Opinion
01-22-00400-CV
08-29-2023
COTTONWOOD TRAIL INVESTMENTS, LLC, Appellant v. PIRATES PROPERTY OWNERS' ASSOCIATION, Appellee
On Appeal from the 56th District Court Galveston County, Texas Trial Court Case No. 21-CV-0240
Panel consists of Justices Goodman, Landau, and Rivas-Molloy.
MEMORANDUM OPINION
SARAH BETH LANDAU JUSTICE
In this appeal and its companion appeal-Cauthorn v. Pirates Property Owners Association, No. 01-22-00401-CV, slip. op. at 1 (Tex. App.-Houston [1st Dist.] Aug. 15, 2023), available at https://search.txcourts.gov/Case.aspx?cn=01-22-00401-CV&coa=coa01-property owners ask this Court to determine whether a property owners' association may amend restrictive covenants to effectively ban short-term rentals. Both cases involve property within the Pirates Community, a subdivision on Galveston Bay consisting of multiple sections governed by separate restrictive covenants. Today in Cauthorn, we hold that an amendment prohibiting short-term rentals in Section 4 of the Pirates Community is enforceable. Cauthorn, slip. op. at 11. Now here, relying on Cauthorn's authority and reasoning, we reach the same conclusion as to an amendment prohibiting short-term rentals in Sections 1 and 2 of the Pirates Community. Accordingly, we affirm the trial court's judgment declaring the amended restrictive covenants in Sections 1 and 2 enforceable.
Background
Cottonwood Trail Investments, LLC owns property in Section 1 of the Pirates Community subdivision. Cottonwood's Section 1 property is subject to recorded restrictions, covenants, and conditions (Restrictions) that run with the land and create a private contractual relationship between the property owners and the Pirates Property Owners' Association (Association). The same Restrictions apply to properties in Section 2.
When Cottonwood bought its property in April 2019, the Restrictions provided that Section 1 and 2 properties could "be used for residential purposes only," that "only one detached single-family dwelling shall be erected on any one lot," and that "[n]o commercial activity shall be conducted on or from any of said residential lots." Cottonwood began earning rental income by leasing its property for short terms.
But the next year, Section 1 and 2 property owners amended the Restrictions to require any leases in those sections to be for at least 90 days and have a residential purpose, effectively banning short-term rentals. The Amendment stated:
1. Land Use and Building Types. Said Lots shall be used for residential purposes only, and only one detached single-family dwelling shall be erected on any one lot. No commercial activity shall be conducted on or from any of said residential lots, except that a lot owner may rent his or her home to another for a minimum of ninety (90) consecutive days for residential purposes.(Amendment)
After the Amendment was recorded, the Association threatened Cottonwood, and other short-term lessors, with an enforcement action. Cottonwood sued, seeking a declaratory judgment that the Restrictions, as amended, could not be enforced against owners who bought their property before the Amendment was approved. According to Cottonwood, it had the right to lease its property for short terms before the Amendment, and the Amendment unlawfully destroyed that right.
The parties tried their case to the bench on agreed facts. See Tex. R. Civ. P. 263. The agreed facts included that Cottonwood relied on the Restrictions in place when it bought its property, earned "significant" rental income from leasing the property for short terms, and would not have purchased the property had leasing rights been restricted.
This case and Cauthorn were tried together on the same agreed facts under separate cause numbers.
After considering the agreed facts and joint exhibits, the trial court ruled for the Association. The trial court signed a final judgment declaring the Amendment was enforceable against Cottonwood and requiring compliance with it. Cottonwood appealed, asking the same question as in Cauthorn: "Can new restrictive covenants adopted by amendment deprive dissenting owners of the property rights they were afforded under the original scheme of development?"
Standard of Review
The only issue in this appeal from a bench trial on agreed facts is whether the trial court correctly applied the law to the agreed facts. See Tex. R. Civ. P. 263 ("Parties may submit matters in controversy to the court upon an agreed statement of facts filed with the clerk, upon which judgment shall be rendered as in other cases[.]"); Lacis v. Lacis, 355 S.W.3d 727, 732 (Tex. App.-Houston [1st Dist.] 2011, pet. dism'd w.o.j.) (explaining that reviewing courts decide only whether "trial court correctly applied the law to the agreed facts" because "trial court had no factual issues to resolve"). Our review is de novo. Lacis, 355 S.W.3d at 732. But like the trial court, we are bound by the agreed facts. Tex. Farm Bureau Mut. Ins. Co. v. Minchew, No. 01-21-00330-CV, 2023 WL 3356703, at *4 (Tex. App.-Houston [1st Dist.] May 11, 2023, no pet.) (mem. op.); Chu v. Windermere Lakes Homeowners Ass'n, 652 S.W.3d 899, 901 (Tex. App.-Houston [14th Dist.] 2022, pet. filed).
Discussion
Today in Cauthorn, we join three other intermediate Texas courts in upholding amendments to restrictive covenants that impose minimum-stay requirements for leasing. Cauthorn, slip. op. at 5-12 (upholding amendment prohibiting leases for less than 90 days); Chu, 652 S.W.3d at 902-05 (upholding amendment prohibiting leases for less than 180 days); Poole Point Subdivisions Homeowners' Ass'n v. DeGon, No. 03-20-00618-CV, 2022 WL 869809, at *3-4 (Tex. App.-Austin Mar. 24, 2022, pet. denied) (mem. op.) (same); Adlong v. Twin Shores Prop. Owners Ass'n, No. 09-21-00166-CV, 2022 WL 869801, at *8-12 (Tex. App.-Beaumont Mar. 24, 2022, pet. denied) (mem. op.) (same).
In doing so, we adopted the reasoning of our sister courts, each of which analyzed whether three conditions for amending deed restrictions were satisfied. See Chu, 652 S.W.3d at 902-05; DeGon, 2022 WL 869809, at *3-4; Adlong, 2022 WL 869801, at *11. Specifically, whether (1) the instrument creating the original restrictions established the right to amend and the method of amendment; (2) the amendment corrected, improved, or reformed the agreement rather than destroyed it; and (3) the amendment was not illegal or against public policy. See Cauthorn, slip op. at 5-6; see also Chu, 652 S.W.3d at 903 (holding that "validly passed amendments to restrictions for which purchasers had constructive notice of the possibility of amendment, should be enforced if the amendment is not illegal or against public policy"); DeGon, 2022 WL 869809, at *3-4 (rejecting owners' argument that amendment was unenforceable because it destroyed "the reasonable and settled expectations" of owners who relied on original leasing rights because, among other reasons, owners bought their residence "knowing that the [declaration] could be amended"); Adlong, 2022 WL 869801, at *11 (holding that "amended or modified restrictive covenants may be enforced, against owners who acquired their property before the amendment, even if they did not vote for the amendment, when the original restrictions provided a method for amendment, that method was followed, and the owners were on constructive notice the restrictions could be amended by amendment").
As stated, Cauthorn involved property in a different section of the Pirates Community-Section 4 not Section 1 or 2. Cauthorn, slip. op. at 2. Although the original restrictive covenants for Section 4 prohibited "commercial activity" on residential lots, they allowed a lot owner to "rent his home for profit" "from time to time." Id. Like Cottonwood, Cauthorn relied on that provision in purchasing and leasing his property for short terms. Id. at 2-3. But the Section 4 restrictive covenants were amended to prohibit short-term rentals: "No commercial activity shall be conducted on or from any of said residential lots, except that a lot owner may rent his or her home to another for a minimum of ninety (90) consecutive days for residential purposes." Id. at 3. Over Cauthorn's objection that the amendment destroyed his existing right to lease for short terms, we held in Cauthorn that the amendment was enforceable because it corrected, improved, or reformed the restrictions; did not destroy the restrictions; and was not illegal or against public policy. Id. at 10-12.
Cottonwood makes the same argument about the enforceability of the Amendment to the Sections 1 and 2 Restrictions. Although the language of the original governing documents was different in Sections 1 and 2 than in Section 4, the amendments are identical. And relying on the reasoning and authorities in Cauthorn, we reach the same conclusion as to their enforceability.
The Pirates Community, Sections 1 and 2 Restrictions established the right to amend the Restrictions. The Restrictions could be amended "at any time by the approval of a majority of the lot owners in said subdivisions, each lot entitling its owner to one vote." On appeal, Cottonwood does not dispute that it had at least constructive notice that the Restrictions could be amended or that the amending procedure-majority approval-was followed. Thus, for our purposes, the first condition for amending the Restrictions is satisfied. See Angelwylde HOA, Inc. v. Fournier, No. 03-21-00269-CV, 2023 WL 2542339, at *3 (Tex. App.-Austin Mar. 17, 2023, pet. filed) (mem. op.) ("When buyers purchase property governed by a declaration capable of amendment, they are on notice that 'the unique form of ownership they acquired when they purchased their [property] was subject to change through the amendment process, and that they would be bound by properly adopted amendments.'" (quoting Adlong, 2022 WL 869801, at *9)).
The second and third conditions are also met. By establishing a minimum duration for leases within Sections 1 and 2, the Amendment did not destroy the right to lease. See, e.g., DeGon, 2022 WL 869809, at *3. Instead, it reformed that right by allowing owners to generate rental income from leases of at least 90 days for a residential purpose. See id.; see also Couch v. S. Methodist Univ., 10 S.W.2d 973, 974 (Tex. Comm'n App. 1928, judgm't adopted) ("Now, a change of these conditions in any or all respects is not a destruction of the contract, nor does it change the essential nature of the same. It is still a deed of conveyance."); cf. Tarr v. Timberwood Park Owners Ass'n, 556 S.W.3d 274, 290-91 (Tex. 2018) (defining "residential purposes" to mean "living purposes" as opposed to "business purposes" and noting that association had option to amend deed restrictions to add a minimum duration for leasing). And the Amendment is consistent with the original development scheme, which required that lots be used for a residential purpose, allowed for single-family dwellings only, and prohibited commercial activity. See Cauthorn, slip. op. at 10-11.
Still, though the conditions for amending restrictive covenants are met, Cottonwood urges this Court to reject the Amendment as unreasonable and constitutionally infirm. Cottonwood's reasonableness argument rests on the law of other states that "employ one variety or another of a fairness or reasonableness analysis which asks whether, when compared to the original restrictions, an amendment is new and unexpected." For the reasons set out in Cauthorn, where we considered this same argument, we decline to adopt that test. Cauthorn, slip op. at 11-12.
We likewise reject Cottonwood's argument that the Amendment is unenforceable because the right to lease property for short terms is constitutionally protected. Cottonwood's argument about the Amendment's constitutional infirmity rests on two cases: Zaatari v. City of Austin, 615 S.W.3d 172 (Tex. App.-Austin 2019, pet. denied), and City of Grapevine v. Muns, 651 S.W.3d 317 (Tex. App.- Fort Worth 2021, pet. denied). Again, for the reasons stated in Cauthorn, we conclude that Zaatari and Muns do not control here. Cauthorn, slip. op. at 12-14 (explaining that Zaatari and Muns are state action cases, not involving private deed restrictions, and potentially do not represent a consensus view).
In sum, we conclude the Amendment is valid and enforceable. See Cauthorn, slip. op. at 12; Chu, 652 S.W.3d at 903; DeGon, 2022 WL 869809, at *3-4; Adlong, 2022 WL 869801, at *9, *11. We overrule Cottonwood's issue on appeal.
Considering our holdings, we do not reach the issue of Cottonwood's attorney's fees. See Tex. R. App. P. 47.1.
Conclusion
We affirm the trial court's judgment.
All pending motions are dismissed as moot.