Texas Supreme Court: Short-Term Rentals in Communities

The 85^th Texas legislative session wrapped up last spring with a notably small amount of new laws specific to homeowners associations (HOAs). This marks the first time in 34 years, or 16 sessions, that the Texas legislature has not passed laws requiring changes to Title 7 or Title 11 of the Texas Property Code. That doesn’t mean, however, that this session was lacking in political activity. In fact, there were several hot topics in play, including legislation that would support short-term rentals in HOA communities.

Online rental businesses like Airbnb and VRBO have been actively supporting the shared economy and petitioning for standardized regulation of short-term rentals in Texas and across the US. These organizations initiated companion bills HB 2551 and SB 451 this past session to prevent Texas cities from banning short-term rentals.

Although the bills failed to pass during this session, debate over the topic continues. This is primarily due to conflicting appellate court cases in Texas regarding HOAs that restrict properties to residential use. HOAs in several cities issued violations against absentee owners for leasing their homes on a short-term or transient basis. Supporters of short-term rentals argue that if leasing a home for less than 30 days is considered to be a business use, then any lease could be viewed as being for nonresidential use and would be in violation as well. In either case, the landlord is not living on the property but is elsewhere managing the rental.

The issue for HOA communities is that short-term tenants are not vested in the community and, therefore, are less inclined to respect the property and the quiet enjoyment of the surrounding residents.

“When deciding what’s best for their community, an HOA board should consider the developer’s original intent,” states Brady Ortego, attorney at Roberts Markel Weinberg Butler Hailey PC. “Most residential developments were designed to be a permanent home where residents could raise a family and foster a sense of community, which doesn’t work well with hosting short-term transient tenants. On the flip side, coastal condo communities or developments used primarily as vacation getaways may be more conducive to that concept.”

In light of the controversy, the Texas Supreme Court has requested a briefing from the petitioners. The hearing is anticipated sometime this fall with a final decision likely to be announced in the spring of 2018. Concerns over a potential ruling favoring short-term leasing as residential rather than commercial use have led many HOA boards to take steps to protect their communities.

“Associations wishing to deter residents from offering short-term leases in their community should consider adoption of a more restrictive leasing policy if there is not one already in place,” says Ortego. “An amendment to the declaration with a minimum lease term is the strongest approach to controlling transient leasing.” Ortego further notes that a minimum 30-day lease requirement is considered reasonable by many landlord-owners in residential subdivisions and provides the opportunity to permit leases for longer-term tenants.