Texas Legislature Provides Some Clarification on Municipal Authority over Short-Term Rentals
The rapid growth of short-term rental (STR) platforms has created regulatory challenges for Texas municipalities seeking to balance property rights with community interests. While recent judicial decisions have attempted to clarify the extent of municipal authority to regulate these operations, without a state statute which specifically preempts or authorizes a Texas municipality to regulate STRs, both property owners and local governments have been left to navigate a complex and somewhat erratic legal landscape.
Municipalities have generally relied on the general statutory authority to adopt ordinances that are both (1) for the good governance, peace, or order of the municipality or for the trade and commerce of the municipality; and (2) necessary or proper for carrying out a power granted by law to the municipality or to an office or department of the municipality. See Tex. Loc. Gov’t Code § 51.001. Texas municipalities’ authority to regulate short-term rentals must be analyzed within the constitutional framework of property rights and police powers. The Texas Supreme Court’s decision in City of Grapevine v. Muns reinforced the position that municipalities possess broad police powers to regulate land use for public health, safety, and welfare. See City of Grapevine v. Muns, 671 S.W.3d 675 (Tex. 2023). However, these powers are constrained by constitutional protections against regulatory takings under Penn Central Transportation Co. v. City of New York, which established the three-factor test examining the regulation’s economic impact, interference with investment-backed expectations, and the character of governmental action. See Penn Central Transportation Co. v. City of New York, 438 U.S. 104 (1978).
Property owners and STR advocates, on the other hand, have asserted that the Texas Legislature’s decisions to 1) include STR’s as part of the state hotel occupancy tax in 2015 under Chapter 156 of the Tax Code and 2) decline changing the existing laws governing residential leasing under Chapter 92 of the Property Code signaled the Legislature’s desire to allow STR’s without restriction. However, the Texas Supreme Court has held that “[t]he mere entry of the state into a field of legislation does not automatically preempt that field from city regulation,” and that “absent an express limitation, if the general law and local regulation can coexist peacefully without stepping on each other’s toes, both will be given effect or the latter will be invalid only to the extent of any inconsistency.” See City of Laredo v. Laredo Merchants Ass’n, 550 S.W.3d 586, 593 (Tex. 2018).
While a universal standard remains undefined, through a newly passed bill governing a tangential industry, the Texas Legislature has provided a little more clarity regarding municipal authority to regulate. The enactment of H.B. 2464 amended the Texas Local Government Code by adding Section 229.902 governing municipal authority to regulate home-based businesses and no-impact home-based businesses. However, in a clarifying provision, the bill explicitly states that “[t]his section does not prohibit …. municipalities from adopting or enforcing an ordinance regulating the operation of a short-term rental unit.” See Tex. Loc. Gov’t Code § 229.902(d)(2).
While not an explicit grant, such language would appear to eliminate any argument from property owners that any municipal regulation is expressly preempted. It further provides municipalities with a strong foothold to promote their general regulatory authority over STRs, moving beyond the previous ambiguity regarding local control. The scope of such authority remains subject to statutory interpretation as well as constitutional limitations requiring reasonable relationships to legitimate public interests and respect for property rights.
Please do not rely on this article as legal advice. We can tell you what the law is, but until we know the facts of your given situation, we cannot provide legal guidance. This website is for informational purposes and not for the purposes of providing legal advice.
