This case involved a dispute between a homeowner (“Owner”) and his owners association (“Association”) in Texas over Owner’s use of his property for short-term vacation rentals. In a five month period, Owner had entered into thirty-one short-term rental agreements for his property which ranged from one to seven days each in duration. To facilitate this use of his property, Owner had formed a limited liability company and paid applicable Texas Hotel Taxes. Association took the position that Owner’s use of his property for short-term rentals violated Association’s restrictive covenants that limit tracts within the development to “residential” purposes and “single-family residences.”
Association contended that, because Owners’ rental agreements were short-term, Owner’s use of the property did not comply with the applicable “single family residence restriction” because Owner was using the property as a commercial rental property. After Association started imposing daily fines on Owner for his continued rental of the property, Owner filed suit seeking a declaration that Association’s deed restrictions do not impose a minimum duration on occupancy or leasing and that Association did not have a right to impose penalties in the form of fines on him.
The trial court granted summary judgment in favor of Association after finding that Owner was operating a business on his residential lot and engaging in “multi-family” short-term rentals in violation of Association’s unambiguous deed restrictions. Accordingly, the trial court issued a permanent injunction that enjoined Owner from operating a business on his residential lot and from engaging in short-term rentals to multi-family parties. The trial court further awarded attorney’s fees to Association and Owner thereafter appealed the decision.
The appellate court affirmed the trial court’s judgment and found that Association’s deed restrictions prevented Owner from leasing his home for short periods of time to individuals who did not possess intent to remain in the house. The appellate court found that, under the facts of the case, where Owner was entering into short-term rental agreements and had created a limited liability company to manage the property, and was paying hotel taxes, Owner’s use of the property was in direct contradiction with a “residential purpose test.” Owner then appealed the appellate court’s decision to the Texas Supreme court.
The Supreme Court noted that Association’s covenants did not provide definitions of either “residential purpose” or “business purpose” and thus, the court was obligated to give those words “the meaning which they commonly held as of the date the covenant was written. In reviewing Association’s covenants, the Supreme Court found that they failed to specifically address such items as leasing, use as a vacation home, short-term rentals, minimum-occupancy durations, or the like. Furthermore, they did not require owner occupancy, or occupancy by a tenant who uses the home as his domicile. The covenants contained provisions that merely required that activities conducted on the property comport with a “residential purpose” and not a “business purpose.” Thus, the court declined to add restrictions to Association’s covenants which did not exist and held that, so long as the occupants that Owner rented his property to used the home for a “residential purpose,” regardless of the duration, there was no violation of Association’s covenants and Owner’s use of the property did not qualify as commercial use. Accordingly, the Supreme Court reversed the appellate court decision and remanded the case back to the trial court for further proceedings that were consistent with the court’s decision.
Texas Supreme Court decision (May 25, 2018).
See case decision: Tarr_v._Timberwood_Park_Owners_Ass’n_Inc._(Tex._2018)1