REVIEW FROM COURT OF APPEALS CASE NOS. 2015-CA-001948-MR AND
2016-CA-000164-MR GARRARD CIRCUIT COURT NO. 13-CI-00308
COUNSEL FOR APPELLANT/CROSS-APPELLEE: Frederick Short
COUNSEL FOR APPELLEES/CROSS-APPELLANTS: Carroll Morris
Redford III Elizabeth C. Woodford MILLER, GRIFFIN, &
covenants governing the use of real property are enforceable
according to their terms. The issue we must determine in this
case is whether the Garrard Circuit Court erred enforcing
Deed of Restrictions for Woodlawn Estates Subdivision Section
II, by granting judgment in favor of Don Hensley against
Keith A. Gadd and JHT Properties, LLC on the basis that Gadd was
renting private residences in the Subdivision as short-term
vacation rentals in contravention of restrictions on
commercial use of property. We hold that the trial court did
not err, and we therefore reverse and vacate so much of the
Court of Appeals' Opinion as reversed the trial
court's judgment. We, however, affirm the Court of
Appeals insofar as it affirmed the trial court's
dismissal of Gadd's counterclaim for harassment.
Factual and Procedural Background.
early 1990s, Hensley and his wife, Marsha, developed the
Subdivision as a lakeside development on Lake Herrington. The
Hensleys reside in the Subdivision and own several properties
there. As a part of the development, they executed and filed
Deed of Restrictions Lots 1-15 Woodlawn Estates Subdivision
Section II. For purposes of our review, the
significant provisions of the Deed of Restrictions are
1. Lots 2 thru 15 shall be known and described as single
family residential lots and shall be used only for
residential purposes. Structures erected thereon shall be
designed for and occupied by one family; no more than one
residential structure shall be erected on each lot.
2. Lot 1 shall be known and described as commercial lot and
may be used only for single family, multi-family or
commercial purposes. Commercial use shall be limited to food
stores, marinas, offices, hotels, restaurants and similar
retail of [sic] professional businesses; no wholesale,
industrial or manufacturing activities shall be permitted.
13. No trade, business, or profession of any kind shall be
carried out upon any residential lot nor shall anything be
done thereon which may become an annoyance or a nuisance to
the neighborhood [.]
14. No sign for advertising or for any other purpose shall be
displayed any place on any residential lot or on any
residential structure on any lot except one sign for
advertising the sale or rental thereof[.]
Gadd owns Lot 3 in the Subdivision, and JHT owned Lot 2. No
question exists but that both lots were covered by the Deed
found by the trial court, Gadd advertised the properties for
short-term recreational residential use, placing ads on
LexingtonRentalHomes.com using the phrase
"vacation rental per night". The ads listed a
nightly rental of $375 for Lot 2, and $300 for Lot 3. Ads on
Homeaway.com advertised for nightly and weekly
renters, with conditions of a 10% tax rate and a cleaning fee
October 2013, Hensley filed a complaint against Gadd alleging
violations of the restrictions and that Gadd's renters
had created an "annoyance and or nuisance" to other
owners in the neighborhood. Gadd answered and filed a
counterclaim for harassment. KRS 525.070, KRS 446.070.
parties initially filed cross-motions for summary judgment in
January 2014, which the trial court denied. After a period of
discovery, the parties again filed cross-motions for summary
judgment. At a hearing on the motions, the parties advised
the court that all issues had been addressed by deposition
and agreed for the trial court to try the case on
depositions. CR43.04(1). The trial court did so, and, on
November 20, 2015, issued its Findings of Fact, Conclusions
of Law and Judgment.
addition to the matters set forth above, the trial court
noted the complaints of other residents concerning Gadd's
renters: occasional excessive noise, vehicles parked on the
street, possible overuse of septic tank causing offensive
odors and possible conduct damaging the Subdivision's
golf course property. The trial court noted the
communications between Hensley and the other deponents
concerning complaints about noise, traffic, septic tanks, and
potential damage that short-term rentals could have on the
deponents' property values. The trial court did not make
a finding that Gadd's renters and their activities
constituted "an annoyance or a nuisance to the
neighborhood" within the meaning of Restriction 13.
trial court summarized Hensley's testimony, as follows:
[Hensley's] intention when imposing the restrictions was
to limit rentals to single families for longer terms. He
acknowledged that the specific term was not stated in the
restrictions but indicated that he felt like a six month
rental or a year rental would be a reasonable length of time.
... He acknowledged that "single family" could
include members of an extended family, as well as guest of
that family. . . . [W]hen asked about whether a monthly
rental would be okay, he acknowledged the ambiguity in the
restrictions but insisted that he did not intend for rentals
to be made only on a daily basis. ... He described the
overnight rentals as giving the properties a "motel
atmosphere" inconsistent with the neighborhood.
trial court summarized the factual statements in Gadd's
affidavit that he personally used the Lots approximately
three months each year and denied any business use. He stated
that various governmental agencies have investigated the
neighbors' complaints and found no violations.
trial court then examined the restrictions and recent case
law from the Court of Appeals in which similar restrictions
and factual situations were present. Barrickman v.
Wells, No. 2013-CA-001578-MR, 2015 WL 2357179 (Ky. App.
May 15, 2015); Vonderhaar v. Lakeside Place Homeoumers
Ass'n, Inc., No. 2012-CA-002193-MR, 2014 WL 3887913
(Ky. App. Aug. 8, 2014); Hyatt v. Court, No.
2008-CA-001474-MR, 2009 WL 2633659 (Ky. App. Aug. 28, 2009).
The court concluded that Gadd's use of the property,
specifically short-term rentals, constituted a business in
violation of Restriction 13, and that Hensley had not waived
enforcement of the restrictions. The trial court entered
judgment in favor of Hensley, enjoined Gadd from further
violation of the applicable restrictions, awarded Hensley
costs, denied Hensley's request for punitive damages, and
dismissed Gadd's harassment counterclaim.
appealed, as a matter of right, to the Court of Appeals. That
court determined that the restrictions were ambiguous in that
they permitted rentals, but stated no time limit on those
rentals, construed the restrictions against Hensley as the
grantor, and noted other residents operated business from
their homes (as supporting the imprecision of the
restrictions). Ultimately, the Court of Appeals concluded
that, in case of doubtful meaning, restrictions should be
construed in favor of the free use of property. Slip op. at
16 (citing Connor v. demons, 308 Ky. 9, 11, 213
S.W.2d 438, 439 (1948); Glenmore Distilleries Co. v.
Fiorella, 273 Ky. 549, 556, 117 S.W.2d 173, 176 (1938)).
As to Gadd's counterclaim of harassment, the court
concluded that he had not proven harassment. The court
therefore reversed the trial court's judgment enjoining
Gadd's short-term rentals of the property, but affirmed
dismissal of Gadd's counterclaim. Hensley moved this
Court for discretionary review, and Gadd similarly requested
discretionary review, both of which we granted.
Standard of Review.
trial of this matter was by deposition by agreement of the
parties under CR 43.04(1). In pertinent part, the rule
provides "the court may upon motion or upon its own
initiative, and with due regard to the importance of
presenting the testimony of the witnesses orally in open
court, order the testimony to be taken by deposition upon any
issue which is to be tried by the court without a jury."
Id. The trial court essentially conducted a bench
trial. CR 52.01 states "[i]n all actions tried upon the
facts without a jury . . . the court shall find the facts
specifically and state separately its conclusions of law
thereon and render an appropriate judgment." "[I]n
granting or refusing . . . permanent injunctions the court
shall similarly set forth the findings of fact and
conclusions of law which constitute the grounds of its
action[.]" Id. Furthermore, "[f]indings of
fact, shall not be set aside unless clearly erroneous, and
due regard shall be given to the opportunity of the trial
court to judge the credibility of the witnesses."
or construction of restrictive covenants is a question of law
subject to de novo review on appeal. Triple
Crown Subdivision Homeowners ...