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Sep 17, 2018

Texas Supreme Court Sides with Homeowners in Dispute Over Short-Term Rentals to Travelers

By: Michelle Robberson

One popular subject of recent litigation is suits by cities and neighborhoods to prevent homeowners from allowing travelers to use their homes for short-term rentals through companies like VRBO (Vacation Rental By Owner).  In Tarr v. Timberwood Park Owners Association, Inc., __ S.W.3d __, No. 16-1005, 2018 WL 2372594 (Tex., May 25, 2018), the Texas Supreme Court tackled one such lawsuit, addressing whether the plaintiff’s short-term vacation rentals of his home in San Antonio violated certain restrictive covenants of his subdivision, which limited residential tracts to “residential purposes” and “single-family residences.” 

Tarr purchased a home in the Timberwood Park subdivision in San Antonio.  When his employer transferred him to Houston, he began advertising the home for rent on sites like VRBO.  Between June and October of 2014, Tarr rented his home 31 times to groups of various sizes, but to no more than ten people.  The groups were not necessarily members of the same family.  The groups rented the entire house, not just rooms in the house. 

In late 2014, the Timberwood Park Owners Association notified Tarr that his short-term rentals violated at least two deed restrictions on the property:  (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 ....

The single-family-residence restriction provided:

No building, other than a single family residence containing not less than 1,750 square feet, exclusive of open porches, breezeways, carports and garages, and having not less than 75% of its exterior ground floor walls constructed of masonry, i.e., brick, rock, concrete, or concrete products shall be erected or constructed on any residential tract in Timberwood Park Unit III and no garage may be erected except simultaneously with or subsequent to erection of residence.... All buildings must be completed not later than six (6) months after laying foundations and no structures or house trailers of any kind may be moved on to the property.

Tarr’s tract was not designated for business purposes.  Nonetheless, the Owners Association sent Tarr a violation notification, claiming Tarr’s short-term rentals violated the single-family residence restriction and rendered his property a “commercial rental property.”  The Association imposed multiple fines, and Tarr ultimately sued for breach of the restrictive covenants.

The trial court granted summary judgment to the Association, and the Court of Appeals affirmed.  The Texas Supreme Court reversed, concluding that the deed restrictions as worded did not preclude short-term rentals to other than single families. 

A “restrictive covenant” is a negative covenant that limits permissible uses of land.  However, under Texas law, parties have the right to contract with relation to property as they see fit, provided the contracts do not contravene public policy and are not otherwise illegal.  Generally, if a person buys property with notice of a restriction, he is bound by it.  But, if the person buys property without notice, he takes the land free from the restriction. 

Historically, Texas courts viewed deed restrictions with skepticism and disfavored restrictions on land.  This is because the rights of persons to use their own property as they wish remains one of the most fundamental rights that individual property owners possess. 

Because Texas courts traditionally treat unambiguous covenants relating to land as valid contracts between individuals, the Supreme Court applied traditional rules of contract construction to determine the meaning of the deed restrictions.  It also surveyed the law of Texas and other states.  

On review, the Court determined that the second covenant contained only structural or architectural limitations requiring that the building erected be a single-family residence.  The first covenant limited the use of the property to “residential purposes,” and it was silent as to whether that use is restricted to single families or whether it permitted multi-family use.

The parties did not dispute that Tarr’s home is a single-family residence and did not violate the second covenant.  Thus, the Court turned to whether the first covenant restricted Tarr’s use of the property. 

The Court said the Timberwood covenants “unambiguously fail to address the property use complained of in this case.”  “No construction, no matter how liberal, can construe a property restriction into existence when the covenant is silent as to that limitation.” 

The covenants in the Timberwood deeds failed to address leasing, use as a vacation home, short-term rentals, minimum-occupancy durations, or the like.  They did not require owner occupancy or occupancy by a tenant who uses the home as his domicile.  Instead, the covenants merely required that the activities conducted on the property comport with a “residential purpose” and not a “business purpose.”

Because the deed restrictions did not define these terms, the Court gave the terms their common meanings.  “Residential purposes” required the property be used for living purposes (e.g., eating, sleeping, bathing, relaxing, and other incidental activities), as distinguished from using it for business or commercial purposes.  Also, by referring to the activities “conducted on” the tracts, the first covenant expressly made the relevant inquiry the conduct taking place on the physical property itself, as opposed to how the owner was using the property. 

Therefore, as long as the occupants to whom Tarr rented his single-family residence used the home for a “residential purpose,” no matter how short-lived, neither their on-property use nor Tarr’s off-property use violated the restrictive covenants.  And, Tarr’s use did not qualify as a commercial or business use.  For these reasons, the trial court erred in granting summary judgment to the Owners Association. 

The Court did note that its interpretation was limited to the language in these particular covenants and that, if deed restrictions did define key terms, a different result might accrue.  In Ridgepoint Rentals, L.L.C. v. McGrath, No. 09-17-0006-CV, 2017 WL 6062290 (Tex. App.—Beaumont, Dec. 7, 2017, pet. filed), for example, the deed restrictions specifically defined “residential purposes” as excluding “hospitals, clinics, duplex houses, apartment houses, boarding houses, hotels, and all other commercial uses[.]”  Thus, the McGrath court concluded that the plain and unambiguous language of the deed restrictions prohibited short-term rentals through VRBO.  See also Schack v. Property Owners Ass’n of Sunset Bay, __ S.W.3d __, 2018 WL 3470647 (Tex. App.—Corpus Christi, July 19, 2018, no pet.) (court held deed restrictions did not preclude short-term rentals, as long as homeowner limited vacationing travelers to family units as defined in deed restrictions).