ATTORNEY GENERAL OF TEXAS GREG ABBOTT

The Honorable Glenn Hegar Chair, Sunset Advisory Commission Texas State Senate Post Office Box 12068 Austin, Texas 78711-2068

Dear Senator Hegar: June 10,2010
Opinion No. GA-0780 Re: Application and constitutionality of section 5.017(b) ofthe TexasProperty Code withrespectto restrictive covenants that were in existence and recorded in a county's public records prior to the statute's effective date (RQ-0843-GA)

Section 5.017 ofthe Texas Property Code prohibits and declares void deed restrictions and other covenants running with the land that require certain transfer fees. TEx. PROP. CODE ANN. § 5.017(b) (Vernon Supp. 2009). You ask first whether, as a matter ofstatutory construction, section 5.017(b) applies "to restrictive covenants'
... which were recorded and in existence prior to its effective date. ,,2 Ifso, you also ask whether "Section 5.0 17(b) as applied to pre-existing, recorded restrictive covenants
... violate[s

## 1the prohibition on retroactive laws and laws impairing the obligation ofcontracts containedinArticle I, Section 16 ofthe Texas Constitution." Request Letter at 3. While you state your questions separately, a statute's construction and its constitutionality are interrelated issues. When considering a statute challenged under article I, section 16, courts begin with the presumption that the statute is constitutional and, therefore, attempt "to avoid

lUnder the Property Code, a "restrictive covenant" includes "any covenant, condition, orrestriction contained in a dedicatory instrument." TEx. PROP. CODE ANN. § 202.001(4) (Vernon 2007). A "dedicatory instrument" is a "governinginstrumentcoveringthe establishment, maintenance, and operation ofaresidential subdivision, plannedunit development, condominium or townhouse regime, or any similar planned development." Id. § 202.001(1). 'See Request Letter at 3 (available at http://www.texasattorneygeneral.gov) (footnote added). Although you ask broadly about section 5.017(b)'s application to restrictive covenants in general, you also ask about the section's application to a specific deed restriction that requires owners ofproperty in the Weston Lakes residential development to acquire and maintain a membership in the Weston Lakes country club. !d. at 1-2. However, section 5.017(b)'s application to a specific deed restriction cannot be determined without first construing the deed restriction, a function that is beyond the scope of an attorney general opinion. See Tex. Att'y Gen. Op. No. GA-0594 (2008) at 4 n.5 (observing that because "[i]nstruments such as dedications and restrictive covenants are subjectto the general rules of contract construction
... it may not be possible to construe them in an attorney general opinion"). Accordingly, we confme our consideration to your broader question as it is stated above. See Tex. Att'yGen. Op. No. GA-0l76 (2004) at 2 (stating that this office generally does not construe the terms ofa particular contract but will address applicable general legal principles).The Honorable Glenn Hegar

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constitutional problems ifpossible." Brooks v. Northglen Ass'n, 141 S.W.3d 158, 169-70 (Tex. 2004) (construing a homeowner association late fee statute in connection with an article I, section 16 challenge). Article I, section 16 prohibits the Legislature from making a "retroactive law, or any law impairing the obligation of contracts." TEx. CONST. art. I, § 16. In general, a statute is unconstitutionallyretroactive "if

### ittakes away orimpairsvestedrights acquiredunderexistinglaw." City ofTyler v. Likes, 962 S.W.2d 489,502 (Tex. 1997).3 Also, under article I, section 16, a contractual "obligation is impaired when a statute is enacted that releases a part of [an J obligation orto any extentor degree amounts to a material change ormodifies it." Price Pfister, Inc. v. Moore & Kimmey, Inc., 48 S.W.3d 341, 356 (Tex. App.-Houston [14th Dist.J2001, pet. denied). Whether a statute operates retrospectively depends on the Legislature's intent. Deacon v. City of Euless, 405 S.W.2d 59, 61 (Tex. 1966). However, "[rJetroactive statutes are generally regarded with disfavor." Hutchings v. Slemons, 174 S.W.2d 487, 490 (Tex. 1943).4 "Statutes are only applied retroactively ifthe statutory language indicates that the Legislature intended that the statute be retroactive." In re MC.C., 187 S.W.3d 383, 384 (Tex. 2006).5 The Code Construction Act instructs that "[aJ statute is presumed to be prospective in its operationunless expressly made retrospective." TEx. GOV'T CODE ANN. § 311.022 (Vemon 2005) (emphasis added). Any doubts aboutthe intended operation ofa statute are to be resolved againstretroactive application. Exparte Abell, 613 S.W.2d 255, 258 (Tex. 1981); accord City of Houston, 196 S.W.3d at 283 n.15. With these principles in mind, we tumto subsection 5.017(b) ofthe Property Code, which provides: A deedrestriction orothercovenantrunning withthe land applicable to the conveyance of residential real property that requires a transferee of residential real property or the transferee's heirs, successors, orassigus to pay a declarantor otherperson imposingthe deed restriction or covenant on the property or a third party
3Detennining whether a statute has retroactive effects is but one step in the analysis of a statute's constitutionalityunder articleI, section 16, however. SeeSubaru of Am., Inc. v. DavidMcDavidNissan, Inc., 84 S.W.3d 212,219 (Tex. 2002). "A retroactive statute only violates our Constitution if, when applied, it takes away or impairs vested rights acquired under existing law." !d. Furthennore, the constitutionality ofa retroactive statute may depend on other considerations, such as whether the statute is a valid exercise ofthe state's police powers. See, e.g., Barshop v. Medina County Underground Waler ConservationDist., 925 S.W.2d618,633-35 (Tex. 1996) (statingthat "[aj valid exercise ofthepolice powerbythe Legislature to safeguard the public safety and welfare can prevail over a fmding that a law is unconstitutionally retroactive," and that "the contract clause may yield to statutes which are necessary to safeguard the public safety and welfare"). 4See also City of Houston v. Houston Firefighters' Relief& Ret. Fund, 196 S.W.3d 271, 283 n.15 (Tex. App.-Houston [1st Dist.j2006, no pet.) (noting ''that 'Texas law militates strongly againstthe retroactive application of laws"') (quoting Houston Indep. Sch. Dist. v. Houston Chronicle PubZ'g Co., 798 S.W.2d 580, 585 (Tex. App.-Houston [1st Dist.jI990, writ denied)). 'The general presumption that a statute operates prospectively does not apply for a statute that is merely procedural orremedial. State v. Fid. & Deposit Co. ofMd., 223 S.W.3d 309, 312 n.2 (Tex. 2007).The Honorable Glenn Hegar

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designated by a transferor oftheproperty a fee in connection with a future transfer ofthe property is prohibited. A deed restriction or other covenant running with the land that violates this section or a lien purporting to encumber the land to secure a right under a deed restriction or other covenant running with the land that violates this section is void and unenforceable. For purposes ofthis section, a conveyance ofreal property includes a conveyance or other transfer ofan interest or estate in residential real property. TEx. PROP. CODEANN. § 5.017(b) (Vernon Supp. 2009). Subsection (c) creates exceptions for fees that are payable to certain property owners' associations, section 501(c)(3) entities, and governmental entities. 

### ld. § 5.017(c). Section 5.017(b) broadly prohibits deed restrictions requiring certain transfer fees. 6 The section does not statethatit applies to deed restrictions in existence priorto the effective date ofthe statute, rendering them void. Nor does the section's transition provision indicate that the statute operates retroactively to render existing and recorded restrictive covenants void. The transition clause for section 5.017 states: The change in law made by this Act applies only to a transfer of propertythatoccurs ora contractenteredinto onor afterthe effective date ofthis Act. A transfer of property that occurs or a contract entered into before the effective date ofthis Act is governed by the law in effect immediately before the effective date ofthis Act, and that law is continued in effect for thatpurpose. Act ofMay 27, 2007, 80th Leg., R.S., ch. 1056, 

### § 2, 2007 Tex. Gen. Laws 3654, 3655. The first sentence ofthe transition clause states that the statute applies to a property transfer that occurs or a contract entered into after the effective date, but does not address deed restrictions existing and recordedpriorto the statute's effective date. 

### ld. The second sentencepreservesthe lawineffectfor a contract entered into priorto the statute's effective date. A deedrestriction orrestrictive covenant is a type ofcontract. 

### See Tien Tao Ass'n v. 

### Kingsbridge Park Cmty. Ass'n, 953 S.W.2d 525, 533 (Tex. App.-Houston [1st Dist.] 1997, no pet.) (stating that particular "deed restrictions comprise a contractbetweenthe homeowner andthe neighborhood association"). Thus, the transition clause appears to preserve the lawin effectfor a deed restriction establishedpriorto the statute's effective date. 7

'Whileyou do notraise them inyourrequest, we are aware thatthere are additional questions abouttheproper construction ofsectiou 5.017(b). We confme our consideration to the questions as posed byyou and, therefore, do not address any such collateral questions. Tex. Att'y Gen. Op. No. GA-0762 (20I0) at4 n.5 (attorney general opinions are limitedto the specificquestions askedby an authorizedrequestor). Nothing inthis opinion should beinterpreted to limit the rights ofany party to pursue claims for violations ofsection 5.017. 'Thetransition clause appears inHouseBill2207of the 80thLegislature, regularsession, which addedsections 5.016 and 5.017to the Property Code. ActofMay27, 2007, 80thLeg., R.S., ch. 1056, §2, 2007 Tex. Gen. Laws 3654, 3655.The Honorable Glenn Hegar

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Neither section5.017northetransitionclauserevealslegislativeintent, express orotherwise, that would overcome the presumption that the statute is intended to operate prospectively. Consequently, we conclude that section 5.017(b) ofthe Property Code does not apply to restrictive covenants that were in existence and recorded prior to the statute's effective date. Because we conclude that section 5.017(b) operates prospectively only, we do not reach your second question.The Honorable Glenn Hegar

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### SUMMARY Section 5.017(b) of the Property Code does not apply to restrictive covenants that were in existence and recorded priorto the statute's effective date.

ANDREW WEBER First Assistant Attorney General JONATHAN K. FRELS Deputy Attorney General for Legal Counsel NANCY S. FULLER Chair, Opinion Committee William A. 

### Hill Assistant Attorney General, Opinion Committee