Governing Documents Often Determine Rental Issue

February 23, 2018
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In some communities, there can be controversy over short-term rentals, with some members being strongly in favor of rentals while others fight to keep the community limited only to unit owners. But the outcome of a fight like this will be largely dependent on the covenants and governing documents of the association. In a recent case, a court determined that short-term rentals violated the restrictive covenant.

In that case, homeowners in a planned community asked a trial court for a temporary injunction prohibiting their neighbors from renting out their home to vacationers for a profit. (A temporary injunction orders a party to do or not do something while a court case is pending.) The homeowners asserted that the rental of the home violated the restrictive covenants of the association, in part because they were using the home for nonresidential purposes—that is, operating a hotel.

The trial court ruled in favor of the homeowners, granting a permanent injunction after determining that the neighbors had violated the restrictive covenants. The neighbors appealed. A Texas appeals court upheld the trial court’s ruling.

The appeals court agreed with the trial court’s order that the neighbors must cease short-term rentals of the property for periods of time of less than 90 days. It noted that the court has previously determined that a short-term rental of 90 days or less constituted a non-residential use in violation of a deed restriction that limited use to “single-family residence purposes.” Here, the neighbors’ short-term rentals of their property amounted to a non-residential purpose, because such rentals “constituted the operation of a hotel or other commercial use and the use was excluded by the deed restrictions.”

The neighbors argued that the deed restrictions here specifically address what duration-of-use limits apply to what buildings and that a certain section of the restrictions states: “No structure of a temporary character, trailer, mobile house, basement, tent, shack, garage, barn, or other outbuilding shall be used on any tract any time as a residence either temporarily or permanently.” They asserted that because this paragraph “evinces the drafters’ intent to limit duration-of-use as to outbuildings, but other sections are silent as to duration-of-use limits, the trial court erred in imposing a duration-of-use limitation on the main dwelling.”

However, the duration-of-use section of the restrictions that pertains to temporary structures had no bearing on the topic of vacation rentals, said the appeals court. The pertinent part of the restrictions for this situation was regarding restricting the use of the property to “residential purposes” and then specifically stating that “the term ‘residential purposes’ as used herein shall be held and construed to exclude hospitals, clinics, duplex houses, apartment houses, boarding houses, hotels, and all other commercial uses and all such uses of said property are hereby expressly prohibited.” So the appeals court concluded that the language of the deed restrictions prohibited the short-term rentals the neighbors were profiting from.

The neighbors also argued that construing the deed restrictions to prohibit short-term rentals would, in effect, create various other problems, including situations involving property co-owned by multiple parties, leases to multiple lessees, post-sale lease-backs, or an owner’s temporary hardship during which a short-term lease could prove beneficial. But the appeals court said that these issues were not pertinent to this case and that a court would not address such hypothetical situations—which would amount to the court rendering an “advisory opinion” [Ridgepoint Rentals, LLC v. McGrath, December 2017].