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Texas Supreme Court sides with short-term renters, likely bolstering state’s fight against Austin’s ordinance

Friday's ruling doesn't directly address regulations implemented by some Texas cities restricting homeowners' use of services like Airbnb. But it bolsters the case against the City of Austin's short-term rental ordinance in several major ways, lawyers said.

Homes on Garden Street in Austin on Feb. 24, 2017.

The Texas Supreme Court has sided with short-term renters, delivering a win to Texas homeowners who hope to take advantage of websites like Airbnb and HomeAway, and likely bolstering a separate, ongoing case against the City of Austin’s short-term rental ordinance.

Kenneth Tarr bought a home near San Antonio in 2012, but when his employer transferred him to Houston two years later, he began to rent it out on a short-term basis. His homeowners’ association soon took issue with that, telling him that the practice violated his deed restrictions, which said his home had to be used “solely for residential purposes.”

Tarr and his lawyers argued that short-term rentals did constitute a residential purpose: Visitors ate, slept and entertained themselves as anyone would at home. The homeowners’ association countered that Tarr’s property operated more like a hotel than a home, meaning it was primarily serving a commercial purpose.

“So long as the occupants to whom Tarr rents his single-family residence use the home for a ‘residential purpose,’ no matter how short-lived, neither their on-property use nor Tarr’s off- property use violates the restrictive covenants in the Timberwood deeds,” Justice Jeff Brown wrote Friday for a unanimous court.

Patrick Sutton, Tarr’s lawyer, said Friday’s ruling will apply to homeowners in homeowners associations across the state, most of whom operate under similar deed restrictions — and its impacts may even reach further than that.

“This is about as strong of a property rights type opinion as one can imagine,” Sutton said. “It is broadly applicable to [city] ordinances and to deed restrictions — it tells us what nine justices on this current court think about people using their land.”

Separate from deed restrictions, there are also local ordinances on short-term rentals in place in more than a dozen Texas cities. While Friday’s ruling doesn’t directly concern those restrictions, the strong attention it gives to property rights and the court's unanimous support for it may well bolster the case of a group of short-term renters and guests who have sued the city of Austin, alleging that its short-term rental ordinance, one of the state’s oldest and strictest, unconstitutionally infringes on their rights.

In that high-profile case — which has drawn the support of Texas Attorney General Ken Paxton — a small group of plaintiffs, represented by the Texas Public Policy Foundation, argue that by restricting short-term rentals, the City of Austin prevents homeowners from using their property as they see fit, and treats short-term renters differently than it treats long-term renters.

Rob Henneke, a TPPF lawyer representing those plaintiffs, said Friday that “the Texas Supreme Court got it right.”

“This is a decision affirming private property rights,” he said, noting that the reasoning in the case supports his argument against Austin’s ordinance in several major ways.  

In overruling a lower court’s previous decision on Tarr’s case, the ruling removes much of the legal grounding for the City of Austin’s argument, he said. A lawyer for the city did not immediately return a request for comment. The ruling also affirms a separate short-term rental decision that supports TPPF’s side, Henneke said.

The decision marks the high court’s first major ruling on this issue at a time when short-term rentals — and the restrictions on them — are being litigated across the state. While short-term rentals have long been a reality, especially in vacation destinations, their spike in popularity thanks to web platforms like HomeAway and Airbnb has exposed holes and discrepancies in the laws that regulate them, ripening the issue for litigation across the state.

Short-term rentals have also emerged as yet another local control issue in a state where Republican state leaders have moved more aggressively in recent years to override local decisions made by Democratic-dominated city councils. As that war proceeds, Friday’s decision marks a major victory for the state.

Disclosure: HomeAway and the Texas Public Policy Foundation has been a financial supporter of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune's journalism. Find a complete list of them here.

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