Daily Development for Friday, January 25, 2008
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Husch Blackwell Sanders
Kansas City, Missouri

SERVITUDES; RESTRICTIVE COVENANTS; USE RESTRICTIONS;NO COMMERCIAL USE; DAY CARE.  A homeowner's operation of a licensed day care out of her home, caring for up to twelve children daily,  constituted a commercial use in violation of a housing development's restrictive covenants prohibiting commercial enterprise, but a facility with fewer children might not.  Public policy favoring home day care was not violated by enforcement of the housing development's restrictive covenants. 

Lewis-Levett v. Day, 875 N.E.2d 293 (Ind.App. 2007). 

In October, 2005, Jeannie Lewis-Levett (Lewis-Levett) purchased a residence in the Golfview Estates housing development.  The original developers and, later, Richard and Martha Day (the Days), as successor owners and developers, recorded instruments evidencing restrictive covenants applicable to the lots in Golfview, including Lewis-Levett's.  These restrictive covenants prohibited any lot or building from being used for business or commercial purposes.

In November, 2005, Lewis-Levett began operating a licensed child day care in her home through which she cared for up to twelve children on a daily basis.  The Days filed a complaint requesting a temporary and permanent injunction against Lewis-Levett's operation of a child care home in her residence, and subsequently filed a motion for summary judgment.  The trial court granted summary judgment in favor of the Days, enjoining Lewis-Levett from operating a licensed day care home and awarding attorneys fees. 

Lewis-Levett appealed and the Days cross appealed.  On appeal, Lewis-Levett argued that the operation of a licensed day care is a residential use and, therefore, such use does not violate the restrictive covenants.  Alternatively, she argued that if the operation of a licensed day care was deemed to be a business use of her home, the enforcement of the restrictive covenants would violate Indiana public policy in favor of home day care. 

In support of her first argument, Lewis-Levett cited to Stewart v. Jackson, 635 N.E.2d 186, 193 (Ind.Ct.App. 1994), which held that the operation of an unlicensed home day care constituted a residential use, and therefore, did not violate restrictive covenants that prohibited commercial use of lots in a residential neighborhood.  The Court, however, distinguished Stewart after a consideration of the number of children in the day care, the income generated by the day care, and the increase in traffic produced by the day care.  Lewis-Levett cared for three times more children than the defendant in Stewart, used sixty percent of her home for business purposes, and had up to twelve vehicles entering and exiting the subdivision twice a day.  The Court concluded that Lewis-Levett's day care operation was more than just a slight departure from residential use.

The Court also concluded that although Indiana has a strong public policy in favor of home day care, that policy did not justify the obtrusive impact of Lewis-Levett's licensed home day care on her neighbors.  Indiana's legislature created a board to coordinate child care regulation and enacted licensing statutes governing home day care.  The legislature's choice to regulate only licensed, and not unlicensed, home day care, indicates that it intended unlicensed home day care to be considered a residential use, while larger home day care operations that require licenses, such as Lewis-Levett's, are considered to be commercial enterprises. 

The extensive regulations of licensed home day care operations indicates that the public policy in favor of home day is not without limits.  The public policy favoring home day care does not supersede otherwise legitimate restrictive covenants prohibiting the use of lots in a housing development for commercial purposes.  The Court therefore found that Lewis-Levett's commercial use of her residence was not justified by Indiana's public policy support of licensed home day care operations. 

The Court then denied the Days' cross appeal contending that the trial court erred to the extent that it did not enjoin Lewis-Levett's operation of any day care in her residence.  Because the trial court did not properly have before it the case of an unlicensed home day care, the Day's cross appeal was not properly before the Court.

Comment 1: It is interesting that Indiana precedent appears to view business andresidential as opposite concepts, at least in construing restrictive covenants.  If a use isresidential, then it appears that it is not business or commercial.  Of course, this saves all those Ebay entrepreneurs operating out of their garages, presumably, as well as accountants, lawyers, authors (technical and otherwise) and a host of otherhome based business persons.  And it may in fact be consistent with the overall purposes of the restriction - which really is to control outside manifestations of business activity, rather than to prohibit residents from conducting activities within their homes that may earn some income.   Also see:  Gabriel v. Cazier, 938 P.2d
1209 (Idaho 1997).(the DIRT DD for 12/3/97) (A covenant prohibiting "business or trade" activity in a subdivision does not prohibit swimming lessons conducted by a homeowner's children for profit during the summer months.)
Comment 2: One of the more interesting aspects of the case is the proposition, taken seriously by the court, that the public policy in favor of neighborhood day care ought justify striking down private restrictions prohibiting neighborhood day care.  There is some precedent, of course, for this, since the new Restatement takes the position that public policy ought to motivate courts to set aside covenants that restrict activities that the judges think are valuable to the society.  Frequent readers of these reports know that the editor strongly disagrees with this sort of thinking.  Also see: Terrien v. Zwit, 467 Mich. 56, 648 N.W.2d 602 (Mich. 2002) (The DIRT DD for 10/10/02) (Michigan rejects notion that court established public policy should be used to invalidate private land use covenants; consequently restriction prohibiting businesses in residential subdivision prevents use of home as a "family day care center.")

The court also cites Indiana precedent that restrictions on use of land are still disfavored in Indiana and will only be permitted when they don't violate public policy.  This is something of an old fashioned view, and one isn't certain how seriously courts really take this precedent.  But it is interesting that Indiana continues to cite it, even though in general Indiana seems to be afreedom of contract court. 

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