On December 10, 2021, the Texas Supreme Court agreed to hear a case brought by a homeowner client of mine. The case is JBrice Holdings LLC v. Wilcrest Walk Townhomes Ass'n, Inc., No. 14-17-00790-CV, 2020 WL 4759947, at *1 (Tex. App. - Houston [14th Dist.] Aug. 18, 2020, review granted Dec. 10, 2021).

The homeowner bought homes whose restrictive covenants gave owners "the right to lease with no restriction." The trial court determined that "the right to lease with no restriction" means that leases must be for more than 7 days. The Houston 14th Court of Appeals then affirmed the trial court but on somewhat different grounds, holding that an HOA's board can adopt rules barring "transient use" even if renting is unrestricted. My client's petition complained loudly that the lower courts were simply writing new restrictive covenants and justifying it by using different words to refer to restricting leasing. The Texas Supreme Court's grant of review suggests that at least some justices on the Supreme Court are troubled when an owner buys a "right to lease with no restriction" which is then restricted by an HOA board acting alone.

The Texas Supreme Court provides a longer case summary. Oral argument is set for February 3, 2022. The briefs are all available on the Supreme Court's website.Content may continue . . .

An important new decision from the Austin Court of Appeals agrees: No, a city can't ban STR's outright. On November 27, 2019, the Third Court of Appeals decided Zaatari v. City of Austin, Appeal No. 03-17-00812-CV and invalidated the City of Austin's ban on short-term rentals by owners who do not claim a home as a homestead. The opinion held that a ban is an unconstitutional retroactive law. Why retroactive? This is the critical holding: because the right to rent for all durations is a fundamental property right protected by the Texas Constitution.

This dovetails nicely with a case I handle, Muns et al. v. City of Grapevine, pending in the Tarrant County District Court and Fort Worth's Second Court of Appeals, in which the trial court has temporarily enjoined the City of Grapevine STR ban while the court of appeals decides some gateway jurisdiction questions. Based on Zaatari, one would expect the Grapevine case to go much the same way — invalidating the Grapevine ban because it retroactively takes away a settled property right.

The new Zataari decision was not unanimous — it drew a dissent from one of the new justices on that court. I expect a lot more fireworks on city ordinance cases in the next year!
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One STR issue that is heating up is whether city ordinances that ban short-term rentals are vulnerable to legal challenge. I believe they are, and on several constitutional grounds. A Texas appeals court in Houston recently allowed such a challenge to proceed based on the theory that imposing such an ordinance on a homeowner who purchased based on STR rights had it taken away — an unfair “taking” of property. See Village of Tiki Island v. Ronquille, 463 S.W.3d 562, 565 (Tex. App. - Houston [1st Dist.] 2015).

The Austin STR ordinance seems to me to be unconstitutional on several grounds. I represent one client in a challenge to the ordinance based on its vagueness in not making clear whether leases of 30 days or more are exempt. The City of Austin is requiring an STR permit even for long-term leases if tenants do not physically occupy a property for the entire term of their lease, in effect making it impossible for any landlord to avoid the STR ordinance. If the City knocks on the door and the tenant says she is only staying for three days, the City issues a citation for renting without an STR license even if the lease is for 30 days or more! Obviously, when someone leases a property, they need not actually stay there if they don't wish to. Any owner who wishes to avoid the STR ordinance necessarily leases for 30 days or more, but that's no safe harbor in Austin.Content may continue . . .

I have been working on short-term rental issues for 9 years, first in the context of deed restrictions, and more recently in the context of city ordinances. Until I saw some recent city ordinances which outright BAN STR's, I had sort of assumed that a City could, if it writes an ordinance carefully, ban STR's.

I've changed my tune. I've wracked my brain trying to see how a city — particularly a Texas city — can pick out one type of interest of land -- residential lease — and prevent an owner from allowing other human beings to stay at that land under just that one kind of possessory interest. Where I land is that it seems unlikely to me that any city will be able to prove that DURATION OF LEASE provides a rational basis for BARRING RESIDENCY. Furthermore, I think that the Legislature has already preempted cities from outright BARRING STR's — after all, Texas raises revenue from them by taxing them expressly. Could a city ban all hotels? Sounds absurd, right? The Legislature already regulates hotels and earns revenue from the Hotel Tax. How, then, can cities ban the very activity which the Legislature wants to allow?

The issues go deeper, actually, impinging upon fundamental liberty interests. People structure real property possessory interests in all sorts of ways, none of which are readily distinguishable from leasing when it comes to minimum duration of stay. The law allows these various ways of structuring possessory rights. Why would a tenant have fewer possessory rights than, say, the co-owner of an LLC?

As this issue heats up, I expect to see — and argue — very direct challenges to the very power of a city to ban STR's. Without action by the Legislature, my current view is that cities cannot do it. They can regulate many other aspects of real property use — nuisance, noise, occupancy (with an asterisk, since, again, the Legislature has already regulated that area) — but I strongly doubt they can bar a class of people from using property in the normal residential manner. Content may continue . . .

Some anecdotes from real life:

• The City of Austin issues a bed-and-breakfast license. Neighbors repeatedly call in the property for "renting for short terms." Meanwhile, the B&B is up and running and has bookings extending into the future. The City of Austin, on a Friday, revokes the B&B license, asserting it issued it "in error." On Saturday, Austin Code Enforcement officers descend on the B&B and commence issuing citations for "renting for short terms without a short-term rental license."

• The City of Grapevine allows STR's for years and collects local short-term occupancy taxes from property owners who rent out their homes for short terms. The City tells owners there are no regulations in place for STR's. Many property owners invest in properties in reliance on their right to rent for short terms. A search reveals no ordinances which regulate STR's. Abruptly, the City of Grapevine announces that it is barring STR's effective in 45 days.

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Tags: constitutional rights

After my client prevailed in the important Tarr v. Timberwood Park case in the Texas Supreme Court, the consequences have been exactly what Ken Tarr (and I) had hoped: the regulation of short-term rentals has moved to the community for a vote. All over the state, subdivisions and HOA's are instituting the amendment process to get restrictive covenants changed. Cities are considering or passing ordinances. So, instead of tricking and surprising people with strained interpretations of old rules, subdivisions and cities are enacting new ones. While there was a lot of grumbling about the Texas Supreme Court's refusal to act as the legislature on the STR issue, I think lawyers all over the state are telling their clients to move the issue to the voting hall instead of trying to harass people with unfair, expensive lawsuits.

Alas, if only that were unalloyed good news. Most of the action statewide is to ban STR's, though in varying degrees depending on bogus rationales — owner-occupied vs. non-owner-occupied, for example, or 25% of homes only. Those kinds of regulations present all sorts of problems and unfairnesses.

In addition, some of the amended restrictions I have seen are not very clear. Some of the city ordinances are not only unclear, but either draconian or outright unconstitutional. While I am heartened that people are exercising the vote, I am concerned that, as has happened in Austin, hastily-written or ill-conceived STR regulations are just going to generate more litigation. Good for lawyers, of course; bad for everyone else.

Also, I continue to believe that where owners already have a vested property right in renting a property for short terms, both constitutional and Texas statutory requirements forbid an abrupt taking of such rights. However, as I have blogged before, Texas law is not clear or settled in this area. That issue, too, is likely to result in litigation.

Perhaps the saddest part of the shift of STR regulation to local voting is that badly-written restrictions and ordinances still put the onus on individual homeowners to fight The Man. I've taken in many calls and had many meetings where I advised that a restriction or ordinance had serious flaws, but the time and expense to litigate the issues is too expensive for most ordinary homeowners to undertake.

Probably the right answer is for the Texas Legislature to regulate this area comprehensively. In that way, local ordinances will not be allowed to conflict with state law, and state law can be more carefully composed based on input from everyone.
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Tags: Tarr v. Timberwood Park

My client, Ken Tarr, has now prevailed in a case that protects Texas property owners statewide. On May 25, 2018, the Texas Supreme Court, in a unanimous decision authored by Justice Brown, held that short-term rentals are not barred by the widespread, typical "residential use only" deed restriction. Even more importantly, the case announces a rule that restrictions cannot be interpreted into existence where silence reigns. Wow! We can now say with some confidence that what is not expressly forbidden by deed restrictions is allowed. Seems like a no-brainer, but it's been a long time coming — I've been litigating short-term rental cases for 9 years, pushing them forward across the state in hopes of getting one up to the Supreme Court.

"Residential use only" is the commonest deed restriction and zoning ordinance and goes back over 100 years. Opponents of short-term rentals insist that short-duration leases constitute the operation of a business at a home, a logically untenable position for any number of reasons — not the least of which is that the tenants are not doing anything different on day 31 than they were doing on day 29. The Texas Supreme Court, joining at least 19 other states, rejected the business-use argument in a lengthy, carefully-reasoned, and logically unassailable opinion. The new decision is sufficiently exhaustive that it seems destined to become the leading state supreme court opinion in this area of the law. Content may continue . . .

I was interviewed as part of a new article in the Texas Tribune about short-term rentals. It's an informative summary of legislative and legal battles over the issue in Texas. I commend it to you. Content may continue . . .