Short-Term Rentals in Texas – Can Cities Regulate Airbnb?
Over the past few years, short-term rentals (STRs) such as Airbnb have spread like wildfire. Many people have benefited from this service whether finding a room for the night or making a few extra bucks by renting out extra space.
Looking at the situation in its most narrow form, the homeowner makes a little money and the renter enjoys a unique experience and can have the comforts of home rather than the typical overnight in a hotel. It’s enjoyable for the vacationer and it puts some extra cash in the homeowner’s pocket, so what’s the problem?
When the situation is viewed more broadly, one has to take into account the neighbors, property values, and the community among a myriad of other factors. What happens to property values when the house next door becomes a makeshift hostel? Who would want to live in a neighborhood where the neighbors’ homes serve as a perpetual turnstile for spring breakers, sightseers and weekend warriors. Perhaps more importantly, is there anything cities can do to address these concerns?
Many of these issues were addressed in a previous blog post, but this area is rapidly evolving and a few recent cases are potentially changing the legal landscape on this topic. Can cities regulate these short-term rentals, and if so, to what extent? Over the past two legislative sessions in Texas, six separate bills have been introduced which were aimed at either preempting cities’ ability to ban short-term rentals, or severely limiting a city’s ability to draft ordinances restricting and regulating STRs. However, each of these proposed bills failed to pass during the 2017 and 2019 legislative sessions. Though there are no new legislative directives on the subject, Texas courts have been faced with a number of challenges to STR regulations.
The Texas Supreme Court decided a case in 2018 which might offer some foreshadowing on where the issue is headed. In Tarr v. Timberwood Park Owners Association, Kenneth Tarr was a homeowner living and working in San Antonio. Two years after purchasing a home in the Timberwood Park neighborhood, his job was transferred to Houston. Rather than selling his home, Tarr decided to rent it out as a short-term rental. The Timberwood Homeowner’s Association (HOA) claimed that these short-term rentals violated two deed restrictions. The HOA restricted homes to a “residential purpose” and also restricted properties to a “single-family residence.” The HOA essentially determined that the home was being used as a hotel and violated these deed restrictions. The HOA began fining Tarr for each day that he continued renting the property. The trial court and appellate court found in favor of the HOA. The case was then picked up by the Texas Supreme Court.
The Supreme Court noted that the “single family” restriction applied only to the structure, rather than the actual use or occupancy of the home. It’s worth noting that the HOA’s covenants did not provide specific definitions for “residential purposes” nor “business purposes” so the Court applied the ordinary meaning of these terms. The Court found that so long as the home was being used as a residence, the fact that short-term renters occupied the residence for brief periods of time was irrelevant.
What does this mean for your community? Some cities have regulated short-term rentals based on the distinction between residential and commercial. This case seems to suggest that courts are likely going to consider short-term rentals as residential in nature going forward, at least in the absence of well-defined statutes, or HOA deed restrictions.
Another case to keep an eye on concerns the City of Austin. As discussed in a previous blog, Austin is one of the cities at the forefront of STR regulations. The City of Austin revamped its ordinances regulating short-term rentals in 2016. The new ordinances, geared specifically towards STRs, included occupancy limits, regulations on sound equipment, regulations of live music, and a prohibition on outdoor assemblies after 10 p.m.
A number of STR property owners sued the City of Austin, claiming that the regulations were unconstitutional. In November of 2017, the trial court sided with the City and upheld the city’s STR ordinance, but the issue is currently on appeal. In 2018, the Texas Attorney General intervened in the lawsuit in support of the STR owners. Attorney General Ken Paxton said that the “City governments do not have the authority to trample Texas constitutional rights and protections for property owners and their guests.” The outcome of this case, and a number of similar cases pending against other Texas cities, will eventually provide some clarity as to what can and can’t be regulated.
It will be interesting to see what happens in both the legislature and the courts moving forward. Based on the number of bills presented to the Texas House and Senate over the past couple of sessions, it looks like preemption will again be visited in the coming years.
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. Information about our municipal law practice can be found here.