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Renting Your Home is NOT a “Business Purpose” in Violation of Restrictive Covenant

In the recent case of Tarr v. Timberwood Park Owners Association Inc. the Texas Supreme Court considered whether a deed restriction that limited use of homes “solely for residential purposes” prevented a homeowner from using his home for short-term rentals. Based on the language of the restrictive covenant, the Court decided that renting the home — even for short time periods — was not a “business purpose.” The rentals were considered to be a “residential purpose” and so the homeowner did not violate the deed restriction. In addition, the Court refused to conflate two restrictions into a ban on use of the home for multi-family units and also held that when a restrictive covenant unambiguously fails to address some particular property use — such as use for short-term rental — Texas courts must not to read such covenants into the deeds.

Facts of Case

 Tarr involved a homeowner’s use of his home for short-term rentals in San Antonio’s Timberwood Park subdivision. Two years after Mr. Tarr bought his home, his employer transferred him to Houston. Thereafter, he began advertising the home for rent on websites such as Vacation Rentals by Owner. Tarr also formed a limited-liability company to manage the rental of the home. Between June and October of 2014, Tarr entered into 31 short-term rental agreements, ranging from one to seven days each. He rented his home to various-sized rental parties up to 10 people. For example, nearly one quarter of the rentals were to two adults accompanied by as many as six children.

Tarr’s deed contained the following restrictive covenant:

“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.”

The Homeowners’ Association determined that Tarr was violating the restrictive covenants in his deed and fined him for non-compliance. Tarr sued the Association for declaratory judgment that the restrictive covenants did not bar his short-term rentals. The trial court ruled — on summary judgment — for the Association and the Court of Appeals affirmed.

The Supreme Court reversed and held that, as long as his tenants used the home for “residential purposes,” Tarr was in compliance with the restrictive covenant as written. The Court focused on the specific language of the restrictive covenant. The Association argued that Tarr was engaged in a commercial, non-residential activity by renting his home. On the other hand, Tarr argued that the activity taking place at his home was residential. Tarr also noted that nothing required that his home be owner-occupied and there were no restrictions on renting his home. In resolving the argument, the Court highlighted the words “conducted on” in the covenant quoted above. The Court determined that the “conducted on” language expressed the drafter’s intent to prohibit non-residential activity at the location, and as long as the activity was “residential,” the owner was in compliance with the covenant.

In defining “residential purposes,” the Court refused to give the words a narrow meaning and also declined to imply an intent or physical-presence requirement when the covenant’s language included no such specification and was silent as to durational requirements. In so doing, the Court disapproved of at least one Court of Appeals case that held to the contrary. See Benard v. Humble, 990 S.W.2d 929 (Tex.Civ.App.-Beaumont 1999, pet. denied) (affirming the trial court’s interpretation of “single-family residence purposes” as prohibiting “renting for a period of less than ninety days” even though the covenants did not explicitly contain language covering temporary renting of property).

Importantly, the Court explicitly confined its interpretation of the Timberwood Part restrictive covenants “… to the unambiguous language of these particular restrictive covenants.” That is, different language in a different restrictive covenant might well lead to a different result.

With respect to the Association’s claim that multiple rentals over time constituted a multi-family use that violated the restrictive covenant, the Court held that the language of the covenant did not actually restrict use to single-families. The words “single-family” only occurred in the building restriction clause. According to the Court, that restriction merely limited the type of structure that could be built upon Tarr’s tract. Since Tarr’s home was clearly a single-family home, he was not in violation of that restrictive covenant.

The Association then argued that the single-family building restriction coupled with the “solely for residential purposes” restriction combined to create a covenant limiting use of the home to single-families. The Court rejected that argument as well and refused to “conflate” the two covenants contained in two separate paragraphs to create a new restrictive covenant.

If you have questions regarding restrictive covenants, contact attorney Aimee Hess at 214-236-9936 or toll-free at 888-818-5880. Ms. Hess focuses her practice on property law and  oil, gas, and mineral law in Texas.