On May 25, 2018, the Supreme Court issued an opinion (Tarr v. Timberwood Park Owners Ass’n, 61 Tex. Sup. Ct. J. 1174 (2018)) that, in the age of short-term vacation rentals like Airbnb, resonates with homeowners, renters, and HOA’s alike. In this case, a homeowner entered into 31 short-term rental agreements on his property, ranging from 1 -7 days each, with a number of individuals and groups from all parts of the country.
The HOA in which the property was situated, probably catching wind of the rentals from a disgruntled neighbor who’d grown weary of the revolving caravan next door, notified the homeowner that the short-term rental of the property violated the HOA’s deed residential-purpose covenant which provided that homes should be “used solely for residential purposes.” It was the HOA’s position that the homeowner’s short-term rental of the property constituted commercial use and, as such, was a violation of the single-family residence restriction. The matter reached the Texas Supreme Court.
The Court held that the single-family residence restriction only limited the structure that can properly be erected upon the homeowners’ lot – not the activities that can permissibly take place in that structure. The Court also held that the use did not violate the residential purposes restriction because the HOA’s restrictions simply required that the activities on the property comport with a “residential purpose” – not a “business purpose.” In essence, the “single family residential purposes” language alone did not prohibit short-term rentals, even rentals lasting fewer than 30 days.
A restrictive covenant is a contract between the seller and the homeowner; therefore, it is subject to the general rules of contract construction. Accordingly, the Court will examine the covenant as a whole in light of the circumstances present when the parties entered the contract, giving the words used in the restrictive covenant the meaning which they commonly held as of the date the covenant was written – not as of some subsequent date.
This means that HOA restrictions must be more specific about what activities are prohibited, as the Court will not add to the restrictions by adopting an overly narrow reading of “residential.” HOA’s with restrictions that fail to require owner-occupancy or prohibit leasing, use as a vacation home, or short-term rentals leave the HOA more susceptible to becoming the next vacation destination.