J. Patrick Sutton Cases & Issues Blog

More on STR Win in Austin Court of Appeals

Letting the Zgabay decision sink in has yielded insights into what the Third Court of Appeals was doing. The Court's opinion is simplicity itself — the facts, after all, were undisputed — but its implications are far-reaching for Texas homeowners and give them a leg-up when fighting arbitrary HOA or neighbor interpretations of deed restrictions.
Two things strike me about what the Court of Appeals said in Zgabay:

The first has to do with fundamental notions of property rights in Texas. The parties in Zgabay offered strikingly different visions. My clients, the Zgabays, asked the court to declare that uses of land that are not plainly prohibited by deed restrictions are allowed. The HOA argued, in essence, that whatever is not expressly allowed is forbidden. It was not quite that cut-and-dried, but almost. I read the Zgabay opinion to say that anything not expressly forbidden is allowed. That is a profound statement. It means that property buyers are entitled to rely on what the deed restrictions say to the ordinary persons who read them and rely upon them when buying land. Buyers and owners don't have to worry about what arbitrary interpretation an HOA board or neighbor will try to impose later. After Zgabay, buyers of real property can justifiably feel that they can't be surprised by glosses on the deed restrictions that no reasonable person could have anticipated.

The second aspect of Zgabay that comes home to me now as I litigate other cases and other fact patterns is that Zgabay gives the courts the sole power — and possibly even the duty — to declare the meaning of deed restrictions even when — or especially when — the restrictions are unclear. Since the common-law rule of interpretation to favor property rights kicks in if there's any dispute as to the meaning, close calls must favor the free and unrestricted use of land. What makes this so important is that it gives a homeowner the right to seek quick court review and interpretation without months of expensive discovery. That's not true with garden-variety contracts, where ambiguity can require discovery into what the drafters intended. Deed restrictions are interpreted like ordinary contracts, but they are not ordinary contracts. They are often old and are intended to last indefinitely, and often the only "drafter" is an attorney who supplied them to a developer — hardly a bargained-for exchange between buyers and sellers of property. Deed restrictions therefore get the benefit of an additional, common-law rule that ordinary contracts do not — the rule of strict construction to favor property rights. This is so critical because HOA's and neighboring property owners who wish to make litigation ruinously expensive usually try to prevent an early court determination of the meaning of restrictive covenants. They ask the court to delay any decision until there has been months of expensive discovery and skirmishing over procedure. But not any longer: Zgabay empowers courts to declare the meaning of deed restrictions early, irrespective whether an HOA files a counterclaim asserting an actual breach of the covenants that might require additional discovery and legal skirmishing.

As of this writing, the HOA in the Zgabay case has asked the Texas Supreme Court for an extension of time to October 27, 2015, to seek review. Zgabay is the law until then, and I am hopeful that it will be the law after. Stay tuned to this blog for further developments in this important case.

J. Patrick Sutton Cases & Issues Blog