Schack v. Prop. Owners Ass'n of Sunset Bay

555 S.W.3d 339

John SCHACK and Debbie Schack, Appellants,

v.PROPERTY OWNERS ASSOCIATION OF SUNSET BAY and Timothy Raub, Appellees.

NUMBER 13-16-00440-CV

Court of Appeals of Texas, Corpus Christi-Edinburg.

Delivered and filed July 19, 2018

Dylan B. Russell, Hoover Slovacek LLP, Houston, TX, Shannon K. Dunn, Law Office of Beth Watkins, San Antonio, TX, for Appellees.

Shirley Selz, Attorney at Law, Corpus Christi, TX, for Appellants.

Before Justices Rodriguez, Longoria, and Hinojosa

Opinion by Justice Rodriguez

Appellants John and Debbie Schack filed suit, seeking to prevent their neighbor, appellee Timothy Raub, from renting his house out on a short-term basis to vacationers. The Schacks argued that Raub’s rental operation was barred by certain real property covenants and restrictions. The Schacks also sued appellee Property Owners Association of Sunset Bay (the "POA") for not preventing Raub from renting his house. The jury returned a verdict in favor of Raub and the POA. By ten issues, the Schacks appeal. We affirm.

I. BACKGROUND

The Sunset Bay subdivision is located in Aransas County, Texas. Raub bought a tract of land in Sunset Bay in 2007 ("the Property"). The Schacks bought an adjacent tract in 2010. Both lots were subject to a set of real estate covenants for the Sunset Bay subdivision which is called Sunset Bay’s Declaration of Covenants, Conditions, and Restrictions ("the Declaration"). This appeal primarily stems from disagreements among the parties about the proper interpretation of the Declaration—in particular, whether the Declaration forbids Raub from renting out his house to vacationers on a short-term basis.

In January 2012, Raub began constructing a three-story, seven-bedroom house on his tract. According to the testimony of Raub and his wife Rosa, their intention was to rent the Property to groups of vacationers, and they would maintain their permanent residence in nearby Portland, Texas. Raub testified that he bought the Property as an investment, both for the purpose of making profit and claiming tax deductions. The Schacks have not built a house on their tract, which remained vacant at the time of trial.

Raub testified that in April of 2012, he posted the Property to the website "Vacation Rental By Owner," or VRBO.com, to advertise its availability. The Property was completed in August 2012, and the next month, Raub began renting it out on a short-term basis. Raub testified at trial that his guests' typical length of stay was between three and seven days. The rentals continued throughout the following year.

On June 19, 2013, the Schacks sent a letter to the POA’s president contending that Raub’s rentals violated the Declaration. In particular, the Schacks argued that short-term rentals were prohibited by the following italicized passages from the Declaration:

Permitted Uses. The Property described above, together with any tracts subsequently added by the Declarant as aforesaid, are intended for one single family dwelling unit per "Lot" and their use is restricted to that purpose .... Occupancy of a Lot shall be limited to one (1) family , which shall be defined as any number of persons related by blood, adoption or marriage living with not more than one (1) person who is not so related as a single household unit, or no more that [sic] two (2) persons who are not so related living together as a single household unit .... No commercial enterprise of any sort shall be situated on any tract included therein unless the Declarant chooses, in his sole discretion, to designate a tract commercial.

(Emphasis added).

The POA initially expressed similar concerns that Raub’s rental operation violated the Declaration, and in August 2013, it sent a letter instructing Raub to stop leasing the Property to short-term renters. However, in fall of 2013, the POA reversed course and took the position that short-term rentals did not violate the Declaration. In November 2013, the POA’s board of directors went so far as to adopt an "Interpretation and Clarification" of the Declaration, in which the board stated its belief that short-term rentals did not constitute a prohibited "commercial enterprise." However, no formal amendment to the Declaration was adopted by the POA.

Around the same time, Raub modified his rental agreement to include a notice that "only groups that are classified as a single family in accordance with [the Declaration] can rent our house." Similar to the Declaration, the rental agreement defined a single family as "any number of persons related by blood, adoption or marriage plus any one person not so related...." Raub testified that if he learned that a group of renters did not consist of a single family, he would not rent the Property to them. The rental agreement also prescribed that the "premises shall be used for residential purposes only."

In December of 2013, the Schacks filed this suit against Raub and the POA. The Schacks claimed that Raub’s rental operation violated three key restrictions in the Declaration: (1) its provision restricting use of the Property to the "purpose" of "one single family dwelling unit per ‘Lot’ "; (2) its limitation that the Property may be occupied only by a family or, at most, two unrelated persons "living together as a single household unit"; and (3) its prohibition against any "commercial enterprise." The Schacks asserted that in light of these three restrictions, the Declaration unambiguously prohibited Raub from running a short-term rental operation on the Property, which the Schacks likened to a hotel. The Schacks further alleged that the POA had a duty to stop Raub from renting his property in violation of the Declaration.

Raub moved for summary judgment and the Schacks moved for partial summary judgment on the issue of whether Raub’s rental violated the Declarations. The trial court denied the motions.

On April 5, 2016, the parties proceeded to a seven-day jury trial and presented evidence concerning Raub’s operation. According to a VRBO advertisement that Raub posted in 2014, the Property was described as a "vacation rental" which accommodated up to twenty-five over-night guests. The Property offered a fishing pier and access to vacation amenities such as boating, bird watching, and other local attractions. The VRBO page also described the Property’s amenities—such as a jacuzzi, two full kitchens, wifi, and five flat-screen televisions—and explained that the Raubs provided guests with "everything you might need for your stay," including linens, towels, dinnerware, etc. Raub’s VRBO advertisement did not mention that occupancy of the Property was to be limited to one family or two unrelated persons living together as a single household unit. As to pricing, the page offered the Property for daily rates between $350 and $700 depending on the date, or weekly rates between $2,400 and $3,500, with higher rates in the summer and on major holidays, plus taxes and a $150 cleaning fee.

Raub incorporated similar rate information in his rental agreements with guests. The agreements described two groups of parties: the guests and the "landlords," which were Raub, Rosa, and Raub Properties, LLC. The agreements prescribed check-in and check-out times, and they arranged for housekeeping. The agreements had renters acknowledge their status as guests under the innkeeper statute. The jury heard testimony that Raub had paid hotel occupancy taxes since he began renting the property in 2012.

The jury also heard testimony concerning witnesses' subjective interpretation of the Declaration. Most notably, the jury heard testimony from Richard Gaul, who developed the subdivision. Gaul testified that he never intended to prevent short-term rentals within the subdivision, and he did not believe that any clause in the Declaration restricted Raub from renting out the Property. He testified that if he had intended to restrict short-term rentals, he would have specifically said so in the restrictions. Gaul explained that in other subdivisions he developed, homeowners regularly rented their homes in a similar fashion, despite similar restrictions.

At the conclusion of trial testimony, the trial court held a charge conference. The Schacks' first proposed jury question would have asked the jury whether Raub’s use violated the restriction that the Property was "intended for one single family dwelling unit per ‘Lot’ and their use is restricted to that purpose," which we will hereafter refer to as the "Dwelling Restriction." The trial court rejected the proposed question. The court explained its view that the Dwelling Restriction was unambiguous and referred only to the types of structures that could be erected on a lot—i.e., one single family dwelling unit per lot. And because it was undisputed that the Property qualified as a single-family dwelling rather than a multi-unit structure, the trial court did not believe this was a question for the jury.

The Schacks' first proposed question would have also asked the jury if Raub’s rental operation violated the restriction providing that "Occupancy of a Lot shall be limited to one (1) family, which shall be defined as any number of persons related by blood, adoption or marriage living with not more than one (1) person who is not so related as a single household unit, or no more than two (2) persons who are not so related living together as a single household unit," hereafter the "Occupancy Restriction." The proposed question would have also instructed the jury on the meaning of the term "dwelling" and "household," with quotations from Texas case law.

In rejecting the question, the court explained its view that the Occupancy Restriction was unambiguous and would be violated only if the Schacks adduced evidence that Raub had actually rented the Property to groups not composed of one "family" or two unrelated persons. The trial court explained that because the Schacks had not produced any evidence that Raub actually rented to non-families, this question should not go...