In a 6-1 decision, the Supreme Court ruled in Forshee v. Neuschwander that a restriction on “commercial activity” in a restrictive covenant did not preclude short-term and long-term rentals.

Lee and Mary Jo Neuschwander own property on a subdivision on Hayward Lake. The subdivision is under a restrictive covenant that provides: “There shall be no commercial activity allowed on any of said lots.” The Neuschwanders engage in short-term and long-term rentals of the house on their property. Their neighbors complained that these rentals constituted “commercial activity” forbidden by the restrictive covenant.

The Court ruled in favor of the Neuschwanders. The lead opinion (written by Chief Justice Roggensack, joined by Justices Gableman and Ziegler) stated that “commercial activity” is an ambiguous term that cannot be enforced under the covenant.

Two concurring opinions agreed with the majority ruling but differed on the reasoning behind it. Justice Abrahamson argued “commercial activity” is not ambiguous, and short-term rentals do qualify as a commercial activity. However, since the restrictive covenant governs what the occupants do on the property rather than how it is used by the owners, the restrictive covenant does not govern the Neuschwanders’ rentals.

In a grammatical analysis of the covenant’s language, Justice Kelly’s concurrence (joined by Justice R. Bradley) argued that the covenant is location specific, so the Court need not go further than the plain language that says commercial activity can’t take place on the land. The rental transaction takes place off the land, so it is not governed by the restrictive covenant.

Justice Walsh Bradley dissented, reasoning that the clear definition of “commercial activity” is an activity “having profit as a chief aim.” Walsh Bradley cites the Neuschwanders’ acquisition of property via a tax exchange, records of profits, and room tax paid to Hayward as evidence that the Neuschwanders rent the property with profit as a “chief aim.” Additionally, Justice Walsh Bradley expressed concerns similar to the lead opinion about the breadth of the covenant but criticized the majority’s broad ruling in the context of the growing issues surrounding short-term rentals.