As summer ends and the cooler weather of fall arrives, Tripp Freeley yearned for the days of sun, sand and surf.  So Tripp began planning his family’s vacation for next summer.  A hotel would not work for Tripp, his wife and three young kids – they needed a house with multiple bedrooms.  So Tripp went to an online short-term rental by owner website and reserved a house near the beach. 

The next summer the family drove 7 hours from Dallas to the house.  Shortly after they began getting situated there was a knock on the door.  Tripp opened the door to find a local code compliance officer.  The compliance officer told Tripp that the city made it illegal to rent the house, and they had 24 hours to vacate.  Tripp is floored and mortified that his “perfect” family vacation is now ruined.  Does the city have the right to ban property owners from renting their homes out on a short-term basis?   Continue Reading Think You Can Rent Out Your House While You’re On Vacation? Think Again.

Apple iPhone 6s plus with Airbnb application on the screen.Following his transfer to Houston, Ruel Benda decided to keep his posh gated neighborhood Rodeo Drive house and started advertising it on AirBNB. His profits were so good that he began renting for 7 days or less. Insisting that Benda’s home use was commercial and not residential, a violation of his property owners association’s (POA) recorded  Covenants, Conditions and Restrictions, the POA fined him. Benda sued. Did he win? Can Benda continue to rent his house?

It depends. No, if Ruel Benda lived in San Antonio. Under these facts a San Antonio appellate court concluded that the POA deed restrictions prevented such rentals and granted the POA’s injunction denying further rentals.

Yes, if Benda lived in Austin where, under very similar facts, the Austin Court of Appeals found no violation of a restrictive covenant under similar circumstances, determining  that the covenant restricting homes to be used “for single family residential purposes” was ambiguous. The Austin court “resolve[d] the ambiguity against the Association and in favor of the [homeowner’s] free and unrestricted use of their property.” The San Antonio Court respectfully disagreed with the Austin Court of Appeals and did not find its reasoning persuasive.

Like Uber, the AirBNB kerfluffle has landed in the news in Chicago, Spokane, (requires a license) and even Arlington County near Washington, D.C. – just in time for Inauguration Day.  Even San Antonio is considering municipal regulations that would affect properties not otherwise subject to a property owner’s association.

Tilting the Scales in Your Favor. Avoid being surprised. If you are in a property owner’s association, read your documents. While many POAs have more detailed restrictions against short term rentals (STR) of POA homes, some enforce their rules and others don’t. Likewise, while smaller counties and cities are not actively enforcing requirements to report and pay hotel occupancy taxes upon home rentals, many cities like Austin, San Antonio and Houston are.                                                                                 

Under Texas law, an STR is rental of a property for less than 30 days and the guest is charged $15 or more per day. Texas hotel occupancy tax due to the Texas Comptroller is six percent of the room cost. Counties are authorized to impose a hotel occupancy tax also.

And, by the way, your income from the STR may well be taxable. As my colleague Drew York wrote a couple of months ago, whether the income is taxable depends upon a “Master Exception” to the Internal Revenue Code. Check out our September article Do I Owe Income Taxes When I Rent Out My Home?