Texas Supreme Court rules in favor of short-term rental owner

The Texas Supreme Court has ruled in favor of a Texas homeowner whose homeowners association pressed to restrict his short-term rental activity. The decision may have wider ramifications in the controversy over Texas short-term rentals on platforms such as Airbnb, HomeAway, and VRBO.

Kenneth Tarr began renting out his home near San Antonio for short terms in 2014, but the Timberwood Park Homeowners Association argued that he was not allowed to do so, since the association’s deed specified that his home could be used as a “single family residence” for “residential purposes” only.

In 2015, a Bexar County district judge ruled in favor of the homeowners association, as did the Texas Fourth Court of Appeals in 2016. The unanimous Supreme Court decision overturned those previous rulings.

 “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 on behalf of all nine Supreme Court justices.

The ruling will directly affect short-term rentals within homeowners associations that have similarly worded deeds, but the precedent it sets could also affect the ultimate outcome of legal challenges involving cities’ restrictions on short-term rentals.

The most prominent of these is a lawsuit filed in 2016 against Austin’s short-term rental law by the Center for the American Future, a legal arm of the Texas Public Policy Foundation, representing short-term rental owners. The legal challenge has received the support of Texas Attorney General Ken Paxton and is winding its way through the courts.

Austin has one of the oldest and most restrictive short-term rental laws in the state. The city plans to phase out certain types of short-term rentals altogether and place limits on how many short-term rentals are allowed in certain areas.

Short-term rental hosts in Austin must also collect a total lodging tax of 15 percent from guests and pass it on to tax authorities. This includes a 6 percent state hotel occupancy tax and a 9 percent city hotel occupancy tax.

Airbnb automatically collects the state portion of the tax for bookings on its platform, but Austin Airbnb hosts must collect and remit the Austin portion of the tax themselves. Hosts who use other platforms, such as VRBO and HomeAway, are responsible for collecting and remitting all lodging taxes themselves, since those platforms do not collect lodging taxes on behalf of operators.

The short-term rental issue has also been on the agenda of state lawmakers, who introduced two bills restricting the powers of cities to regulate short-term rentals. Neither were passed, but the issue could be raised again in the next legislative session.