AuthorBoie, Jaquilyn Waddell

    Resplendent but ill-fated, lifelong dreams were born in the early 1990s with the creation of Shirt Tail Gulch, a residential development and subdivision near scenic Dcadwood, South Dakota. (1) Nestled in the Black Hills of Western South Dakota, the entire community of Dcadwood was designated a National Historic Landmark in 1961. (2) Since 1989, growth and change in the community has been carefully regulated by Deadwood's Historic Preservation Commission, Planning Commission, and City Commission to "plan for each future while protecting its past." (3) As a National Historic Landmark, Dcadwood attracts significant tourism, as does the neighboring Sturgis community--particularly during the Sturgis Motorcycle Rally held each August. (4)

    As with many residential communities developed in or near historic areas, restrictive covenants for Shirt Tail Gulch were established and fded long before construction began in order to preserve the quality and character of the neighborhood. (5) Resting at the intersection of property law and contract law, restrictive covenants embody and often manifest the tension between private property rights, quiet enjoyment, and the freedom of parties to contract for the purposes of protecting the nature and quality of communities for mutual benefit. (6) Chapter 43-12 of the South Dakota Codified Law governs Real Property Covenants. (7) From 1925 to 2021, South Dakota Codified Law section 11-5-4 restricted the duration of restrictive covenants to twenty-five years. (8) However, on July 1, 2021, the revised statute took effect, allowing such restrictions to continue in force for up to forty years. (9) South Dakota Codified Law section 43-12-3 provides that restrictive covenants are binding upon those who acquire ownership in properties subject to such covenants that run with the land. (10) Moreover, the South Dakota Supreme Court has established that constructive notice of restrictive covenants is sufficient to bind property owners. (11)

    Nevertheless, restrictive covenants fall prey to the same challenges posed to any other contract, including potential ambiguities in, and disagreements over, the parties' intent, construction, and interpretation of the contract. (12) Real estate constitutes the vast majority of Americans' nonfinancial assets: dreams are made--and broken--for many in their real estate holdings. (13) With so much at stake, disagreements over the provisions and prohibitions of restrictive covenants can easily devolve into battles over the survival of contending neighbors' dreams, finances, and businesses. (14)

    One of many such battles came squarely before the South Dakota Supreme Court in Wilson v. Maynard). (15) At stake were properties that the contending neighbors invested over one million dollars into--both with the desire to ultimately reside in the scenic Shirt Tail Gulch community. (16) Yet each interpreted the provisions of the restrictive covenants differently--the resolution of which required a sacrifice of either one couple's vision of a peaceful, private residential community or the other's ability to sustain their property altogether through their vacation rental business. (17) Ultimately, the South Dakota Supreme Court held that the vacation rental business fell within the intended purpose of "residential use" among Shirt Tail Gulch properties. (18) Yet, in so doing, the court departed from established case precedent requiring that the interpretation of restrictive covenants in residential subdivisions must accord with the intent of the parties, as evinced by the contract as a whole. (19)

    This article advances the position that the court erred in finding the vacation rental business accorded with the restrictive covenants of the Shirt Tail Gulch residential subdivision. (20) And while it would be undesirable for the Maynards to forfeit their substantial investment by prohibiting all rental income whatsoever, a feasible and more appropriate solution would have been to require the Maynards to operate their business as a bed and breakfast in accordance with the express provisions of the restrictive covenants. (21) As such, Justice Janine M. Kern's dissent advanced the more appropriate result by concluding that when operated solely as a vacation rental rather than a bed and breakfast, the Maynards' business endeavor violated the restrictive covenants and altered the character of the residential subdivision. (22)


    In the early 1990s, Jon Mattson and Barbara Mattson purchased a picturesque 160-acre ranch just outside of historic Deadwood, South Dakota. (23) Soon after, Jon Mattson ("Mattson") began developing the property with the intent to create Shirt Tail Gulch as a thirty-three lot residential development. (24) In 1997, Mattson formalized this design with a declaration of restrictive covenants, filed with the Lawrence County Register of Deeds, with the stated purpose of "creating and keeping the above-described property, insofar as possible, desirable, attractive, free from nuisance... for the mutual benefit and protection of the owners of all lots, and the surrounding and adjacent property." (25) The Shirt Tail Gulch Subdivision Declaration of Restrictive Covenants ("Covenants") applied to Lots 1 through 31 and was written to be "binding upon each lot in the development, and each owner of the property therein, his successors, representatives and assigns, and shall continue in full force and effect until January 1, 2040." (26) The Covenants further provided that "[n]o lot may be used except for residential purposes, which shall include normal home occupations and offices of recognized professions and bed and breakfast uses allowed under State and County laws and regulations." (27) At the time the Covenants were filed with the Lawrence County Register of Deeds, rental websites such as Vacation Rentals by Owner ("VRBO") and Airbnb did not exist, and short-term rentals were less prevalent. (28) Nevertheless, since at least 2004, some owners residing in Shirt Tail Gulch rented their properties on a short-term basis, particularly during the Sturgis Motorcycle Rally. (29)

    In 2006, Robert and Sharlene Wilson ("the Wilsons"), residents of Clay Center, Nebraska, and dentists with practices in Clay Center and Omaha, Nebraska, began to search for a home they could initially use as a vacation home and ultimately retire to. (30) The couple was drawn to Shirt Tail Gulch "because of the nature of the development and the character of the neighborhood." (31) The Wilsons' real estate agent reviewed the Covenants with the couple and informed them that the Covenants only permitted short-term rentals in the form of a bed and breakfast. (32) Moreover, the Wilsons understood the terminology of "residential use" in the Covenants to preclude the development of commercial rental properties within the residential neighborhood. (33) In reliance on the express language and restrictions of the Covenants, the Wilsons purchased Lot 24 of Shirt Tail Gulch in the spring of 2007. (34) The Wilsons subsequently invested over one million dollars renovating and constructing additions to the home on their lot. (35) The renovations included a significant garage addition that cost substantially more to construct than typical, given the requirements of the Covenants. (36) Robert Wilson stated he "would have never bought the property or built the property when there's different people there every week who I don't know who they are, because I worry about that. I don't know who these people are coming in." (37)

    In 2016, Rory and Kristen Maynard ("the Maynards"), residents of nearby Spearfish, South Dakota, purchased Lot 25 of Shirt Tail Gulch, immediately adjacent to the Wilsons' Lot 24. (38) The Maynards intended to offer the property initially as a short-term rental, ultimately making use of it themselves as their "forever home." (39) After August of 2016, the Maynards began construction of a three-story structure on Lot 25, containing five suites, each with an en suite bath and a half-bath. (40) In addition to the Shirt Tail Gulch property, the Maynards owned several other commercial rental properties in the Deadwood and neighboring Lead area and owned and operated two real estate holding companies: Legendary Investments and Alpine Adventures. (41) To secure financing for their Shirt Tail Gulch property, the Maynards maintained insurance against rent loss as well as agreed to unconditionally assign and transfer all rents and revenues to their financial institution in the event of default. (42) While the Maynards have at times stayed at their Shirt Tail Gulch property on a short-term basis, they have never resided at Shirt Tail Gulch as a primary residence or owner-occupied property. (43)

    On October 24, 2016, the Wilsons sent a letter via counsel to the Maynards, informing the Maynards of the Covenants' requirement to use Shirt Tail Gulch properties for "residential purposes" rather than rental business, with the exception of bed and breakfast properties as provided by South Dakota state and county laws and regulations. (44) The Wilsons requested confirmation that the Maynards did "not intend to use the property in any manner that violates the Covenants, for instance by using it as a rental property." (45) Rory Maynard acknowledged receiving the letter in the early stages of construction yet continued construction without initially providing a response. (46) Thereafter, on April 28, 2017, Rory Maynard verbally confirmed to Robert Wilson that the Maynards intended to use the property as a short-term rental rather than a bed and breakfast property. (47)

    Prior to when the Maynards began renting the property, the Shirt Tail Gulch Homeowners Association proposed amending the Covenants in 2017 to expressly permit short-term vacation rentals. (48) The proposed amendment would revise the permissible uses by providing that "[a] lot may be rented to a third party for...

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