The Kentucky Court of Appeals recently ruled on a property dispute involving Chad A. Steele and Lindy D. Steele against SRH, LLC regarding the use of real estate in the Kentucky Lake Subdivision. The court's decision, issued on August 21, 2026, clarified the enforceability of restrictive covenants and the legality of short-term rentals in residential areas. This ruling affects homeowners and property developers in Kentucky, particularly those involved in similar disputes over property use.
The case arose when the Steeles, who owned a residential lot in the subdivision, filed a complaint against SRH, LLC, which had begun advertising its adjacent lots for short-term rentals on platforms like VRBO. The Steeles argued that a restrictive covenant in their deed prohibited commercial use of the property, and they sought an injunction to stop SRH from renting its lots for business purposes. The dispute escalated to the Kentucky Court of Appeals after both parties filed motions for summary judgment.
The Steeles purchased their lot on July 5, 2016, which included a deed with a restrictive covenant against commercial use. In contrast, SRH acquired its lots on April 1, 2022, without any similar restrictions in its deed or chain of title. The Steeles contended that the subdivision had a general scheme of development intended to maintain its residential character, which should apply to all lots, including those owned by SRH.
The Steeles filed their complaint on September 8, 2023, alleging that SRH's use of its lots for short-term rentals violated the subdivision's restrictions. They claimed that the restrictions were meant to protect the residential nature of the area and sought to enforce them against SRH. SRH responded by denying the existence of any applicable restrictive covenant and filed a counterclaim for abuse of process, arguing that the Steeles were attempting to coerce them into stopping their business activities without legal basis.
The court ruled on both parties' motions in a series of decisions. On January 22, 2025, the Marshall Circuit Court granted summary judgment to SRH, dismissing the Steeles' claims. The court concluded that the restrictive covenant was not enforceable against SRH because it did not appear in SRH's deed or chain of title. The court cited Kentucky law, stating, "a restrictive covenant must appear in the chain of title of the burdened parcel in order to be enforceable." This ruling was based on the precedent set in Oliver v. Schultz, which clarified the requirements for enforcing restrictive covenants in Kentucky.
In its ruling, the court emphasized that the Steeles could not impose the restrictive covenant on SRH's lots merely because it existed in the deeds of other properties in the subdivision. The court noted that the subdivision plat did not include any restrictions against commercial use and that SRH's lots were not burdened by the covenant.
The Steeles also sought to dismiss SRH's counterclaim for abuse of process, arguing that they had no ulterior motive for filing their lawsuit and were merely trying to enforce the covenant. However, the court dismissed SRH's counterclaim on August 11, 2025, ruling that the Steeles acted within their rights to seek enforcement of the restrictive covenant, even if their claim ultimately lacked merit.
The court's decision has significant implications for property owners and developers in Kentucky. It reinforces the importance of having clear and enforceable restrictive covenants in property deeds and highlights the legal standards for enforcing such covenants. Homeowners in subdivisions may need to review their property deeds to understand the restrictions that apply to their lots and how they can be enforced against neighboring properties.
The ruling also underscores the necessity for property owners to ensure that any commercial activities comply with existing restrictions to avoid legal disputes. As short-term rentals become increasingly popular, property owners may face challenges similar to those encountered by the Steeles and SRH.
Looking ahead, the Steeles and SRH have the option to appeal the court's decision to the Kentucky Supreme Court. However, details about any potential appeal or related cases were not available in the court filing. The outcome of this case may influence future disputes involving property use and restrictive covenants in Kentucky.