My neighbors turned their house into an Airbnb, what can I do?

by | Oct 25, 2021 | Litigation & Local Counsel, Regulatory Risk Analysis and Compliance

The short-term rental (STR) industry is booming, bringing in big money for some homeowners—but not everyone is a fan. STRs can attract rowdy vacationers, and large groups of renters put a strain on neighborhood parking. Under Texas law, a homeowners’ association can restrict or even prohibit STRs by using carefully-drafted restrictive covenants. If you don’t live in a neighborhood with a HOA, you should make your concerns known to local officials.

What is a “short-term rental”?

A “short-term rental” generally refers to a furnished residential property that is rented for periods of days or weeks. The Texas Tax Code defines “short-term rental” as the rental of all or part of a residential property for less than 30 consecutive days.[1] Short-term rentals are subject to the Texas hotel occupancy tax.

HOAs are permitted to prohibit or restrict short-term rentals

If you buy a home in a planned community, you’ll most likely have to become part of a homeowners’ association (HOA). An HOA’s declaration is a recorded document that sets forth the community’s restrictive covenants, which restricts the use or occupancy of real property, especially by specifying lot sizes, building lines, and architectural styles. Restrictive covenants are treated as valid contracts and construed in accordance with general rules of contract construction.[2]

Texas courts have enforced restrictive covenants prohibiting or restricting short-term rentals, but the language of such provisions must be carefully drafted.

Restrictions mandating residential-only use of property 

Many HOAs already have language in their declarations mandating residential-only use of the property. However, in Tarr v. Timberwood Park Owners Association, Inc., the Supreme Court of Texas held that the phrase “used solely for residential purposes” is not broad enough to prohibit short-term rentals.[3]

Tarr purchased a single-family home in San Antonio’s Timberwood Park subdivision. After he moved to Houston, he began renting out the house on websites like VRBO. The HOA notified Tarr that the short-term rental of his home violated two deed restrictions: (1) the residential-purpose covenant, and (2) the single-family-residence covenant. The residential-purpose covenant provided, in part:

All tracts shall be used solely for residential purposes, except tracts designated . . . for business purposes, provided, however, no business shall be conducted on any of these tracts which is noxious or harmful by reason of odor, dust, smoke, gas, fumes, noise or vibration . . .

Tarr sued, and the Texas Supreme Court agreed with him that short-term rentals were not prohibited by the deed restrictions.

The Court noted that the covenants failed to address leasing entirely and did not require owner occupancy. Instead, the covenants merely required that the activities on the property be “residential” and not for a “business” purpose. The Court focused on the activity actually taking place on the property, rather than the owner’s use of the property, which was arguably commercial (because he created an LLC to manage the property and was generating income). The Court concluded that, so long as Tarr was renting his home for a “residential” purpose (no matter how short-lived), he was in compliance with the deed restrictions.

A major takeaway from Tarr is that Texas courts will not make up restrictions when a HOA declaration is silent on the issue—if you want to prohibit or restrict short-term rentals, do so explicitly and unambiguously.[4]

For example, the Houston Court of Appeals held in 2020 that an association unambiguously prohibited the use of townhomes for short-term rentals when the Rules and Regulations stated:

A “lease” and “leasing” as provided in the Declaration and these Rules shall not include any use of the townhome for hotel, motel, or transient use by individuals who do not utilize such townhome as a bona-fide primary or secondary residence. The use of any townhome for hotel, motel, or transient use shall be and is strictly prohibited. “Hotel, motel, or transient use” shall be defined so as to include any use for which the payment of a hotel or motel tax to the State of Texas or the City of Houston would be applicable.[5]

One-dwelling restrictions or occupancy restrictions

In Schack v. Prop. Owners Ass’n of Sunset Bay, the Corpus Christi Court of Appeals held that a homeowner’s short-term rental operation was not barred by either the one-dwelling restriction or occupancy restriction in his HOA’s declaration.[6]

The one-dwelling restriction provided that the property was intended for “one single family dwelling unit per ‘Lot’ and its use is restricted to that ‘purpose.’” The court held that was solely a structural restriction, and that the terms “unit” and “per ‘Lot’” clearly oriented the restriction to the types of structures that may be erected on a given lot.

The occupancy restriction limited occupancy of the property to two possible compositions: (A) one family related by blood, adoption, or marriage “living” with not more than one unrelated person “as a single household unit,” or (B) no more than two unrelated persons “living together as a single household unit.” The court held that this restriction was a use restriction but did not prohibit the homeowner from renting his home on a short-term basis, because the wording of the restriction limited occupancy to persons “living as a household unit”—which did not by itself prohibit short-term rentals. Additionally, like the restriction in Tarr, the covenant did not specifically address leasing, use as a vacation home, short-term rentals, minimum-occupancy durations, or the like.

Enforcement is key

Unless the declaration clearly prohibits short-term rentals, HOAs may have enforcement problems with short-term rentals. The HOA should clearly define what rentals will be prohibited.  A common approach is to establish a minimum lease period (such as 30 days), with any rental period below that threshold forbidden. If there will be any exceptions to the general prohibition, they need to be spelled out, too. 

When first adopting short-term rental provisions, you should include a grandfathering clause to avoid challenges from existing homeowners. The Houston Court of Appeals held that a homeowner proved a probable right of recovery on her regulatory takings claim and could obtain a temporary injunction when she presented evidence that a village ordinance prohibiting short-term rentals had an economic impact on the value of her property and that she had a reasonable, investment-backed expectation that she could engage in short-term rentals.[7]

Failure by a homeowner’s association or its homeowner members to enforce a short-term rental provision can make the provision unenforceable. For example, the Corpus Christi Court of Appeals held that a homeowner couldn’t enforce a short-term rental provision in her HOA’s declaration because her acquiescence to “extensive and material” violations amounted to abandonment of the provision. Short-term rentals occurred in the neighborhood without objection for over a decade, the homeowner had previously rented her own property on a short-term basis, and the homeowner knew that short-term-rented properties were not allowed under the declaration.[8]

[1] Tex. Tax Code §§ 156.001(b), 156.101.

[2] Riley v. Caridas, 01-19-00114-CV, 2020 WL 7702183, at *6 (Tex. App.—Houston [1st Dist.] Dec. 29, 2020, pet. denied). 

[3] Tarr v. Timberwood Park Owners Ass’n, Inc., 556 S.W.3d 274 (Tex. 2018).

[4] See Tex. Prop. Code § 209.016(d); see also S.B. 1588, §§ 20, 22(3), 27(a), 87th Leg., R.S., eff. Sept. 1, 2021 (amending Tex. Prop. Code § 209.016 to clarify that it does not prohibit adoption or enforcement of provision in dedicatory instrument establishing restriction relating to occupancy or leasing).

[5] JBrice Holdings LLC v. Wilcrest Walk Townhomes Ass’n, Inc., 14-17-00790-CV, 2020 WL 4759947, at *3 (Tex. App.—Houston [14th Dist.] Aug. 18, 2020, pet. filed).

[6] Schack v. Prop. Owners Ass’n of Sunset Bay, 555 S.W.3d 339, 349 (Tex. App.—Corpus Christi 2018, pet. denied).

[7] Vill. of Tiki Island v. Ronquille, 463 S.W.3d 562 (Tex. App.—Houston [1st Dist.] 2015, no pet.).

[8] Friedman v. Rozzlle, 13-12-00779-CV, 2013 WL 6175318 (Tex. App.—Corpus Christi Nov. 21, 2013, pet. denied).

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