstitutional.

The Low-dens subsequently dismissed their claim against the County Commissioners and the local zoning agency, thereby abandoning the argument that certain provisions of the county zoning laws were unconstitutional. The defendants MBC-TEK Lake Properties, the Bosleys and the Clines, built on their lots homes containing eight bedrooms, and the Danseys built a home containing seven bedrooms. These defendants then entered into rental agreements with Railey Mountain Lake Vacations, LLC, turning over control of rental rates, management, and maintenance to Railey. Railey offers these homes for rent as single rental units.

Although the rental agreements do not expressly prohibit unrelated people from renting a home together, there is no evidence that any home was rented or offered for rental on ⁶³ a room-to-room basis or to different families. The advertisements state a rental price for an entire home. After answers to the complaint were filed, the defendants filed motions for summary judgment and thereafter the plaintiffs filed a cross-motion for summary judgment. Both sides argued that the restrictive covenant in § 8.1 of the Declaration was “clear and unambiguous,” although they obviously differed as to the meaning of the language “single family residential purposes” contained in the covenant.

The defendants argued that the phrase “single family residential purposes” basically meant that only single family homes could be constructed on the lots, and that commercial buildings or motels could not be built on the lots. The defendants also argued that, to the extent the phrase referred to the use of a constructed single family home, it “merely limit[ed] the use of the property to living purposes as distinguished from business or commercial purposes.” The defendants continued: “Even if the property is rented, it continues to be used for residential purposes in compliance with the Declarations. That a single-family residence is rented as a vacation rental unit does not change character of the improvement or its use for residential purposes. There still is no commercial enterprise being conducted on any part of the property.” With regard to the plaintiffs’ contention based on the new zoning ordinance, the defendants pointed out that the Declaration of Covenants, Conditions and Restrictions was “recorded among the Land Records of Garrett County” prior to the enactment of the new zoning ordinance.

The defendants’ argument concluded: “It is a widespread practice for owners of single-family residences in and round Deep Creek Lake to rent them as vacation rentals. If a prohibition against such rentals actually had been contemplated or intended, it would have been (and should have been) stated clearly in the Declarations. However, such a prohibition appears neither in § 8.01 nor in any other section of the Declarations. In fact, the concept of vacation rentals is not mentioned in the Declarations.” ⁶⁴ The plaintiffs argued that the short-term rental of a home to a vacationer is “not for residential purposes, but for business or commercial purposes.” They also contended that the restrictive covenant was violated because the homes “could” be rented to “unrelated individuals.” The plaintiffs, however, submitted no evidence that any home had been or was then being rented to unrelated individuals.

The Circuit Court denied all motions for summary judgment, stating that “it appears there exist disputes of material fact.” Thereafter, a nonjury trial was held, at which the parties presented extrinsic evidence regarding the intent underlying the “single family residential purposes” language in the Declaration of Covenants, Conditions and Restrictions. Along with numerous other witnesses and exhibits presented at trial, the court heard the testimony of New Glen principal, Glen Adrian, who testified that his purpose in requesting the Declaration to be drafted and recorded was to ensure that the structures built upon the lots be restricted to single family homes and not townhouses, condominiums, or businesses. Mr. Adrian further testified that he had no intention of limiting the owners’ rights to rent their homes on a short-term basis. New Glen’s attorney, Thomas Janes, who prepared the Declaration, also testified at trial that he has prepared numerous other restrictive covenants in Garrett County using the same or similar language and that none of those restrictive covenants were intended to limit the property owner’s rights to rent the properties to vacationers on a short-term basis.

Angela Lowden testified at trial as the sole witness for the plaintiffs. She testified that the Lowdens intended to purchase in a community which prohibited short-term rentals to vacationers and that she believed that the “single family residential purposes” language of the Declaration met that desire. Mrs. Lowden stated that she and her husband relied upon the advice of a Pennsylvania attorney and the plain language of the Declaration in support of this belief that such short-term rentals to vacationers were prohibited. Mrs. Low- ⁶⁵ den further testified that she believed that a “seasonal rental” was “probably permissible” but that short-term rentals were not allowed.

Following the one day trial, the Circuit Court, relying on the extrinsic evidence and the language of the instrument, denied the plaintiffs’ requests for an injunction and damages. The court filed a written declaratory judgment stating that the defendants’ interpretation of the Declaration was correct and that short-term rentals to vacationers were not prohibited by the Declaration. The Lowdens appealed to the Court of Special Appeals, and, before any proceedings in the Court of Special Appeals, this Court issued a writ of certiorari. Lowden v. Bosley, 389 Md. 398 , 885 A.2d 823 (2005).

The Lowdens argue, on this appeal, that the trial court erred by treating § 8.1 of the Declaration as ambiguous and that the extrinsic evidence which was presented at trial was erroneously considered. The Lowdens maintain that § 8.1 of the Declaration “is short, clear, direct and unambiguous,” that the restrictive covenant clearly does not “allow the short term rental use at issue in this case,” and that “renting” property is a “commercial or business use” (appellants’ brief at 15, 19). The Lowdens also argue that, because the rental management agreements with Railey do not expressly require that persons renting a home must be related, the “single family” portion of the restrictive covenant was violated. Alternatively, the Low-dens contend that the extrinsic evidence at trial did not support the trial court’s finding with regard to the intent underlying the restrictive covenant. 2 II.

A. This Court on numerous occasions has set forth the principles governing the interpretation and application of restrictive ⁶⁶ covenants. See, e.g., Miller v. Bay City Property Owners Ass’n, 393 Md. 620 , 903 A.2d 938 (2006); Roper v. Camuso, 376 Md. 240 , 829 A.2d 589 (2003); County Commissioners v. St. Charles, 366 Md. 426 , 784 A.2d 545 (2001); Belleview v. Rugby Hall, 321 Md. 152, 157 , 582 A.2d 493, 495 (1990); Turner v. Brocato, 206 Md. 336 , 111 A.2d 855 (1955); Himmel v. Hendler, 161 Md. 181 , 155 A. 316 (1931); Maryland Coal Co. v. Cumberland and Penn. RR., 41 Md. 343 (1875); Thruston v. Minke, 32 Md. 487 (1870). As Judge Cathell for the Court recently emphasized in Miller v. Bay City Property Owners Ass’n, supra, where the language of an instrument containing a restrictive covenant is clear with regard to the controversy before the court, there is no occasion to consider extrinsic evidence concerning the intent reflected in the restriction.

The Court in Miller explained ( 393 Md. at 637 , 903 A.2d at 948 , quoting Maryland Coal Co. v. Cumberland and Penn. R. R., supra, 41 Md. at 352 ): “In determining the intent of the parties we must begin with the actual language used in the [instrument]: ‘If the intention of the parties is plainly manifest upon the face of the instrument there is no room for interpretation, and there is nothing left for the courts but to carry into effect the intention of the parties so ascertained, unless prevented from doing so by public policy or some established principle of law.’ ” Moreover, a lack of ambiguity in the application of the restrictive covenant may be gleaned or reinforced by other language in the instrument. Miller, 393 Md. at 638 , 903 A.2d at 948 (“It is also useful to look at the language used in the other sections of the ... deed”). It is only where the restrictive covenant is ambiguous that courts venture beyond the text of the instrument and consider extrinsic evidence.

Miller, 393 Md. at 634-637 , 903 A.2d at 946-948 ; County Commissioners v. St. Charles, supra, 366 Md. at 445-448 , 784 A.2d at 557 . In construing ambiguous restrictive covenants, this Court at one time held ⁶⁷ that “a strict construction standard was applicable to promote the free alienability of land,” that “the courts were to hold the restriction to its narrowest limits,” and that the ambiguity should be resolved in favor of the unrestricted use of the property. St. Charles, 366 Md. at 445 -446 and n. 17, 784 A.2d at 556 -557 and n. 17. More recently, however, “Maryland courts no longer apply a pure strict interpretation or construction, but apply rather, a reasonably strict construction when construing covenants.” St. Charles, 366 Md. at 447 , 784 A.2d at 557 .

The “reasonably strict construction” principle was explained in Belleview v. Rugby Hall, supra, 321 Md. at 157-158 , 582 A.2d at 495 : “If the meaning of the instrument is not clear from its terms, ‘the circumstances surrounding the execution of the instrument should be considered in arriving at the intention of the parties, and the apparent meaning and object of their stipulations should be gathered from all possible sources.’ ” “If an ambiguity is