Shields Mountain Property Owners Association, Inc. and its members filed a lawsuit against Marion A. Teffeteller and Charlene A. Teffeteller, seeking enforcement of restrictive covenants that prohibit the rental of properties for overnight vacation purposes within Shields Mountain Estates. The trial court determined that the covenants apply to the Teffetellers' lots, ruling that their use of the property as vacation rentals constituted a violation. The court issued a permanent injunction against the Teffetellers, preventing them from renting their property in this manner. The Teffetellers appealed the decision, but the Court of Appeals affirmed the trial court's ruling, maintaining that the restrictive covenants clearly prohibit such commercial activity and that the Teffetellers were aware of these restrictions upon purchasing their property. The opinion was delivered by Judge D. Michael Swiney, with support from Judges Herschel P. Franks and Sharon G. Lee. The case was remanded for further proceedings consistent with the appellate court's ruling.
Ms. Teffeteller sought a legal opinion before purchasing the Shields Mountain Estates property regarding the applicability of restrictions on vacation rentals. She obtained title insurance from Chicago Title, which included a rider permitting vacation rental use. Teffeteller plans to build a vacation rental house on her vacant lot. Testimony indicated that Great Smoky Mountain Cabin Rentals provides maid service only after renters' stays, with Teffeteller acknowledging that renters use their home similarly to a motel.
James R. Hall, a plaintiff and former officer of the Shields Mountain Property Owners Association, testified that he learned of the Defendants' vacation rental use after residents complained about a party at their house. Upon investigation, Hall discovered workmen excavating on the Defendants’ vacant lot for another vacation rental. Hall stated that, to his knowledge, no one else in Shields Mountain Estates had used their property for vacation rentals, although he admitted to initially living part-time in his home and acknowledged that allowing children to vacation on their property does not violate the covenants.
The parties stipulated that Paul and Sharon Bunch rented their home twice for over a year and used it as a vacation home without violating the covenants. Similarly, Ted and Margaret Peltier also used their home for short stays and allowed their children to visit, which the Plaintiffs did not believe violated the restrictions. The Trial Court's Final Order on March 28, 2005, determined that the covenants apply to all lots, found that the Defendants' vacation rental use violated these covenants, and permanently enjoined them from such use.
Defendants are appealing a decision made by the Trial Court regarding the applicability of Restrictive Covenants 1 and 7 to their short-term vacation rental of property. The Court will conduct a de novo review, presuming the trial court’s factual findings are correct unless proven otherwise. Under Tennessee law, restrictive covenants are valid but generally disfavored, requiring strict construction and resolution of ambiguities against the restriction.
Restrictive Covenant 1 prohibits the use of property for commercial purposes but allows household gardens and pets. Although Defendants’ vacation rental could be considered commercial use, the Plaintiffs have previously stipulated that a similar long-term rental by another party (the Bunchs) did not violate this covenant, thereby waiving the application of this restriction to Defendants’ short-term rental. The Court concludes that if the Bunchs' long-term rental is not commercial use, then Defendants' rental cannot be treated differently under Covenant 1.
Restrictive Covenant 7 mandates that all lots be used for residential purposes exclusively and does not explicitly prohibit short-term rentals. While the Court acknowledges this point, it limits its agreement, indicating further analysis may be needed regarding the implications of this covenant on the rental issue.
Restrictive Covenant 7 does not restrict short-term residential rentals. Plaintiffs acknowledged that the Bunchs’ long-term rental use did not violate the covenant. While the Bunchs rented their property for over a year, the covenant allows rentals of shorter duration as long as the use is residential. Defendants contend their vacation rentals qualify as residential use, citing a court opinion defining residential buildings as those used for habitation, asserting that the nature of activities (eating, sleeping, relaxing) determines residential status rather than the length of stay. However, the court disagrees, stating that while these activities occur, the renters do not actually reside there; instead, they use the property similarly to a motel for temporary shelter. The court emphasizes that Restrictive Covenant 7 explicitly prohibits non-residential uses in Shields Mountain Estates. Defendants argue that other property owners allowing family members to use their homes for short-term stays do not violate the covenants, asserting that such use is residential. The court counters that allowing family or guests to stay constitutes a legitimate residential use, unlike the transient nature of Defendants' renters. Defendants also claim distinctions from previous cases cited by the Trial Court, noting that while they do not maintain a guest register like hotels, their customers check in at their office.
Defendants acknowledge they advertise their rental properties online but argue that their use of the Shields Mountain Estates property differs from the case relied upon by the Trial Court, Carr v. Trivet, because no business transactions occur on-site. They contend that it is difficult to determine the duration of a tenant's stay. Despite asserting their property functions like other homes in the neighborhood, the use is akin to that of a motel, which contradicts Tennessee law prohibiting such uses. The Trial Court's reliance on Parks is upheld, which clarifies that residential use does not permit operations akin to hotels or motels. Defendants' comparison to Jones v. Haynes and Yogman v. Parrott is rejected; Jones involves different restrictions, and the relevant Tennessee law precludes reliance on an Oregon case. The Court affirms the Trial Court's ruling that the use of the property as vacation rentals violates Restrictive Covenant 7, thereby affirming the judgment and remanding the case for cost collection against the Appellants.
