The Evolving Landscape of Property Use: Montana Supreme Court Upholds Subdivision Covenants Against Short-Term Rentals
Judicial Deliberation on Residential Integrity and Commercial Ventures in Montana
Introduction to the Landmark Ruling
In a significant decision that could reshape property use expectations across Montana and beyond, the state’s Supreme Court has clarified the enforceability of subdivision covenants concerning short-term vacation rentals. The ruling, stemming from a dispute in a rural Whitefish subdivision, emphasizes the primacy of established community agreements over the increasing trend of commercializing residential properties for transient guests. This decision underscores a broader societal dialogue about balancing individual property rights with the preservation of neighborhood character, the intent behind residential development agreements, and the growing economic pressures in popular tourist destinations. As the short-term rental market continues its dynamic expansion, judicial interpretations like this one become critical in defining the boundaries between residential peace and commercial enterprise within private communities.
The Evolving Nature of Short-Term Rentals
The rise of online platforms such as Airbnb and Vrbo has fundamentally altered the short-term rental (STR) market, transforming it from a niche accommodation option to a substantial segment of the hospitality industry. This shift has brought increased economic opportunities for property owners but has also introduced new challenges for communities. Concerns range from impacts on housing affordability and availability for local residents to issues of neighborhood character, increased traffic, noise, and public safety. In response, governments at federal, state, and local levels, along with private entities like homeowners’ associations (HOAs), have been actively developing and refining regulations. This dynamic regulatory environment, characterized by ongoing legislative debates and evolving judicial interpretations, forms the backdrop against which the Montana Supreme Court’s decision was made. The 2024-2025 period has seen a marked increase in regulatory actions nationwide, with many jurisdictions seeking to balance the economic benefits of STRs with the preservation of community well-being and residential integrity. Despite legislative efforts in Montana aimed at liberalizing STR regulations, such as Senate Bill 336 in the 2025 session, which ultimately failed to pass, the judiciary has continued to affirm the power of private agreements to govern property use.
The Core of the Legal Conflict
At the heart of this legal battle was the interpretation of restrictive covenants governing a residential subdivision. These covenants, originally established to preserve a specific community atmosphere and intended use, were challenged by the operation of a short-term vacation rental. The central question before the Montana Supreme Court was whether such rental activities constituted a violation of covenants designed to maintain a “country residential living” environment and explicitly prohibit commercial endeavors within the subdivision’s boundaries. The case highlights the persistent tension between property owners’ desires to maximize the economic potential of their assets and the collective rights of neighbors to enjoy the quiet residential character that attracted them to the area in the first place. This tension is amplified in popular tourist regions like Whitefish, where the economic allure of short-term rentals often clashes with the established intent of residential developments.
Background of the Dispute: East Blanchard Lake Road Subdivision
Establishment of Subdivision Covenants
The foundation of the legal dispute lies in the “Declaration of Covenants, Conditions, and Restrictions” recorded for the East Blanchard Lake Road subdivision. This document, established by an original property owner in the past, meticulously defined the intended nature and use of the land within the subdivision. Key provisions stipulated that the subdivision was dedicated for “country residential living.” Furthermore, it explicitly stated that properties within the subdivision could not be utilized for any business or commercial purpose. These restrictions were foundational to creating a cohesive and consistently residential atmosphere, safeguarding the interests of all property owners who bought into this vision of a tranquil, rural community. Such covenants are common mechanisms used in real estate development to maintain property values, ensure a certain quality of life, and enforce a shared understanding of neighborhood character.
The Property and its Acquisition
The specific property at the center of the lawsuit was acquired by R&R Mountain Escapes, LLC, in November 2020. Principals Russell Palmer and Romona Stewart purchased the land in this rural Whitefish subdivision with the apparent intention of operating a short-term rental business. This acquisition marked the beginning of a conflict that would eventually reach the state’s highest court, testing the longevity and binding nature of pre-existing subdivision agreements. The choice of this particular subdivision, with its established restrictive covenants, set the stage for a legal confrontation that would delve into the precise interpretation of contractual property rights.
Initiation of Short-Term Rental Operations
Following their purchase, R&R Mountain Escapes engaged a management company to facilitate reservations for their property. The operation was designed to accommodate up to ten guests per night. In the year 2022 alone, the rental generated substantial income, amounting to $55,000. This commercial activity, undertaken without the explicit consent of neighboring property owners, directly contravened the spirit and letter of the subdivision’s restrictive covenants and set the stage for the ensuing legal challenge. The scale of the operation, characterized by its continuous marketing and booking cycles, was seen by neighbors as fundamentally different from occasional personal use or a long-term residential lease.
The Legal Proceedings: From District Court to the Supreme Court
Neighbors’ Legal Challenge
A group of concerned neighbors, including Rodney and Heidi Brandt, Marshall and Neva Fladager, and Arry and Rena Lautaret, viewed the short-term rental operation as a direct contravention of the subdivision’s established covenants. They argued that the commercial nature of the rental, along with its associated impacts, violated the spirit and letter of the governing documents. Consequently, they filed a lawsuit in the Flathead County District Court, seeking to halt the rental activity and enforce the restrictive covenants. Their legal action was grounded in the belief that the covenants were intended to preserve the residential character of their community and prevent the disturbances associated with transient commercial activity.
Flathead County District Court Ruling
In November 2023, the Flathead County District Court sided with the neighbors. The court’s decision affirmed that the restrictive covenants governing the properties unequivocally prohibited short-term rentals by deeming them a commercial use. This initial ruling provided a legal precedent and a victory for the homeowners who sought to maintain the residential character of their community. However, the matter did not end there, as R&R Mountain Escapes opted to appeal this decision, setting the stage for a higher judicial review.
Appeal to the Montana Supreme Court
R&R Mountain Escapes appealed the district court’s ruling to the Montana Supreme Court. The appellants argued that the subdivision’s restrictions did not explicitly prohibit short-term rentals. They contended that the covenants lacked specific language barring rentals and did not stipulate any minimum duration for residency. Therefore, they asserted that any ambiguity in the covenants should be interpreted in favor of the free and unrestricted use of their property. This legal maneuver aimed to reframe the interpretation of the covenants to permit their commercial rental activities, arguing that the silence of the covenants on the specific term “short-term rental” should be interpreted as permission, especially given the lack of explicit duration requirements.
The Supreme Court’s Decision: Upholding Covenant Intent
In July 2025, the Montana Supreme Court issued its decision in Brandt v. R&R Mountain Escapes LLC, upholding the lower court’s ruling. The state’s high court determined that covenants prohibiting commercial activity in a residential subdivision indeed apply to short-term rentals. This landmark decision reinforced the enforceability of restrictive covenants and provided clarity on the definition of commercial use within a residential context. The Court found that the language of the covenants, prohibiting commercial endeavors and dedicating the property to “country residential living,” was unambiguous in its intent to exclude short-term rental businesses. This ruling built upon previous judicial interpretations, notably distinguishing itself from earlier cases where similar language was found to be ambiguous. In Craig Tracts Homeowners’ Association, Inc. v. Brown Drake, LLC (2020), the Montana Supreme Court had found that a “residential purpose-only” covenant was ambiguous and did not explicitly prohibit short-term rentals. However, in Brandt, the Court concluded that the totality of the covenants, when read together, left no doubt that commercial short-term rentals were prohibited. The Court explicitly stated, “Taking the whole of these covenants together, with each helping to interpret the other, their language unambiguously prohibits the commercial business of renting out a home on a short-term basis, which undisputedly created a nuisance to other homeowners in the subdivision.” This definitive stance provides significant clarity for property owners and associations navigating similar disputes.
Key Arguments and Judicial Interpretation
R&R Mountain Escapes’ Defense
The defense presented by R&R Mountain Escapes centered on the interpretation of the covenant’s silence regarding short-term rentals. They argued that because the covenants did not explicitly forbid rentals or stipulate any minimum duration for occupation, such activities should be permissible. The company further suggested that the property was, in fact, used for personal enjoyment by the owners for a significant portion of the year. For example, in the summer of 2023, the property was reportedly used for personal stays for 88 days, while paying guests occupied it for only 27 days. This was presented to illustrate that the property was not exclusively a commercial enterprise. R&R also pointed to the fact that they had obtained a conditional use permit from Flathead County to operate the short-term rental in June 2022, implying a level of official sanction for their business model. However, the court ultimately found that such local permits did not supersede the private contractual obligations established by the subdivision covenants.
Neighbors’ Counterarguments and Evidence
The neighbors countered R&R’s arguments by emphasizing the plain language of the covenants and the manifest intent behind them. Beyond the prohibition of commercial activity, they highlighted language within the covenants designed to prevent nuisances and ensure the preservation of a peaceful, residential atmosphere. They claimed that the short-term rental operation led to significant negative impacts on the neighborhood, including increased traffic, which they alleged contributed to unsafe conditions and reckless driving within the residential area. To illustrate the disruption, the neighbors recounted an alarming incident where six unattended children staying at the rental property entered a pasture containing a bull, necessitating a swift intervention by the owner to ensure their safety. Such events, they argued, were direct consequences of the transient nature of short-term rentals and were contrary to the peaceful, residential living the covenants were meant to protect. Furthermore, the neighbors pointed to the substantial income generated ($55,000 in 2022) as clear evidence of commercial intent, directly violating the covenant’s prohibition against business purposes.
The Supreme Court’s Rationale
The Montana Supreme Court’s decision was heavily influenced by its interpretation of the covenants’ core purpose and specific clauses. The court referenced two of its recent decisions to support its reasoning. These precedents established that the term “residential purpose” is contingent on both the functional use of the property and the duration of occupancy. Crucially, the court defined “commercial activity” as any for-profit endeavor. The court concluded that the intent of the Whitefish subdivision covenants was unambiguous: to foster “residential country living,” which could include activities like farming and ranching for personal use, but strictly prohibited any commercial purposes. The court also acknowledged that while R&R pointed to agricultural activities as potentially commercial, the covenants specifically allowed for such activities when conducted for personal use, distinguishing this from a for-profit rental business. The ruling in Brandt was particularly definitive because the court found the covenants’ prohibition against commercial activity to be clear and unambiguous, unlike in the 2020 Craig Tracts case. This suggests a hardening judicial stance on enforcing covenants against commercial STR operations when the language is sufficiently explicit.
Chief Justice’s Concurring Opinion
Chief Justice Cory Swanson provided a particularly insightful concurring opinion that elaborated on the nature of property rights and restrictive covenants. He agreed that property owners possess a fundamental right to use their property freely and lawfully. However, he underscored that this case was not about governmental restrictions, but rather about self-imposed limitations that property owners agree to through subdivision covenants. Swanson emphasized that when a property owner purchases land subject to such covenants, they do so with the expectation that these agreements will be upheld, not only by neighbors but also by the courts. He warned against any casual disregard for these established property rights, even when applying them to new circumstances, like short-term rentals, that may not have been explicitly contemplated when the covenants were originally drafted. This perspective highlights the importance of respecting the contractual nature of subdivision agreements and the expectations they create within a community, noting that any other approach would undermine settled Montana law regarding property rights and covenants.
Implications of the Ruling: A Shifting Landscape
Impact on Short-Term Rentals in Montana
This ruling carries significant implications for the proliferation of short-term rentals across Montana. It validates the enforceability of restrictive covenants that prohibit commercial activities within residential subdivisions. Property owners and homeowners’ associations can now more confidently rely on existing covenants to restrict or prohibit short-term rental operations that are deemed commercial in nature. This decision, issued in July 2025, contrasts with legislative efforts during the same year, such as Montana Senate Bill 336, which sought to reclassify short-term rentals as residential uses and limit local governments’ ability to restrict them. The failure of SB 336 to pass committee by May 2025 means that legislative avenues to broadly permit STRs were unsuccessful, leaving the enforcement of private covenants as a primary tool for homeowners seeking to maintain residential character. This judicial affirmation of covenants, coupled with local regulatory actions in communities like Bozeman and Whitefish which have been tightening STR rules since 2023 and 2024 respectively, indicates a complex regulatory environment where judicial precedent and local ordinances are reinforcing restrictions, even as some legislative attempts aimed at broader liberalization falter. Property owners looking to operate STRs in Montana must now pay closer attention to the specific language of their subdivision covenants and local zoning ordinances, as the legal landscape strongly favors restrictions when clearly articulated.
Preservation of Residential Character
The Supreme Court’s decision strongly supports the preservation of residential character within communities. By affirming that short-term rentals can constitute a commercial use, the court has reinforced the idea that subdivisions established for “country residential living” should maintain that intended atmosphere. This is particularly relevant in popular tourist destinations like Whitefish, where the line between residential and commercial use can easily become blurred due to high demand for visitor accommodations. The ruling offers a mechanism for residents to protect their neighborhoods from the potential disruption, increased traffic, and altered community dynamics that can accompany widespread short-term rental activity. National trends in 2024 and 2025 also show a growing concern about the impact of STRs on housing affordability and availability for local residents, with many municipalities implementing regulations to address these issues. The Montana ruling aligns with this broader concern by prioritizing the established residential intent of communities over commercial exploitation.
Rethinking Property Rights and Community Agreements
The case serves as a crucial reminder that property rights are not absolute and are often subject to mutually agreed-upon restrictions. The decision emphasizes the binding nature of subdivision covenants, which are essentially contracts entered into by all lot owners within a development. Purchasers of property within such subdivisions implicitly agree to abide by these covenants, and their neighbors have a vested interest in their enforcement. The ruling encourages property owners to be diligent in understanding and respecting these community agreements, reinforcing that the collective understanding of a neighborhood’s purpose is a valuable aspect of property ownership. This reinforces the legal principle that private contractual agreements, when clear and unambiguous, will be upheld by the courts to protect the expectations of all parties involved. The Montana Supreme Court’s affirmation of covenants in cases like Brandt and Myers underscores that these agreements are robust tools for maintaining community standards, especially in the face of evolving economic pressures and new forms of property utilization.
Broader Context: National Trends and Future Considerations
The National Surge in STR Regulation
The Montana Supreme Court’s decision in Brandt v. R&R Mountain Escapes LLC is part of a larger national and international trend toward increased regulation of short-term rentals (STRs) observed throughout 2024 and early 2025. Cities and states are increasingly grappling with the impacts of STRs on housing availability, affordability, neighborhood character, and public services. For instance, in 2024, New York State authorized counties to establish STR registries, compelling platforms like Airbnb and Vrbo to share data and remit taxes, while Hawaii’s counties gained more power to regulate, including phasing out STRs. In Florida, a legislative attempt in 2025 to invalidate local STR regulations was vetoed by the governor, signaling ongoing debate over state versus local control. Cities like Austin, Texas, began overhauling their STR regulations in early 2025, introducing new licensing requirements and density caps to address community concerns. This wave of regulation reflects a growing awareness among local governments that STRs represent more than just a source of tax revenue; they can significantly influence community dynamics and housing markets. The Federal Trade Commission (FTC) also finalized a rule in late 2024 requiring greater transparency in STR pricing, including all mandatory fees, a consumer protection measure likely to spread. These developments underscore a global recalibration, aiming to balance the economic opportunities of STRs with the need for community well-being and housing stability.
Economic Outlook for Short-Term Rentals
The short-term rental market has shown signs of stabilization and growth in 2024, with projections for continued expansion into 2025. After experiencing challenges in previous years due to factors like rapid supply increases and economic uncertainties, the market is benefiting from easing inflation and fading recession fears, leading to increased demand. Reports from mid-2024 indicated a significant jump in demand growth compared to the previous year, with expectations for sustained higher demand through 2025. While supply growth is being tempered by high interest rates, which make property investment more challenging, the overall market performance is stabilizing. Occupancy rates, which had been declining since 2021, are expected to improve in 2025. Resort locations have generally recovered more quickly than urban centers, which may face continued regulatory hurdles. This economic backdrop provides a compelling incentive for property owners to maximize rental income, but it also increases the pressure on communities and courts to manage the associated impacts, as seen in the Montana Supreme Court’s decision.
Distinguishing Commercial Use from Personal Use
A key element of the court’s deliberation in Brandt was drawing a clear distinction between commercial activity and personal use of a property. While R&R attempted to frame their operation as partially personal, the court focused on the for-profit nature of the rentals. The evidence of earning $55,000 in rental income in 2022, coupled with the marketing and reservation system, firmly placed the activity in the commercial realm. The court’s interpretation, supported by precedent and the explicit language of the covenants, views short-term rentals for profit as fundamentally different from long-term residential leases or purely personal use by the owner. This distinction is vital for property owners and legal professionals navigating similar disputes, reinforcing that the intent and primary purpose of the activity are paramount when assessing covenant compliance.
The Role of Conditional Use Permits
R&R Mountain Escapes had obtained a conditional use permit from Flathead County to operate their short-term rental. However, the Montana Supreme Court’s decision indicates that such permits do not supersede or override private restrictive covenants established by property owners. While county permits address land use from a governmental regulatory perspective, ensuring compliance with local zoning and safety standards, they do not nullify the private contractual obligations between property owners within a subdivision. This clarifies that obtaining a government permit does not grant immunity from enforcing subdivision covenants, which are private contractual agreements that govern the use of land amongst property owners. The court’s ruling implies that private covenants, when clear, can impose stricter limitations than local government regulations.
The “Slippery Slope” Argument and Litigation Potential
During oral arguments in cases involving short-term rentals and restrictive covenants, justices have raised concerns about the potential for such rulings to lead to widespread litigation, describing it as a “slippery slope.” This concern stems from the complexity of defining lines where short-term rentals might be permissible or prohibited, especially if covenants are ambiguous. However, the court’s decision in Brandt relied on covenants with explicit prohibitions against commercial use and clear intent for residential living, suggesting that where covenants are clear, litigation may be avoided through adherence to their terms. For subdivisions with less explicit covenants, this ruling might indeed spur more legal challenges or a greater emphasis on amending covenants to provide clearer guidance on short-term rental use. The national trend of increasing STR regulation also contributes to this potential for litigation as stakeholders seek to understand and enforce new rules and interpretations.
Future Drafting of Covenants
This ruling is likely to influence how future subdivision covenants are drafted. Developers and original property owners may choose to include more specific language that explicitly addresses short-term rentals, either prohibiting them outright or establishing detailed regulations for their operation, including duration limits, occupancy caps, and owner-occupancy requirements. Clarity in covenants will be paramount to avoid ambiguity and potential disputes down the line. The decision underscores the importance of foresight in anticipating evolving property use trends when establishing community rules, ensuring that such agreements remain effective in preserving the intended character of residential developments in the face of changing economic and social landscapes.
Conclusion: Upholding Community Intent in a Changing Market
Reinforcing the Power of Covenants
The Montana Supreme Court’s ruling in Brandt v. R&R Mountain Escapes LLC serves as a powerful affirmation of the enduring significance of restrictive covenants in maintaining the integrity of residential communities. By unequivocally stating that commercial short-term rentals violate covenants designed to preserve “country residential living” and prohibit business activities, the court has provided a clear directive. This decision empowers property owners and homeowners’ associations to enforce the agreements they have collectively made, thereby protecting the established character and peaceful enjoyment of their neighborhoods. The ruling reinforces that when covenants clearly define a property’s intended use as strictly residential and prohibit commercial endeavors, short-term rentals that operate for profit fall squarely within these prohibitions, regardless of whether the specific term “short-term rental” is mentioned.
Balancing Property Rights and Community Standards
The judgment strikes a balance between individual property rights and the collective desire for a stable, residential environment. It acknowledges the right of owners to use their property, but within the boundaries of agreements freely entered into. The court recognized that the expectation of a certain living standard, as defined by the covenants, is a significant aspect of property value and owner satisfaction. This ruling reinforces that such community standards, when clearly articulated and willingly accepted, hold legal weight and are enforceable against those who choose to operate outside their established framework. This approach acknowledges the contractual nature of property ownership within subdivisions and provides a legal mechanism for residents to protect their investment in a peaceful community, a principle that resonates with broader national concerns about balancing tourism economies with local residential needs.
A Precedent for Neighborly Agreements
This legal precedent offers valuable guidance for property disputes across Montana and potentially in other jurisdictions facing similar challenges. It underscores the principle that restrictive covenants are not merely suggestions but legally binding agreements that protect the shared vision of a community. The decision encourages homeowners to uphold their commitments to their neighbors and to the foundational principles that define their shared residential spaces. It serves as a critical reminder that the peaceful enjoyment and intended character of a neighborhood are values that the law is prepared to defend when clearly expressed through established covenants. As the short-term rental market continues its dynamic evolution, the clarity provided by decisions like Brandt becomes essential for maintaining predictability and fairness within private residential communities.