Supreme Court Reminder: If You Can’t Understand a Deed Restriction, It’s Probably Not Enforceable

July 20, 2018

Recently, a Supreme Court of Wisconsin case came down regarding deed restrictions in a subdivision. The case is Forshee v. Neuschwander and reminds developers and lot buyers to be particular in the way they draft and interpret deed restrictions.

The facts of the case are not particularly unique. The Neuschwanders purchased a property and developed it as a single family home. They then rented it out through Vacation Rental By Owner (“VRBO”). There were deed restrictions on the subdivision, one of which prohibited “commercial activity.”  A number of the neighbors in the subdivision brought suit to enjoin the Neuschwanders from renting out their home to third parties. They did not offer any services to renters; they simply rented the home to them. It was a large home of 4,000 square feet that could accommodate a number of people.

Our Supreme Court reiterated the law in the state of Wisconsin that favors the free and unrestricted use of property. In other words, if a deed restriction exists in a subdivision, the courts will interpret it so as to protect property rights. They will look at the language and construe it as narrowly as possible to accomplish the goal of the restriction. Under Forshee, the Court held that commercial activity was ambiguous. They looked to definitions within the dictionary of what commercial activity included. From their review, the court concluded that renting the house did not fall into commercial activity. They also pointed to the original developer’s use of the home for extended stay purposes.

How is this important to lot purchasers and developers?  For lot purchasers, read your deed restrictions. When you are buying a lot, you often get a large stack of paperwork. You are excited to be building your home, and the thought of what your neighbors could be doing next door with their property does not immediately seem to have an impact. The impact seems particularly unimportant in a subdivision that is not completely built out. However, if you do not want to be woken up every morning by the crow of a rooster, you may want to ensure that livestock is not allowed in your neighborhood, including chickens. (Many municipalities are now allowing the keeping of chickens and other animals for personal consumption.)

The point is, if you read your deed restrictions, and you don’t understand them or they seem ambiguous to you, they most likely will be ambiguous to a court. Reading and understanding what you and your neighbors can do on your respective properties will avoid problems and needless litigation down the road.

Developers need to be conscious of how deed restrictions affect marketing. They have to look at their demographic and know the laws of the municipality in which they are developing. If they want to restrict activity, for the purpose of creating an atmosphere within their development, they need to be particular about what they allow or don’t allow. Once a subdivision is sold out, the developer is typically out of the loop and the activities within the subdivision are taken over by a subdivision association. However, deed restrictions are enforceable by any party to whom they benefit. That means all of the lot owners within the subdivision.

In closing, deed restrictions must be expressed in “clear, unambiguous and pre-emptory terms.” Pursuant to Wisconsin case law, both developers and lot purchasers must be aware of this requirement to avoid potential lost lot sales, in the case of developers, and arguments between neighbors, in the case of lot purchasers.