Court Opinion

ID: 6334458
Source: CourtListenerOpinion
Date Created: 2022-04-25 07:12:56.048496+00
Date Added: 2024-06-11T09:23:37.396517
License: Public Domain

Supreme Court of Texas
                                ══════════
                                 No. 20-0857
                                ══════════

JBrice Holdings, L.L.C., and 231 W. Trioaks Lane, an individual
               series of JBrice Holdings, L.L.C.,
                                  Petitioners,

                                       v.

                   Wilcrest Walk Townhomes Association, Inc.,
                                  Respondent

   ═══════════════════════════════════════
               On Petition for Review from the
     Court of Appeals for the Fourteenth District of Texas
   ═══════════════════════════════════════

                           Argued February 2, 2022

         JUSTICE BLAND delivered the opinion of the Court.

         The law favors owners’ rights to use and enjoy their property.1
Owners often agree to restrict these rights for the benefit of the
community, however, as they do when purchasing property subject to
neighborhood restrictive covenants.2        Some neighborhood covenants

         1   Tarr v. Timberwood Park Owners Ass’n, 556 S.W.3d 274, 279 (Tex.
2018).
         2   Id.
empower their homeowners’ associations to adopt even further
restrictions. Because a property owner’s consent to a restriction is the
foundation for its legitimacy, courts will enforce it only if the deed
incorporates the restriction or authorizes its adoption at the time of
purchase, or when governing law otherwise permits the restriction.3
       In this dispute between a homeowners’ association and a
townhome owner, the trial court enjoined the owner from renting its
townhomes for terms of fewer than seven days. The trial court ruled
that the short-term rentals breached a residential-use provision found
within the neighborhood’s deed restrictions.         The court of appeals
affirmed on a different basis, holding that the homeowners’ association
possessed independent authority to restrict short-term rentals under
Section 204.010(a)(6) of the Property Code.4
       We conclude that neither the deed covenants nor the Property
Code authorized the homeowners’ association to impose a short-term
rental restriction.   The covenants explicitly forbid restraints on an
owner’s right to lease unless the restriction is contained within the
neighborhood’s governing documents.         The governing documents, in
turn, contain no covenant that restricts the duration of an otherwise

       3 See id. at 280–81 (observing that courts enforce such agreements
“subject to certain well-established limitations,” including that buyers must
have “actual or constructive knowledge” of them upon purchase).
       4 638 S.W.3d 712, 718 (Tex. App.—Houston [14th Dist.] 2020); Tex.
Prop. Code § 204.010(a) (“Unless otherwise provided by the restrictions or the
association’s articles of incorporation or bylaws, the property owners’
association, acting through its board of directors or trustees, may: . . .
(6) regulate the use, maintenance, repair, replacement, modification, and
appearance of the subdivision . . . .”).

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permissible lease. Further, the association had no statutory authority
to restrict short-term rentals. Section 204.010(a)(6) does not authorize
associations to adopt rules that conflict with their governing deed
covenants, and the association’s rules in this case conflict with the
covenant providing that “there shall be no restriction on the right of any
townhouse owner to lease his unit” unless it is stated in the covenants
themselves. Accordingly, we reverse the court of appeals’ judgment,
render judgment in favor of the townhome owner, and remand the case
to the trial court for the consideration of attorney’s fees.
                                     I
      Jerry Brice purchased two townhomes in the Wilcrest Walk
subdivision through his company, JBrice Holdings, L.L.C., the
petitioner. JBrice then offered the townhomes for lease on a vacation
rental website.    The record does not contain a copy of any lease
agreement, but website listings advertise the townhomes for rent for
two- and three-night minimums.
      The townhomes in Wilcrest Walk are subject to neighborhood
deed covenants.     The covenants also empower the Wilcrest Walk
Townhomes Association, the respondent, to enforce the covenants and
otherwise govern the community.
      One of the Wilcrest Walk covenants governs leasing activity.
Leases must be in writing and tenants must comply with the
neighborhood covenants.      This covenant, however, limits additional
restraints on an owner’s right to lease. A leasing restriction must be
found within the covenants or in the Association’s governing documents;

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otherwise, “there shall be no restriction on the right of any townhouse
owner to lease his unit”:
      [A]ll leases of any townhouse units must: (i) be in writing,
      and (ii) provide that such leases are specifically subject in
      all respects to the provisions of the Declaration, Articles of
      Incorporation and By-laws of the Association, and that any
      failure by the lessee to comply with the terms and
      conditions of such documents shall be a default under such
      leases. Other than the foregoing, there shall be no
      restriction on the right of any townhouse owner to lease his
      unit.5
Thus, the leasing covenant permits owners to lease their property, so
long as the lease and the owner’s tenants comply with the covenants and
the Association’s bylaws.
      Another covenant limits townhome occupancy to “private single
family residence[s] for the Owner, his family, guests and tenants,” and
it forbids commercial uses:
      No Owner shall occupy or use his Building Plot or building
      thereon, or permit the same or any part thereof to be
      occupied or used for any purpose other than as a private
      single family residence for the Owner, his family, guests
      and tenants . . . . No Building Plot shall be used or occupied
      for any business, commercial, trade or professional
      purposes either apart from or in connection with the use
      thereof as a residence.

      Because this residential-use clause is a part of the deed
covenants, its limits apply to leased property notwithstanding the “no
restriction” on leasing covenant.

      5   Emphasis added.

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       The Association demanded that JBrice stop leasing its
townhomes for short-term rentals. In response, JBrice sued to enforce
the covenant granting it the right to lease without restriction. JBrice
observed that neither the residential-use clause nor any other covenant
limits an owner’s right to rent his property for a minimum duration. The
Association counterclaimed, alleging breach of the residential-use
provision, and it further asserted a nuisance claim.
       Meanwhile, the Association adopted rules forbidding townhome
rentals that would require an owner to remit state hotel tax, effectively
banning rentals of fewer than thirty days.6 JBrice amended its suit,
seeking a declaration that the Association’s new rules are unenforceable
because they conflict with the Wilcrest Walk covenant limiting
restraints on an owner’s right to lease.
       The trial court granted partial summary judgment to the
Association, ruling that JBrice had violated the residential-use
restriction.     After an evidentiary hearing, the court permanently
enjoined JBrice from leasing its townhomes for periods of fewer than
seven days.
       The court of appeals affirmed on different grounds.7 It held that
Property Code Section 204.010(a)(6) authorized the Association to adopt

       6 Tax Code Chapter 156 imposes a hotel occupancy tax on persons who
purchase the right to use or occupy a hotel room costing more than $15 a day.
Tex. Tax Code § 156.051(a). Under Chapter 156, “‘hotel’ includes a short-term
rental,” id. § 156.001(b), but it “does not impose a tax on a person who has the
right to use or possess a room in a hotel for at least 30 consecutive days,” id.
§ 156.101.
       7   638 S.W.3d at 718.

                                       5
rules banning short-term rentals. Section 204.010(a)(6) grants owners’
associations in Harris County the authority to regulate property uses
within their neighborhoods, provided that the regulations do not conflict
with the neighborhood’s deed covenants.8 Despite the Wilcrest Walk
covenant limiting the Association’s power to impose restraints on an
owner’s right to lease, the court of appeals concluded that the
Association could impose rules limiting short-term rentals because the
governing documents are silent as to the specific duration of any lease.9
We granted review.
                                        II
       Restrictive covenants are contracts that run with the land,10 and
are “subject to the general rules of contract construction.”11 We review
“a trial court’s interpretation of a restrictive covenant de novo.”12 A
covenant under review “may not be enlarged, extended, stretched or
changed by construction.”13 Thus, to validly limit an owner’s property

       8  Tex. Prop. Code § 204.010(a) (“Unless otherwise provided by the
restrictions or the association’s articles of incorporation or bylaws, the property
owners’ association, acting through its board of directors or trustees, may: . . .
(6) regulate the use, maintenance, repair, replacement, modification, and
appearance of the subdivision . . . .”).
       9   638 S.W.3d at 718.
       10Inwood N. Homeowners’ Ass’n, Inc. v. Harris, 736 S.W.2d 632, 635
(Tex. 1987).
       11 Tarr, 556 S.W.3d at 280 (quoting Pilarcik v. Emmons, 966 S.W.2d
474, 478 (Tex. 1998)).
       12Id. (citing Buckner v. Lakes of Somerset Homeowners Ass’n, 133
S.W.3d 294, 297 (Tex. App.—Fort Worth 2004, pet. denied)).
       13   Id. (quoting Wilmoth v. Wilcox, 734 S.W.2d 656, 657 (Tex. 1987)).

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use, a covenant must plainly prohibit that use.14 Otherwise, an owner
“who purchases for value and without notice takes the land free from
the restriction.”15        As with contracts, courts should avoid an
interpretation of one covenant that nullifies another.16
                                        A
       We first determine whether short-term rentals violate an existing
Wilcrest Walk deed covenant. If so, then the covenant that prohibits
restraint of an owner’s right to lease does not protect that use—the
leasing covenant is subject to leasing conditions contained within the
restrictions themselves. The Association argues that we should read the
residential-use covenant to exclude short-term rentals. JBrice responds
that this provision does not forbid short-term rentals, so long as those
rentals comply with the neighborhood’s deed restrictions, bylaws, and
articles of incorporation.
       The Wilcrest Walk residential-use restriction states:
       No Owner shall occupy or use his Building Plot or building
       thereon, or permit the same or any part thereof to be
       occupied or used for any purpose other than as a private
       single family residence for the Owner, his family, guests
       and tenants . . . . No Building Plot shall be used or occupied
       for any business, commercial, trade or professional
       purposes either apart from or in connection with the use
       thereof as a residence.

       14Id. at 281–82. The principle that courts will give effect to covenants
according to their plain meaning is “well established.” Id. at 282.
       15   Davis v. Huey, 620 S.W.2d 561, 566 (Tex. 1981).
       16   Tarr, 556 S.W.3d at 280 (quoting Pilarcik, 966 S.W.2d at 479).

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       Our Court interpreted a similar residential-use covenant in Tarr
v. Timberwood Park Owners Association.17                 In Tarr, we held that
covenants requiring “residential use” of the property do not exclude
short-term rentals absent language requiring a minimum duration for a
tenant’s occupancy.18 The homeowners’ association in that case argued
that “residential” implies physical occupancy with an intent to remain
for a substantial period of time.19                 Our Court rejected this
characterization because the covenant language “includes no such
specification      and    remains      otherwise    silent   as   to   durational
requirements.”20          Similarly,    though     the   single-family-residence
covenant limited the type of structure that an owner could build, it did
not limit leasing activity.21
       In an effort to distinguish Tarr, the Association argues that the
Wilcrest Walk residential-use covenant regulates the use of the
property, unlike the restriction in Tarr, which merely regulated activity
occurring on the property. JBrice generates rental income from its
leases, which, the Association argues, makes JBrice’s use commercial
rather than residential. Further, in the Association’s view, a short-term
tenant’s use is not residential; rather, courts should classify such
tenants as licensees, like hotel guests, instead of true lessees. Finally,

       17   Id. at 288.
       18   Id. at 290–91.
       19   Id. at 288.
       20   Id. at 291.
       21   Id. at 287.

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the Association notes that the Wilcrest Walk covenant requires an
occupant’s use to be both residential and “private.”
       JBrice responds that Tarr squarely holds that “residential use”
and its variants do not restrict short-term rentals absent express
language in the deed covenants. Rental income does not violate the
prohibition on commercial use because it is residential occupation that
generates the income, not commercial activity on the property. JBrice
observes that the Wilcrest Walk deed covenants set no minimum
duration for townhome rentals. The “private” use restriction in the
covenants refers to a resident’s exclusive possession of the property, not
a prohibition on short-term rentals. Finally, JBrice argues that the
Association’s interpretation ignores the Wilcrest Walk covenant that
forbids lease restrictions by implication: other than the covenants, the
articles of incorporation, and the bylaws, “there shall be no restriction
on the right of any townhouse owner to lease his unit.”
                                       B
       Like the restriction in Tarr, the Wilcrest Walk residential-use
covenant describes the permitted use of a townhome and imposes no
minimum on the duration of a lease agreement.22               The reading of
“residential” the Association advances—that the term implies a lease of
a particular duration—is identical to the reading we rejected in Tarr.
We reject it here as well.

       22   See id. at 288 (observing that the use restriction provided that the
tract “shall be used solely for residential purposes, except tracts designated
. . . for business purposes”).

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      The Association notes that we did not address in Tarr whether
“establishing an LLC and generating income from [the] property”
violates a residential-use covenant.23              In Tarr, we observed that
“another court may reach a different conclusion if the covenant it
reviews     defines      ‘residential’   or    ‘business’   uses   by   specifically
enumerating prohibited conduct.”24
      The Wilcrest Walk covenants, however, do not preclude rental
income generated by residential occupancy, just as in Tarr.25                  The
townhomes are not “to be occupied or used for any purpose other than
as a private single family residence for the Owner, his family, guests and
tenants.”26 Thus, the Wilcrest Walk covenants except tenant use from
commercial activity by equating tenant use with owner, family, and
guest use. When the income derived from a use is in the form of rent,
and the nature of that use is residential occupancy, then this
residential-use provision does not prohibit it.              As JBrice notes, its
leasing business does not occupy the premises; its tenants do. Because
tenants are included among those permitted to use the townhomes, with
no expressed restriction as to the minimum duration of such use, a
short-term tenant does not violate the residential-use covenant.
      Nor does the required “private” character of the use impose a
minimum limit on the duration of a lease. In this context, “private”

      23   Id. at 289.
      24   Id. at 291.
      25   Id. at 290–91.
      26   Emphasis added.

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means “for the use of one particular person or group of people only.”27
In the Wilcrest Walk covenants, such a group expressly includes
“tenants,” which deprives “private” of the meaning the Association
assigns the term.         To conclude that “private” use means “non-
commercial” use would render the commercial-use prohibition—and its
exception for tenants—superfluous.28 Even if “private” ordinarily could
evoke non-commercial use, the commercial use provision excepts tenant
occupancy, and it requires no minimum duration for the exception to
apply. In Tarr, we held that commercial- and business-use prohibitions
do not, without more, impose a durational limit on leasing.29              The
addition of “private” in the covenant does not do so either.
       The Association argues that short-term occupancy is not private,
and thus it is different in character from long-term rentals.              The
Association equates short-term occupancy to hotel use. JBrice responds

       27 Private, New Oxford American Dictionary (3d ed. 2010). The
Association seeks to equate “private” with “non-commercial,” relying on the
court of appeals’ decision in Wein v. Jenkins, No. 03-04-00568-CV, 2005 WL
2170354, at *3 (Tex. App.—Austin Sept. 9, 2005, no pet.). In Wein, the court
upheld a determination that “the phrase ‘single-family, private residential
purposes’ does not include the operation of any ‘commercial business in the
nature of a hotel, “bed & breakfast,” inn, or venue for parties, business
meetings, or retreats.’” Id. at *2–3. Tarr, however, distinguished the uses in
Wein from short-term rentals where business does not take place on-site. Tarr,
556 S.W.3d at 292 n.15.
       28See King v. Dall. Fire Ins. Co., 85 S.W.3d 185, 193 (Tex. 2002) (noting
that courts construe contracts to “give effect to all contract provisions, and
render none meaningless”).
       29   Tarr, 556 S.W.3d at 290–91.

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that the lease agreement is no different in either case.30 We decline to
differentiate between short-term and long-term tenancy in a manner
that the covenants themselves do not. The Association introduced no
agreement to demonstrate that JBrice granted a license rather than a
tenancy to occupants of its townhomes.
       We reject the Association’s attempt to categorize leases of a
particular term as something other than a lease. A lease is “[a] contract
by which a rightful possessor of real property conveys the right to use
and occupy the property in exchange for consideration[.]”31 We observed
in Tarr that a short-term rental is a lease so long as it maintains the
characteristics of a lease; namely, the right to use and occupy the
property.32 JBrice contracts with tenants to allow them the right to
exclusively occupy the townhomes for the duration specified in the
rental agreements; the evidence does not indicate otherwise. The trial
court had no basis from which to conclude that JBrice’s rental
agreements were not leases.33

       30 The Association argues that a short-term rental is more like a hotel
license because a short-term renter is a transient occupant. JBrice’s short-
term rentals are advertised to the general public as a hotel alternative and are
subject to occupancy tax. In response, JBrice contends that a short-term rental
is a true lease because a short-term renter contracts for the right of exclusive
possession of a property. Under Tarr, a short-term rental—even one subject
to hotel occupancy taxes—is not a hotel use if the owner conducts no business
onsite. See Tarr, 556 S.W.3d at 292 & n.15. This distinction applies here as
well.
       31   Lease, Black’s Law Dictionary (11th ed. 2019).
       32   Tarr, 556 S.W.3d at 290–91.
       33JBrice’s listings indicate that tenants are subject to minimum stays,
house rules, and other terms.

                                          12
       Of the limits on leasing that exist within the Association’s
covenants, none imposes a minimum lease term.               In interpreting
covenants, courts do not extrapolate restrictions beyond those to which
the owners agreed—particularly here, where the covenants expressly
forbid it.34 Because the Wilcrest Walk covenants do not require owners
who choose to rent their townhomes to do so for a particular duration,
the trial court erred in imposing a minimum lease term by injunction.
                                     C
       Having concluded that the Wilcrest Walk covenants do not
prohibit short-term rentals, we next determine whether the Property
Code independently authorizes the Association to prohibit them.
       In response to JBrice’s suit, the Association adopted new rules
that prohibit rentals subject to the state’s Hotel Occupancy Tax—in
other words, rentals of fewer than 30 days.35 The court of appeals held
that the Property Code authorized these rules.36 This is error, JBrice
argues, because the Wilcrest Walk covenants provide the first and last
word on leasing. The “no restriction” on an owner’s right to lease is a
covenant that deprives the Association of the independent authority to
restrict leasing, effectively preempting any rule-making authority that
Section 204.010(a)(6) grants.

       34Tarr, 556 S.W.3d at 280; Wilmoth, 734 S.W.2d at 657 (“The words
used in the restriction, and the restriction as a whole, may not be enlarged,
extended, stretched or changed by construction.”).
       35 See Tex. Tax Code §§ 156.051(a), .001(b), & .101 (imposing Hotel
Occupancy Tax on purchaser of right to use or occupy hotel room, including
short-term rental, but not on permanent resident, i.e., “person who has the
right to use or possess a room in a hotel for at least 30 consecutive days”).
       36   638 S.W.3d at 718.

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      The Association responds that the Wilcrest Walk covenants and
the Association’s rules do not conflict because the rules simply “flesh out
and particularize” leasing so as to further define it in the deed
restrictions. In addition, in the Association’s view, short-term rentals
do not constitute “leasing.”
      Section 204.010(a)(6) permits property associations within Harris
County to regulate property uses within a given subdivision, unless the
governing documents say the association cannot:
      Unless otherwise provided by the restrictions or the
      association’s articles of incorporation or bylaws, the
      property owners’ association, acting through its board of
      directors or trustees, may . . . regulate the use,
      maintenance, repair, replacement, modification, and
      appearance of the subdivision[.]37
      The important caveat at the outset of the statute prevents
association actions contrary to the owners’ agreements found in the deed
restrictions. Our Court has upheld the statute’s limitation when the
deed restrictions “otherwise provided” that the association lacked
authority to adopt contrary rules.38 The property owners in Brooks v.
Northglen      Association    challenged    the   association’s   assessment
increases.39 Because the deed restrictions in that case limited annual
increases to a prescribed mechanism, we held that the association’s
unilateral assessments conflicted with the deed restrictions’ explicit
provisions for increasing assessments.40

      37   Tex. Prop. Code § 204.010(a)(6) (emphasis added).
      38   Brooks v. Northglen Ass’n, 141 S.W.3d 158, 166–68 (Tex. 2004).
      39   Id. at 166.
      40   Id. at 168.

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       Like the assessment increases in Brooks, the Association’s rules
prohibiting short-term rentals conflict with the Wilcrest Walk deed
restrictions because the restrictions “otherwise provide” that the
Association must not restrain an owner’s right to lease a townhome
beyond restrictions found in the neighborhood’s governing documents.
Absent an express covenant or bylaw, “there shall be no restriction on
the right of any townhouse owner to lease his unit.” “No restriction”
means no restriction.       The covenants are not silent as to the
Association’s authority to adopt additional rules affecting owners’
leasing rights.
       Because the Association’s rules conflict with the deed restrictions,
we hold that Section 204.010(a)(6) did not grant the Association
independent authority to adopt them.
                                     D
       The Association is not without recourse against conduct of
short-term tenants or rental-property owners that unduly interferes
with the use and enjoyment of other owners within the community.
Should seventy-five percent of the townhome owners agree, the deed
restrictions permit the neighborhood to amend the covenants to restrict
leasing. And, under the current version of the deed restrictions, the
Association may pursue relief from a tenant’s nuisance or annoyance.41

       41The nuisance restriction provides: “No noxious or offensive activity
shall be carried on upon any Building Plot, or the Common Area, nor shall
anything be done thereon which may be or may become an annoyance or
nuisance to the other Owners.” The annoyance restriction provides:
       No activity shall be carried on upon any Building Plot or the
       Common Area which might reasonably be considered as giving

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       The Association urges us to affirm the judgment on the
alternative ground that JBrice breached the annoyance and nuisance
provisions.   While the Association pleaded such a breach, the final
judgment affords no relief based on this claim. The judgment expressly
recites that the Association “non-suited its nuisance claims.”42 We thus
decline the Association’s request to uphold the judgment based on a
liability theory that the trial court did not find.
                                *      *       *
       We hold that the deed restrictions in this case do not prohibit
short-term rentals.      We further hold that Property Code Section
204.010(a)(6) does not independently authorize a homeowners’
association to adopt rules prohibiting short-term rentals when the
neighborhood covenants expressly limit restraints on an owner’s right
to lease not found within the covenants themselves. Because neither
the deed covenants nor the Property Code authorizes the Association’s
limits on short-term leasing, the trial court erred in granting injunctive
relief forbidding short-term rentals. We reverse the judgment of the

       annoyance to neighbors of ordinary sensibilities and which
       might be calculated to reduce the desirability of the Properties
       as a residential neighborhood . . . . The Board of Directors of the
       Association shall have the sole and exclusive discretion to
       determine what constitutes an annoyance.
       42  This is consistent with the Association’s representations at final
judgment. The trial court did not adopt findings of fact or conclusions of law,
but the Association proposed conclusions that premised relief based only on
violations of the residential-use provision and the Association’s authority to
adopt amended rules barring short-term rentals. Consistent with the trial
court’s final judgment incorporating the Association’s nonsuit of “its nuisance
claims,” the Association did not request findings or conclusions that JBrice had
breached the nuisance or annoyance deed covenants.

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court of appeals, vacate the permanent injunction, and remand the case
to the trial court for consideration of attorney’s fees.

                                          Jane N. Bland
                                          Justice

OPINION DELIVERED: April 22, 2022

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