This case involved a dispute over the right of the owner of a property to rent his house out to vacationers on a short- term basis subject to covenants and restrictions. The plaintiffs in the case, who were the owners of adjacent property, commenced the action against their neighbor who was renting his property out for periods that were typically three to seven days, and their homeowners association („Association“) for not taking action to prevent the short-term rentals. The Plaintiffs believed that the short-term rentals were in violation of Association’s governing documents.
In their action, the plaintiffs contended that their neighbor’s rental operation violated three different restrictions contained in Association’s Declaration: (1) a provision that restricted use of the subject property to the „purpose“ of one single family dwelling unit per lot; (2) a provision that the subject property could be occupied only by a family or, at most, two unrelated persons who lived together as a single household unit; and (3) a provision that prohibits commercial enterprises on the subject property.
With regard to the plaintiffs claims against Association, the plaintiffs contended that Association had a duty to take action to prevent the short term rentals in violation of the Declaration. The trial court entered judgment in favor of the defendants after finding that the short term rentals did not violate the Declaration and awarded both defendants attorney’s fees. The plaintiffs then filed an appeal.
On review, the appellate court ruled that: (1) the language contained in the Declaration that limited the use of a property to one single family dwelling unit was solely a structural restriction that referred only to the types of structures that could be constructed on a given lot in the subdivision; (2) the occupancy restriction in the Declaration did not specify whether those residing in the subject property must live there permanently or may live there temporarily so the restriction did not clearly state that short-term rentals were prohibited; and (3) the commercial enterprise restriction in the Declaration relates solely to the activities on the property and the plaintiffs presented little or no evidence of commercial activities that were actually being conducted on the subject property. Accordingly, the appellate court affirmed the trial court judgment and awarded the defendants additional attorneys‘ fees that were incurred in connection with the appeal.
The attorney fees awarded to the defendants for the proceedings in both the trial court and on appeal included an award to the prevailing homeowner of $178,001.34 for proceedings in the trial court, plus an additional $107,500 for proceedings in the appellate court, and an award to Association of $215,000 for proceedings in the trial court, and an additional $107,500 for appellate proceedings. Thus, the plaintiffs in the action ended up losing the case and having judgments entered against them for an amount in excess of $600,000. Those judgments will continue to accrue post judgment interest in accordance with state statutes until they are satisfied.
Texas Appellate Court decision (July 19, 2018).
See case decision: Schack_v._Prop._Owners_Ass’n_of_Sunset_Bay