Cauthorn v. Pirates Prop. Owners' Ass'n

• Docket Number: 01-22-00401-CV
• Decision Date: 29 August 2023
• Parties: CHARLES CAUTHORN, Appellant v. PIRATES PROPERTY OWNERS' ASSOCIATION, Appellee
• Court: Texas Court of Appeals

1

CHARLES CAUTHORN, Appellant v. PIRATES PROPERTY OWNERS' ASSOCIATION, Appellee

No. 01-22-00401-CV

Court of Appeals of Texas, First District

August 29, 2023

On Appeal from the 56th District Court Galveston County, Texas Trial Court Case No. 20-CV-1940

Panel consists of Justices Goodman, Landau, and Rivas-Molloy.

OPINION

SARAH BETH LANDAU JUSTICE

This is an appeal from the trial court's judgment declaring that an amendment to a subdivision's restrictive covenants imposing a minimum duration for residential leases within the subdivision, is enforceable against a property owner.

We affirm.

Background

In April 2015, Charles Cauthorn bought property in Section 4 of the Pirates Community subdivision on Galveston Bay and began leasing the property for short terms of fewer than 90 days earning "significant" rental income.

Properties in Section 4 are 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 Restrictions state the developer's desire to establish and preserve "a uniform plan for the development" to benefit future owners.

When Cauthorn bought his property, he relied on the Restrictions' land-use provisions allowing owners to rent their homes without any restriction on the duration of leases:

Land Use and Building Type. 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 from time to time rent his home for profit.

Other provisions prohibited certain temporary uses. For instance "No structure of a temporary character, including, but not limited to, trailers, tents, shacks, mobile homes, boats and motor vehicles of all types, shall ever be maintained or used on any lot at any time as a residence, either temporarily or permanently."

The Restrictions also allowed amendments of "[a]ny part or all of the[] covenants, conditions and/or restrictions . . . at any time and from time to time by the approval of a majority of the lot owners in [the] subdivision." In 2020, Section 4 owners approved an amendment requiring leases to be for at least 90 days and have a residential purpose:

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)

The Association notified Cauthorn that it intended to enforce the Amendment. Cauthorn sued, seeking a declaration that the Amendment was unenforceable because it removed settled rights under the original Restrictions and deprived him of "the bargain he struck" when he bought the property. The Association counterclaimed for breach of contract and sought permanent injunctive relief.

The parties agreed to a bench trial on agreed facts under Texas Rule of Civil Procedure 263.^[1] 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 and requiring Cauthorn to comply with it.

Standard of Review

In an appeal from a bench trial under Rule 263, the agreed facts bind the parties, the trial court, and the reviewing court. 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); Patton v. Porterfield, 411 S.W.3d 147, 153 (Tex. App.-Dallas 2013, pet. denied); see Tex. R. Civ. P. 263. The only issue on appeal is whether the trial court correctly applied the law to the agreed facts. Lacis v. Lacis, 355 S.W.3d 727, 732 (Tex. App.- Houston [1st Dist.] 2011, pet. dism'd w.o.j.). Our review is de novo. Id.

Discussion

In his sole issue, Cauthorn asks: "Can new restrictive covenants adopted by amendment deprive dissenting owners of the property rights they were afforded under the original scheme of development?" He contends that Texas courts have enforced amendments that remove restrictions on land use or further the original plan of development. But because the Amendment here did neither of these things- instead it destroyed his established right to lease for short terms-it is unenforceable. Cauthorn asserts that a decision affirming the trial court's ruling would make this Court an outlier, because most other states enforce new restrictions on land use only against new owners, not existing owners. Finally, he claims that the Amendment violates his constitutional right to continue leasing his property.

A. Right to lease

To amend deed restrictions, three conditions must be met. Wilchester W. Concerned Homeowners LDEF, Inc. v. Wilchester W. Fund, Inc., 177 S.W.3d 552, 562 (Tex. App.-Houston [1st Dist.] 2005, pet. denied). First, either "the instrument creating the original restrictions must establish both the right to amend and the method of amendment" or the amendment must have been adopted through a statutory procedure. See Poole Point Subdivision Homeonwers' Ass'n v. DeGon, No. 03-20-00618-CV, 2022 WL 869809, at *3 (Tex. App.-Austin Mar. 24, 2022, pet. denied) (mem. op.); Wilchester, 177 S.W.3d at 562. "Second, the right to amend implies only those changes contemplating a correction, improvement, or reformation of the agreement rather than its complete destruction." Wilchester, 177 S.W.3d at 562. And third, "the amendment must not be illegal or against public policy." Id.

Three Texas courts have determined that amended deed restrictions specifying a minimum duration for leasing meet these conditions. See Chu, 652 S.W.3d at 902- 05 (upholding 180-day minimum restriction); DeGon, 2022 WL 869809, at *3-4 (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.) (upholding six-month minimum restriction).

In DeGon, the governing declaration allowed property owners to lease their residences subject to the declaration's other provisions. DeGon, 2022 WL 869809, at *1. The plaintiffs began leasing their residence for short terms, and the homeowners' association amended the declaration to prohibit leasing for less than 180 days. See id. at *1-2. The trial court ruled that the amendment was unenforceable because it was "a new and different restriction which defie[d] the reasonable and settled expectations of the [plaintiffs], who relied on the [declaration's] grant of the right to lease the main dwelling without duration restriction and physical occupancy requirements." Id. But the Austin court of appeals rejected the trial court's reasoning, explaining that the plaintiffs bought their residence "knowing that the [declaration] could be amended and that the right to lease was 'subject to all provisions' in the Restrictions, including any valid amendments. For this reason, the [plaintiffs] could not reasonably have expected that there could never be restrictions placed on the right to lease their residence." Id. at *3 n.1. The real issues thus were whether the amendment (1) corrected, improved, or reformed the declaration, and did not destroy it, and (2) was illegal or against public policy. Id. at *3-4.

On the first issue, the Austin court held that the 180-day amendment, which also required lessees to occupy the property for the lease's duration, did not destroy the plaintiff's right to lease because the declaration

[did] not grant homeowners an absolute or unlimited right to lease their residences. Instead, that right is "subject to all the provisions of" the Restrictions, which contain a provision permitting amendments. The Amendment, which was validly executed and recorded, does not completely prohibit the owners' ability to lease their residences. Rather, it imposes a minimum stay provision, establishing the minimum duration for a lease of a property owner's residence. The placing of certain conditions on the duration of a lease and the lessee's use of the leased property does not constitute "complete destruction" of the Deed Restrictions.1 The Amendment reformed the right to lease contained in the Restrictions by setting a minimum duration for any leases and requiring that the lessees use the leased property as their residence for the duration of the lease. Thus, unless the Amendment is illegal or against public policy, it constitutes an enforceable limitation on the right to lease the Property.

Id. at *3.

On the second issue, the court reasoned: "Modifications to deed restrictions that impose greater restrictions are not prohibited by law when they are consistent with the overall plan of development." Id. at *4. Because the amendment "reinforced the existing residential use and occupancy restriction and the prohibition against commercial activities," it was not illegal or against public policy.^[2] Id. Instead, "restrictions placed upon lots for the purpose of prescribing and preserving the residential character thereof are looked upon with favor by the courts." Id. (quoting Wald v. W. MacGregor Protective Ass'n, 332 S.W.2d 338, 343 (Tex. App.- Houston 1960, writ ref'd n.r.e.)).

Similarly when the plaintiffs in Adlong bought their home, the subdivision's restrictions allowed short-term rentals. See 2022 WL 869801, at *1-2. But the owners later amended the...