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Feb 3, 2025

Stay Just A Little Bit Longer

What’s Happened with Short-Term Rentals Since Tarr? 

Short-term rentals offer travelers spacious accommodations at a reasonable price while property owners earn a little extra income. Sounds like a win-win, right? But there’s been some pushback against them in recent years. Here’s the latest.

An angled close-up view of a FOR SALE sign in red and white.
By
Rusty Adams

Short-term rentals have become more popular in recent years. Travelers enjoy a homier feel at a lower cost than with a hotel. Owners enjoy the extra income. And with the advent of online platforms such as Airbnb and VRBO, renting them is easier than ever. But not everyone is happy with the burgeoning growth of the industry. In fact, deed restriction cases have seen an uptick in response to the trend. 

In 2018, the Texas Supreme Court issued its opinion in Tarr v. Timberwood Park Owners Ass’n, Inc. As explained in “¿Mí Casa Es Su Casa? Restrictive Covenants and Short-Term Rentals,” the implications of that case were not as far-reaching as many were led to believe. The case did not render all prohibitions on short-term rentals unenforceable; it merely held that the restrictions in that case did not prohibit short-term rentals (STRs).  

Tarr held that the Association’s restriction on single-family residences (the “structural” restriction) was a restriction only on the type of structures to be built. The restriction that all tracts be used solely for residential purposes (the “use” restriction) did not prohibit STRs for residential purposes (i.e., for living there, even for a short period of time). The court noted that if Tarr had placed signs on the property advertising it as a “Bed and Breakfast Inn,” rented out multiple rooms, and had an onsite manager, that might have been prohibited under the “commercial use” restriction. However, simply renting out the house was not. The holding was confined to the language of the restrictions and the circumstances of the case.  

What has happened on the STR front since then? This article discusses developments in the law on deed restrictions (restrictive covenants) involving STRs. STRs are also subject to governmental regulations such as municipal ordinances. Such governmental regulations are not discussed here. 

Do What They Say, Say What You Mean 

One thing leads to another, even in the courts. In the years since the Supreme Court’s holding, courts generally uphold the basic premise announced in Tarr: Deed restrictions mean what they say. Restrictions on STRs are not forbidden, but the restrictions must be specific. 

Schack 

Shortly after Tarr, the Corpus Christi-Edinburg Court of Appeals construed restrictions requiring that the property be used for single-family dwellings, with occupancy limited to one family or no more than two unrelated persons. The owner offered his house for STR on VRBO. The court followed Tarr in holding that the single-family dwelling restriction was a structural restriction rather than a use restriction. The occupancy restrictions were held to be use restrictions, but there was no evidence before the court that the owner ever actually rented the property in a way that violated the restrictions, i.e., to more than one family or more than two unrelated persons.  

Another restriction prohibited commercial use, with no additional definitions or requirements. The court held that under the restriction in this case, merely renting the property was a residential use rather than a commercial one. As in Tarr, the court might have reached another result if guest services, such as those provided by a hotel, were provided, or if business activities were actually conducted on the property. 

Duncan 

In 2022, a case came to the Austin court after the trial court denied summary judgment. (Cases may be decided on summary judgment if the trial court finds that there is no genuine issue of material fact, and that the case may be determined by merely applying the law to the facts. In this case, the courts permitted an interlocutory appeal.) Deed restrictions provided that no lot could be used for any purpose except that of a private residence. The restrictions allowed business use as long as the operation of the business activity was not detectable by sight, sound, or smell from outside the residential unit. “Business” was defined to include “the provision of goods and/or services…for which the provider receives a fee . . .”  The restrictions were made binding on owners and on any persons renting or leasing from the owners, and they allowed display of signs advertising properties for sale or rent. The owner offered the property for STR.  

The court observed that the restrictions do not prohibit and, in fact, contemplate renting the property to others, and held that tenant use of the property, even if it generates income, is generally allowed, provided that the rentals maintain the characteristics of a lease. 

On the other hand, the court questioned how restrictions prohibiting the use of the property for other than a private residence applied to the facts of the case. Furthermore, whether business activity was prohibited depended on whether it was detectable from outside the unit. 

Additionally, the rental agreements and the Airbnb platform contained language stating that the agreements created no property rights and were licenses for use as a vacation rental, rather than leases, raising questions about the character of the rentals. 

The court of appeals affirmed, holding that the case turned on facts that must be determined in the trial court. 

Gantenbein 

The next year, the Waco court considered deed restrictions providing that all lots shall be used for residential purposes and that living quarters for other than the family occupying the principal residence shall be used only for bona fide servants or assistants. No duration was specified; in fact, the restrictions contained no prohibition on leasing at all. The owner planned to rent bedrooms to SpaceX executives. 

The court held that the restrictions unambiguously prohibited occupation by non-family members unless they were servants or assistants. The owner argued that a 1958 case holding that “family” could sometimes include “lodgers or boarders” meant that lodgers should be allowed. The court rejected the owner’s argument, using a more contemporary dictionary definition of family that did not include them. Restrictions are construed according to their meaning at the time they were drafted. 

Honey Don’t Change On Me 

Owners may love the restrictions just the way they are, but what about situations where deed restrictions are amended after the owner purchases the property? Can an association or other owners take away the right of owners to use property as a STR? 

As shown in the cases below, amended deed restrictions will be upheld when three factors are satisfied: 

  1. The original restrictions must establish both the right to amend and the method of amendment. 
  1. The right to amend implies only those changes contemplating a correction, improvement, or reformation of the agreement rather than its complete destruction.  
  1. The amendment must not be illegal or against public policy. 

Amendments validly made that are consistent with the general plan or scheme of development will generally be upheld. 

Poole Point 

The DeGons bought a house in Poole Point Subdivision, subject to deed restrictions. The deed restrictions allowed only single-family residential use and prohibited business or commercial activity to which the general public is invited. There were no specific prohibitions on leasing and no duration requirements. The restrictions contained an amendment provision whereby the restrictions could be amended by the owners of more than 67 percent of the lots. 

After the DeGons began leasing the property for terms less than 30 days, the owners amended the restrictions, by the terms therein, to prohibit rentals for less than 180 days. 

The Austin Court of Appeals examined the conditions that must be met to amend deed restrictions.  

First, the original restrictions must establish both the right to amend and the method of amendment. This was not disputed.  

Second, the right to amend implies only those changes contemplating a correction, improvement, or reformation of the agreement rather than its complete destruction. The court held that the right to lease was not absolute or unlimited. It was subject to the restrictions, which permitted amendments. Under the amendment, there is still a right to lease; it is just subject to the minimum duration requirement. Placing conditions on use and duration is not “complete destruction” of the right to lease. The owners knew when they purchased the property that the restrictions could be amended, and they could not reasonably have expected that there could never be restrictions placed on their right to lease. 

Third, the amendment must not be illegal or against public policy. The court noted that the Supreme Court in Tarr acknowledged that amending deed restrictions was an available and appropriate option for specifying a minimum duration for lease. The Supreme Court’s acknowledgment was an indication that such an amendment was not against public policy. More restrictive restrictions are not unreasonable or prohibited when they are consistent with the overall plan of development. 

The court upheld the restrictions. Similar holdings and analyses are found in Adlong, Chu, Angelwylde, Cauthorn, and Cottonwood Trail (see citations sidebar). 

JBrice Holdings 

In 2022, the Texas Supreme Court considered something a little different—the case of JBrice Holdings, which bought townhomes and offered them as STRs. The restrictions did not prohibit leasing or impose a minimum duration. In fact, they specified that leases must be in writing and include a provision requiring tenants to abide by all neighborhood restrictions. They further stated, “Other than the foregoing, there shall be no restriction on the right of any townhouse owner to lease his unit.” The restrictions limited townhouse occupancy to “private single-family residence[s] for the Owner, his family, guests, and tenants.” There was also a prohibition on using the land for commercial use. The restrictions contained provisions for amendment of the restrictions with the agreement of 75 percent of the owners. When the dispute arose, however, the restrictions were not amended. Instead, the association adopted rules effectively prohibiting rentals less than 30 days, which it claimed it had the right to do under Section 204.010(a)(6) of the Texas Property Code. 

The court held that neither the deed covenants nor the Property Code authorize the association to restrict STRs by adopting rules. The covenants explicitly forbid restraints on owners’ rights to lease unless the restriction is contained within the neighborhood’s governing documents, and the Property Code does not authorize associations to adopt rules that conflict with their governing deed covenants.  

The court noted that the association was free to pursue relief if tenants create nuisances and to restrict leasing by amending the restrictions according to the amendment procedure. But it was not permitted to make rules inconsistent with the restrictions. The court also rejected the association’s argument equating STRs to hotel use, declining “to differentiate between short-term and long-term tenancy in a manner that the covenants themselves do not.”  

Nothing in TG should be considered legal advice. For advice or representation on a specific situation, consult an attorney. 

____________________ 

Rusty Adams, J.D. ([email protected]) is a member of the State Bar of Texas and a research attorney for the Texas Real Estate Research Center. 

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

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

Duncan v. Prewett Rentals Series 2 752 Military, LLC, No. 03-21-00244-CV, 2022 WL 3567780 (Tex. App.—Austin Aug. 19, 2022, no pet.)(mem. op.). 

Gantenbein v. Lacy, No. 10-21-00323-CV, 2023 WL 4759109 (Tex. App.—Waco July 26, 2023, no pet.)(mem. op.). 

Poole Point Subdivision Homeowners’ Ass’n v. DeGon, No. 03-20-00618-CV, 2022 WL 869809 (Tex. App.—Austin Mar. 24, 2022, pet. denied)(mem. op.). 

Adlong v. Twin Shores Prop. Owners Ass’n, No. 09-21-00166-CV, 2022 WL 869801 (Tex. App.—Beaumont Mar. 24, 2022, pet. denied)(mem. op.). 

Chu v. Windermere Lakes Homeowners Ass’n, Inc., 652 S.W.3d 899 (Tex. App.—Houston [14th Dist.] 2022, pet. denied). 

Angelwylde HOA, Inc. v. Fournier, No. 03-21-00269-CV, 2023 WL 2542339 (Tex. App.—Austin Mar. 17, 2023, pet. denied)(mem. op.). 

Cauthorn v. Pirates Prop. Owners’ Ass’n, 679 S.W.3d 876 (Tex. App.—Houston [1st Dist.] 2023, pet. denied). 

Cottonwood Trail Investments, LLC v. Pirates Prop. Owners’ Ass’n, No. 01-22-00400-CV, 2023 WL 5535664 (Tex. App.—Houston [1st Dist.] Aug. 29, 2023, pet. denied)(mem. op.). 

JBrice Holdings, L.L.C. v. Wilcrest Walk Townhomes Ass’n, Inc., 644 S.W.3d 179 (Tex. 2022). 

 

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