Posts categorized "▪ Due process"

Tex App: "Property" Includes Right To Rent It Out - City's Short-Term Ban May Be A Taking

Here's a must-read from the Texas Court of Appeals (Second District).
In City of Grapevine v. Muns, No. 02-19-00257 (Dec. 23, 2021), 
Before 2018, the city's 1982 zoning ordinance authorized "single-family detached dwellings" and didn't say anything about short-term renting (short-term being defined as less than 30 days). The ordinance didn't expressly authorize it, but it didn't prohibit it either. The ordinance was one of those that say anything not expressly authorized is prohibited. Bed and breakfast operations were recognized in a 2000 amendment, but these operations require, among other things, that the owner live on-site.
But after the introduction of platforms such as AirBnB and VRBO, the short-term market "exploded" and the usual complaints from neighborhood residents followed. Slip op. at 6 ("criminal mischief, domestic disputes, parking violations, alarm calls, and noise disturbances"). Next came studies, public hearings, and the city's assertion that it didn't really need to amend the ordinance to prohibit short-term renting because it was already prohibited by virtue of it not being expressly allowed.
But despite the city's lawyer's protestations that "the Zoning Ordinance had always prohibited STR's," slip op. at 7, the city council adopted an ordinance that barred renting property for less than 30 days. According to the city, this wasn't so much of a new bar, as an ordinance that "simply clarified and affirmed" that city law never allowed short-term renting. Slip op. at 7.
The city informed STR operators that after the expiry of a 45 day grace period, no more STR-ing upon pain of a NOA, a criminal record, and an up-to $2k fine. Lawsuit followed.
In October 2018, the Homeowners sued the City, seeking declarations that the STR Ordinance is unconstitutional because it (1) is a regulatory taking of their property without compensation; (2) violates their due-course-of-law rights under the Texas Constitution; (3) is impliedly preempted by Chapter 156 of the Texas Tax Code alone or in combination with Chapter 92 of the Texas Property Code; and (4) deprives the Homeowners of their vested rights to continue their STRs, in violation of Chapter 245 of the Texas Local Government Code. The Homeowners also sought to enjoin the City from enforcing the STR Ordinance.
Slip op. at 9 (footnotes omitted). The trial court issued the requested TRO. Later, the property owners amended the complaint to allege unconstitutional retroactivity "and to add a regulatory-takings claim for compensation or for a specific recoupment period."  Slip op. at 10 (footnote omitted). The takings claim was made under the Texas Constitution, and not (also) the U.S. Constitution.
The trial court denied the city's motions for summary judgment and to dismiss, and the city appealed.
The court of appeals first rejected the city's argument that the zoning ordinance always prohibited STR's. Not so: the court concluded that city zoning permitted leasing of "single-family detatched dwellings," and that the ordinance doesn't define family as related by blood or marriage. Nor does the ordinance establish any duration requirement. Slip op. at 25.   
Next, the court addressed the takings claim. Jump to page 28 of the slip opinion for the court's analysis. The threshold question - do the owners possess "property" subject to takings protection? - is often a tripwire for plaintiffs. But not here. Now before we get into this part of the opinion, you'd think that the answer to "does the plaintiff own 'property?'" question would be obvious. Does the plaintiff own a property that she is renting out for less than 30 days? If so, there you go. But the city argued that the property interest was the right to continue to operate STR's, and that "the Homeowners have no vested right to a particular use of their property." Slip op. at 29.
The court rejected the argument, and even though "a property owner generally has no vested right to use his property is a certain way without restriction ... the Homeowners do have a property interest in the properties themselves." Slip op. at 29 (citations omitted). In short, property ownership comes with the vested right to use it, rent it, live in it, and that kind of thing:
Because the Homeowners have a vested property interest in the properties themselves and claim that the City has unreasonably interfered with their rights to use and enjoy their properties by passing the STR Ordinance, we conclude that they have identified a property right sufficient at this stage to allege a regulatory-takings claim. We further note the unremarkable and well-established notion that private-property ownership is a fundamental right, see Hearts Bluff, 381 S.W.3d at 476, that embraces such “essential attributes” as “the right to use, lease[,] and dispose of it for lawful purposes[.]” 
Slip op. at 30-31 (quoting Terrace v. Thompson, 263 U.S. 197, 215 (1923)).
Let's get that again: ownership of the property comes with the "fundamental" right to rent it. No need to show more, such as a "vested" right under state law. That should be an unremarkable proposition. But to many courts, it isn't.
The court also summarily rejected the city's claim that the STR ordinance wasn't the cause of any taking. The city recycled the argument that the STR ordinance didn't really do anything because the city's existing zoning ordinance already banned STR's because it didn't expressly allow them. Slip op. at 32 ("The Homeowners respond that this argument fails because the Zoning Ordinance allowed 'leasing unrestricted by duration.' We agree, having concluded above that the Zoning Ordinance permitted STRs.").
Having established that the plaintiffs possess "property," the court considered the Texas takings claim. Texas takings law incorporates the Penn Central test.
  • Economic impact. "[L]ost profits are a relevant factor to consider in assessing the property's value and the severity of the economic impact on a property owner." Slip op. at 33. The fact that owners may rent their properties for more than 30 days and that their properties' value has increased since time of purchase are not controlling. "[T]he Homeowners did not base their economic-impact allegations on decreased market value." Slip op. at 34. Instead, they asserted the ordinance prevents them from participating in the STR market. The owners not only pleaded this sufficiently, in response to the city's motion for summary judgment, they introduced actual evidence of economic impact (an appraiser who testified that over a 10-year period, "the combine potential gross-rental difference between typical market rents for long-term versus short-term leases for the Homeowners' properties exceeded $4.2 million." Slip op. at 34.
  • Distinct investment-backed expectations. "[A] property's existing and permitted uses constitute the affected property owner's 'primary expectation.'" Slip op. at 35 (citation omitted). This includes historic uses, "regulations at the time of purchase," as well as knowledge of these existing regulations. 
  • Character of the government action. What "character of the government action?" The opinion doesn't address this Penn Central factor at all. To that we say good (take a gander at this (starting at page 1153) if you want to know why we say so).
On the remaining the claims, the court agreed with the city only on one: that state law did not preempt the city's ordinance. See slip op. at 38-41. (If you are a Texas muni law maven, you may want to check out this part of the opinion.)
The entire opinion is worth reading. Especially the part with the court's analysis of the owners' "due course of law" claim:
Nevertheless, although the Homeowners do not have a vested right arising under the Zoning Ordinance to use their properties as STRs, we conclude that they have a fundamental leasing right arising from their property ownership. Private property ownership is a fundamental right. Hearts Bluff, 381 S.W.3d at 476 (citing Severance v. Patterson, 370 S.W.3d 705, 709 (Tex. 2012) (op. on reh’g)); Severance, 370 S.W.3d at 709 (“Private property rights have been described ‘as fundamental, natural, inherent, inalienable, not derived from the legislature[,] and as pre-existing even constitutions.’” (quoting Eggemeyer v. Eggemeyer, 554 S.W.2d 137, 140 (Tex. 1977))). Property ownership includes the right to lease to others. See Calcasieu Lumber Co. v. Harris, 13 S.W. 453, 454 (Tex. 1890) (“The ownership of land, when the estate is a fee, carries with it the right to use the land in any manner not hurtful to others; and the right to lease it to others, and therefore derive profit, is an incident of such ownership.”); see also Terrace, 263 U.S. at 215, 44 S. Ct. at 17–18 (noting that “essential attributes of property” include “the right to use, lease[,] and dispose of it for lawful purposes”). The right to lease is a stick within a property owner’s metaphorical bundle of rights. See Emily M. Speier, Comment, Embracing Airbnb: How Cities Can Champion Private Property Rights Without Compromising the Health and Welfare of the Community, 44 Pepp. L. Rev. 387, 395–97 (2017).
Given the nature of real-property rights, we conclude that the Homeowners have a vested right to lease their properties and that this right is sufficient to support a viable due-course-of law claim. Cf. Zaatari, 615 S.W.3d at 191 (concluding that, in analyzing retroactivity claim, property owners had a “settled interest” in their right to lease their properties short term and that the issue is not about the “property owners’ right to use their property in a certain way,” but about the owners “retaining their well-settled right to lease their property”); Vill. of Tiki Island, 463 S.W.3d at 587 (holding that, in analyzing whether an STR owner had proved an irreparable injury to a vested right necessary to support an order temporarily enjoining an ordinance banning STRs, STR owner had a narrow vested right to continue operating existing STR after city passed ordinance banning STRs but grandfathering in existing STRs).
Slip op. at 47-48.
While it is not a final, definitive ruling concluding the ordinance is a taking, the opinion rejects the city's argument that the claim cannot be presented to the trier of fact. And that's okay, because living to fight another day is a victory in most takings cases, this one included.

City of Grapevine v. Muns, No. 02-19-00257-CV (Tex. App. Dec. 23, 2021)


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