Does a 'community covenant' mean no short-term rentals? The court will decide

A court case in Charlottetown could have "big implications" on short-term rentals in communities where community covenants are in place, according to P.E.I.'s chief justice.

The case, which began Tuesday in the Prince Edward Island Court of Appeal, pits a homeowners association against a property owner who rented out his house, online.

"There's lots of [online rentals] out there," Chief Justice David Jenkins told court Tuesday. "I don't know if this is the first case in Canada ... but there will be big implications for covenants all over."

Nicholas Jay owned a house on MacMillan Point Road on P.E.I.'s North Shore near Stanhope, and rented it out to visitors, using online accommodation listings. The 31 lots in the spacious waterfront subdivision are governed by a restrictive covenant, intended to protect the quality of life for residents.

Among other things, the covenant says, "The lands and any dwelling erected or to be erected thereon shall not be used for any commercial purpose." 

Court heard that the MacMillan Point Homeowners Association started trying to clamp down on short-term rentals a few years ago, and eventually took Jay to court to get him to stop.

Jay won the case on that issue last fall, in which the trial judge ruled his rental activity was not a commercial venture.

In her ruling in September 2018, Justice Nancy Key wrote, "In this court's view, short-term rentals do not constitute commercial activity. The covenants restrict the use of the land. The land is not being used for a commercial purpose. The home, a private dwelling, may be rented in its entirety without it becoming a public place and without it having a commercial purpose."

Covenant predates the age of online rentals

But, in an appeal of that decision, lawyers for the homeowners association told court Tuesday, the community covenant was written nearly 20 years ago, before the age of click-and-go accommodation rentals.

"When the subdivision was created, these online booking services did not exist," said J. Gordon MacKay. "This is so clearly a commercial activity.... If you want to do that, go somewhere else."

Court heard that Jay no longer owns the house on MacMillan Point Road that spurred the law suit. His lawyer, Jonathan Coady, cited precedents in court interpretations of contract laws that support the original trial judge's decision. Coady has told court that covenants must use precise and exact language to prohibit specific activities.

The appeal court will issue a written decision at a future date.

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