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Indiana Court of Appeals: Renting Property OK When Not Expressly Prohibited By Restrictive Covenant
Posted in Litigation

In a case of first impression, the Indiana Court of Appeals has held that short-term rental properties do not violate a restrictive covenant prohibiting commercial use.

In Applegate v. Colucci, Earl Colucci owned several cottages along the Ohio River that he rented to the public by the night.  The property was subject to a restrictive covenant that prohibited commercial use but did not restrict the “leasing or renting of property or structures for residential use.”  His neighbors brought suit for damages and an injunction to enforce the covenant.   

The Indiana Court of Appeals noted that Indiana law disfavors restrictive covenants and construes them strictly in favor of the free use of property.  Because the covenant did not explicitly ban short-term renting, the court resolved the question of whether short-term renting was “residential use” in favor of Colucci.  The court also ruled that building multiple structures on a lot does not constitute subdivision, but it found that there was a material question of fact as to whether a garage/office structure violated the restrictive covenant.  Finally, the court determined that attorney fees were inappropriate because the covenant only authorized the court to award fees to a successful plaintiff, not to a successful defendant.

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