Background
Chad and Lindy Steele and SRH, LLC own lots in Kentucky Lake Subdivision. The Steeles’ deed prohibits commercial use, as do the deeds for 168 of the subdivision’s 174 lots. But neither SRH’s deed nor any instrument in its chain of title contains that restriction. The recorded subdivision plat labels one lot “commercial” but does not expressly restrict the remaining lots. After SRH advertised its property for short-term rental on VRBO, the Steeles sued to enforce the alleged subdivision-wide restriction and obtain an injunction.
SRH counterclaimed for abuse of process, alleging that the Steeles knew its title contained no restriction and nevertheless used litigation to coerce it into ending the rentals. The Marshall Circuit Court granted summary judgment to SRH on the restrictive-covenant claim and later granted summary judgment to the Steeles on the abuse-of-process counterclaim. The parties filed separate appeals, which the Court of Appeals consolidated.
The Court’s Holding
The Court of Appeals affirmed the ruling that SRH’s lots were not burdened by the commercial-use restriction. Under Kentucky Supreme Court precedent, a restrictive covenant must appear in a recorded instrument within the property’s chain of title, or in a recorded plat, declaration, or other instrument that would alert an ordinarily prudent attorney conducting a title search. Restrictions appearing only in collateral deeds to other lots were insufficient, and the plat’s designation of one lot as “commercial” did not expressly restrict SRH’s property.
The court also affirmed dismissal of SRH’s abuse-of-process counterclaim. The Steeles’ demand letter and lawsuit pursued the stated objective of enforcing the alleged covenant and stopping the short-term rentals. Although their legal theory ultimately failed, SRH produced no evidence that they used judicial process for an ulterior purpose or to obtain a collateral advantage outside the relief sought in the lawsuit.
Key Takeaways
- A Kentucky restrictive covenant generally cannot burden property unless a recorded instrument discoverable through a prudent title search provides notice of the restriction.
- Similar restrictions in most neighboring owners’ deeds do not create a reciprocal negative easement against lots whose chains of title contain no such restriction.
- An unsuccessful or legally deficient lawsuit does not establish abuse of process without evidence that process was used for an ulterior, collateral objective.
Why It Matters
The published decision reinforces Kentucky’s record-notice requirements for subdivision restrictions. Property owners generally cannot prevent a neighbor’s short-term rentals based solely on restrictions appearing in other owners’ deeds or on evidence suggesting a broad development plan; the restriction must be reflected in an appropriate recorded instrument that supplies notice as to the burdened property.
The ruling also distinguishes an unsuccessful attempt to enforce asserted property rights from abuse of process. Even a suit that lacks legal merit does not support the tort when the plaintiff used the proceeding only to seek the relief the proceeding was designed to provide.