74R12469 PAM-F By Bailey, Combs H.B. No. 2152 Substitute the following for H.B. No. 2152: By Combs C.S.H.B. No. 2152 A BILL TO BE ENTITLED 1-1 AN ACT 1-2 relating to restrictive covenants in certain residential real 1-3 estate subdivisions. 1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-5 SECTION 1. (a) Public policy considerations require that a 1-6 procedure be available to allow for the extension of, addition to, 1-7 or modification of existing property restrictions in residential 1-8 real estate subdivisions. 1-9 (b) The legislature finds that: 1-10 (1) property owners' associations serve to benefit 1-11 residential real estate subdivisions and assist in avoiding the 1-12 problems described by Section 201.002, Property Code; 1-13 (2) there is a special relationship between property 1-14 owners' associations and the property owners within the 1-15 subdivisions; 1-16 (3) it is in the best interest of residential real 1-17 estate subdivisions that a procedure be available to readily 1-18 facilitate increases in the amount of the regular or special 1-19 assessments to allow the property owners' associations to better 1-20 provide services to the subdivisions; and 1-21 (4) restrictions that severely limit the amount of the 1-22 regular assessment may result in the inability of an ineffective 1-23 property owners' association to maintain common area facilities, 1-24 including swimming pools, tennis courts, clubhouses, greenbelt 2-1 areas, or jogging trails, or to provide services, including 2-2 streetlights, security, architectural control, and deed restriction 2-3 enforcement. 2-4 (c) The purpose of this Act is to: 2-5 (1) provide a less burdensome procedure for extending 2-6 the term of, adding to, or modifying residential real estate 2-7 restrictions by approval and circulation of a petition by a 2-8 property owners' association; 2-9 (2) provide for the removal of any restriction or 2-10 other provision relating to race, religion, or national origin that 2-11 is void and unenforceable under either the United States 2-12 Constitution or Section 5.026, Property Code; and 2-13 (3) codify certain powers of property owners' 2-14 associations. 2-15 SECTION 2. Title 11, Property Code, is amended by adding 2-16 Chapter 204 to read as follows: 2-17 CHAPTER 204. POWERS OF PROPERTY OWNERS' ASSOCIATION RELATING 2-18 TO RESTRICTIVE COVENANTS IN CERTAIN SUBDIVISIONS 2-19 Sec. 204.001. DEFINITIONS. In this chapter: 2-20 (1) "Restrictions," "residential real estate 2-21 subdivision," "subdivision," "owner," "real property records," and 2-22 "lienholder" have the meanings assigned by Section 201.003. 2-23 (2) "Dedicatory instrument," "petition," and 2-24 "restrictive covenant" have the meanings assigned by Section 2-25 202.001. 2-26 (3) "Regular assessment" means an assessment, charge, 2-27 fee, or dues that each owner of property within a subdivision is 3-1 required to pay to the property owners' association on a regular 3-2 basis and that are to be used by the association for the benefit of 3-3 the subdivision in accordance with the original, extended, added, 3-4 or modified restrictions. 3-5 (4) "Special assessment" means an assessment, charge, 3-6 fee, or dues that each owner of property within a subdivision is 3-7 required to pay to the property owners' association, after a vote 3-8 of the membership, for the purpose of paying for the costs of 3-9 capital improvements to the common areas that are incurred or will 3-10 be incurred by the association during the fiscal year. A special 3-11 assessment may be assessed before or after the association incurs 3-12 the capital improvement costs. 3-13 Sec. 204.002. APPLICATION. (a) This chapter applies only 3-14 to a residential real estate subdivision, excluding a condominium 3-15 development governed by Title 7, Property Code, that is located in 3-16 whole or in part in a county with a population of 2.8 million or 3-17 more. 3-18 (b) This chapter applies to a restriction regardless of its 3-19 effective date. 3-20 (c) This chapter does not apply to portions of a subdivision 3-21 that are zoned for or that contain a commercial structure, an 3-22 industrial structure, an apartment complex, or a condominium 3-23 development governed by Title 7, Property Code. For purposes of 3-24 this subsection, "apartment complex" means two or more dwellings in 3-25 one or more buildings that are owned by the same owner, located on 3-26 the same lot or tract, and managed by the same owner, agent, or 3-27 management company. 4-1 Sec. 204.003. PROVISIONS OF RESTRICTIVE COVENANTS PREVAIL IN 4-2 CERTAIN CIRCUMSTANCES. An express designation in a document 4-3 creating restrictions applicable to a residential real estate 4-4 subdivision that provides for the extension of, addition to, or 4-5 modification of existing restrictions by a designated number of 4-6 owners of real property in the subdivision prevails over the 4-7 provisions of this chapter. 4-8 Sec. 204.004. PROPERTY OWNERS' ASSOCIATION. (a) A property 4-9 owners' association is a designated representative of the owners of 4-10 property in a subdivision and may be referred to as a "homeowners 4-11 association," "community association," "civic association," "civic 4-12 club," "association," "committee," or similar term contained in the 4-13 restrictions. The membership of the association consists of the 4-14 owners of property within the subdivision. 4-15 (b) The association must be nonprofit and may be 4-16 incorporated as a Texas nonprofit corporation. An unincorporated 4-17 association may incorporate under the Texas Non-Profit Corporation 4-18 Act (Article 1396-1.01 et seq., Vernon's Texas Civil Statutes). 4-19 (c) The association's board of directors or trustees must be 4-20 elected or appointed in accordance with the applicable provisions 4-21 of the restrictions and the association's articles of incorporation 4-22 or bylaws. 4-23 Sec. 204.005. EXTENSION OF, ADDITION TO, OR MODIFICATION OF 4-24 EXISTING RESTRICTIONS. (a) A property owners' association has 4-25 authority to approve and circulate a petition relating to the 4-26 extension of, addition to, or modification of existing 4-27 restrictions. A property owners' association is not required to 5-1 comply with Sections 201.009-201.012. 5-2 (b) A petition to extend, add to, or modify existing 5-3 restrictions approved and circulated by a property owners' 5-4 association is effective if: 5-5 (1) the petition is approved by the owners, excluding 5-6 lienholders, contract purchasers, and the owners of mineral 5-7 interests, of at least 75 percent of the real property in the 5-8 subdivision or a smaller percentage required by the original 5-9 dedicatory instrument; and 5-10 (2) the petition is filed as a dedicatory instrument 5-11 with the county clerk of the county in which the subdivision is 5-12 located. 5-13 (c) If a subdivision consisting of multiple sections, each 5-14 with its own restrictions, is represented by a single property 5-15 owners' association, the approval requirement may be satisfied by 5-16 obtaining approval of at least 75 percent of the owners on a 5-17 section-by-section basis or of the total number of properties in 5-18 the property owners' association's jurisdiction. 5-19 (d) If approved, the petition is binding on all properties 5-20 in the subdivision or section, as applicable. 5-21 (e) A property owners' association that circulates a 5-22 petition must notify all record owners of property in the 5-23 subdivision in writing of the proposed extension, addition to, or 5-24 modification of the existing restrictions. Notice may be 5-25 hand-delivered to residences within the subdivision or sent by 5-26 regular mail to the owner's last known mailing address as reflected 5-27 in the ownership records maintained by the property owners' 6-1 association. The approval of multiple owners of a property may be 6-2 reflected by the signature of a single co-owner. 6-3 Sec. 204.006. CREATION OF PROPERTY OWNERS' ASSOCIATION. (a) 6-4 If existing restrictions applicable to a subdivision do not provide 6-5 for a property owners' association and require approval of more 6-6 than 60 percent of the owners to add to or modify the original 6-7 dedicating instrument, a petition to add to or modify the existing 6-8 restrictions for the sole purpose of creating and operating a 6-9 property owners' association with mandatory membership, mandatory 6-10 regular or special assessments, and equivalent voting rights for 6-11 each of the owners in the subdivision is effective if: 6-12 (1) a petition committee has been formed as prescribed 6-13 by Section 201.005; 6-14 (2) the petition is approved by the owners, excluding 6-15 lienholders, contract purchasers, and the owners of mineral 6-16 interests, of at least 60 percent of the real property in the 6-17 subdivision; and 6-18 (3) the procedure employed in the circulation and 6-19 approval of the petition to add to or amend the existing 6-20 restrictions for the specified purpose complies with the 6-21 requirements of this chapter. 6-22 (b) If the circulated petition is not approved by the 6-23 required percentage of owners within one year of the creation of 6-24 the petition committee, the petition is void and another petition 6-25 committee may be formed. 6-26 (c) If the petition is approved, the petition is binding on 6-27 all properties in the subdivision or section, as applicable. 7-1 Sec. 204.007. EFFECT ON LIENHOLDERS. (a) Extensions of, 7-2 additions to, or modifications of restrictions under this chapter 7-3 are binding on a lienholder, excluding restrictions relating to 7-4 regular or special assessment increases if the assessment is not 7-5 subordinated to purchase money or home improvement liens. 7-6 (b) If the assessment lien of the property owners' 7-7 association is subordinate to purchase money or home improvement 7-8 liens, the lienholder is not entitled to notice of the proposed 7-9 dedicatory instrument and the lienholder is bound by the instrument 7-10 if the instrument is approved. If the assessment lien is not 7-11 subordinated, a lienholder who is not a signatory to the dedicatory 7-12 instrument and whose lien was established before the effective date 7-13 of the dedicatory instrument is not bound by the portion of the 7-14 dedicatory instrument that increases the amount of the regular or 7-15 special assessment during any period of ownership by the 7-16 lienholder. 7-17 (c) A person who acquires title to the property at a 7-18 foreclosure sale or by deed from a foreclosing lienholder is bound 7-19 by the assessment increase. 7-20 Sec. 204.008. METHOD OF ADOPTION. An extension, addition 7-21 to, or modification of restrictions proposed by a property owners' 7-22 association may be adopted: 7-23 (1) by a written ballot that states the substance of 7-24 the amendment and specifies the date by which a ballot must be 7-25 received to be counted; 7-26 (2) at a meeting of the members represented by the 7-27 property owners' association if written notice of the meeting 8-1 stating the purpose of the meeting is delivered to each owner of 8-2 property in the subdivision; 8-3 (3) by door-to-door circulation of a petition by the 8-4 property owners' association or a person authorized by the property 8-5 owners' association; 8-6 (4) by a method permitted by the existing 8-7 restrictions; or 8-8 (5) by a combination of the methods described by this 8-9 section. 8-10 Sec. 204.009. TEXAS NONPROFIT CORPORATIONS. (a) If the 8-11 property owners' association is referenced in the existing, 8-12 extended, added to, or modified restrictions as a Texas nonprofit 8-13 corporation, the instrument contemplates the interaction of a 8-14 nonprofit corporation, its articles of incorporation, and its 8-15 bylaws. 8-16 (b) The property owners' association has the powers and 8-17 shall promote the purposes enumerated in the articles of 8-18 incorporation and bylaws. These powers and purposes necessarily 8-19 modify the express provisions of the restrictions to include the 8-20 referenced powers and purposes. 8-21 Sec. 204.010. POWERS OF PROPERTY OWNERS' ASSOCIATION. (a) 8-22 Unless otherwise provided by the restrictions or the association's 8-23 articles of incorporation or bylaws, the property owners' 8-24 association, acting through its board of directors or trustees, 8-25 may: 8-26 (1) adopt and amend bylaws; 8-27 (2) adopt and amend budgets for revenues, 9-1 expenditures, and reserves and collect regular assessments or 9-2 special assessments for common expenses from property owners; 9-3 (3) hire and terminate managing agents and other 9-4 employees, agents, and independent contractors; 9-5 (4) institute, defend, intervene in, settle, or 9-6 compromise litigation or administrative proceedings on matters 9-7 affecting the subdivision; 9-8 (5) make contracts and incur liabilities relating to 9-9 the operation of the subdivision and the property owners' 9-10 association; 9-11 (6) regulate the use, maintenance, repair, 9-12 replacement, modification, and appearance of the subdivision; 9-13 (7) make additional improvements to be included as a 9-14 part of the common area; 9-15 (8) grant easements, leases, licenses, and concessions 9-16 through or over the common area; 9-17 (9) impose and receive payments, fees, or charges for 9-18 the use, rental, or operation of the common area and for services 9-19 provided to property owners; 9-20 (10) impose interest, late charges, and, if 9-21 applicable, returned check charges for late payments of regular 9-22 assessments or special assessments; 9-23 (11) if notice and an opportunity to be heard are 9-24 given, collect reimbursement of actual attorney's fees and other 9-25 reasonable costs incurred by the property owners' association 9-26 relating to violations of the subdivision's restrictions or the 9-27 property owners' association's bylaws and rules; 10-1 (12) charge costs to an owner's assessment account and 10-2 collect the costs in any manner provided in the restrictions for 10-3 the collection of assessments; 10-4 (13) adopt and amend rules regulating the collection 10-5 of delinquent assessments and the application of payments; 10-6 (14) impose reasonable charges for preparing, 10-7 recording, or copying amendments to the restrictions, resale 10-8 certificates, or statements of unpaid assessments; 10-9 (15) purchase insurance and fidelity bonds, including 10-10 directors' and officers' liability insurance, that the board 10-11 considers appropriate or necessary; 10-12 (16) if the restrictions allow for an annual increase 10-13 in the maximum regular assessment without a vote of the membership, 10-14 assess the increase annually or accumulate and assess the increase 10-15 after a number of years; 10-16 (17) subject to the requirements of the Texas 10-17 Non-Profit Corporation Act (Article 1396-1.01 et seq., Vernon's 10-18 Texas Civil Statutes) and by majority vote of its board of 10-19 directors, indemnify a director or officer of the property owners' 10-20 association who was, is, or may be made a named defendant or 10-21 respondent in a proceeding because the person is or was a director; 10-22 (18) if the restrictions vest the architectural 10-23 control authority in the property owners' association or if the 10-24 authority is vested in the property owners' association under 10-25 Section 204.011: 10-26 (A) implement written architectural control 10-27 guidelines for its own use or record the guidelines in the real 11-1 property records of the applicable county; and 11-2 (B) modify the guidelines as the needs of the 11-3 subdivision change; 11-4 (19) exercise other powers conferred by the 11-5 restrictions, its articles of incorporation, or its bylaws; 11-6 (20) exercise other powers that may be exercised in 11-7 this state by a corporation of the same type as the property 11-8 owners' association; and 11-9 (21) exercise other powers necessary and proper for 11-10 the governance and operation of the property owners' association. 11-11 (b) Powers enumerated by this section are in addition to any 11-12 other powers granted to a property owners' association by this 11-13 chapter or other law. 11-14 Sec. 204.011. ARCHITECTURAL CONTROL COMMITTEE. (a) This 11-15 section applies to restrictions providing for the creation and 11-16 operation of an architectural control committee with the power to 11-17 approve or deny applications for proposed original construction or 11-18 modification of a building, structure, or improvement. 11-19 (b) Unless the restrictions applicable to a residential real 11-20 estate subdivision vest the architectural control committee 11-21 authority in the property owners' association before either of the 11-22 following events, the architectural control committee authority 11-23 automatically vests in the property owners' association when: 11-24 (1) the term of the architectural control committee 11-25 authority expires as prescribed by the restrictions; 11-26 (2) a residence on the last available building site is 11-27 completed and sold; 12-1 (3) the person or entity designated as the 12-2 architectural control committee in the restrictions assigns, in 12-3 writing, authority to the property owners' association; or 12-4 (4) an assignee of the original holder abandons its 12-5 authority for more than one year. 12-6 (c) If the architectural control committee authority is 12-7 transferred to the property owners' association, the authority is 12-8 vested in the property owners' association until: 12-9 (1) the restrictions are modified to reflect 12-10 otherwise; 12-11 (2) the restrictions are terminated; or 12-12 (3) the property owners' association ceases to exist. 12-13 SECTION 3. Title 11, Property Code, is amended by adding 12-14 Chapter 205 to read as follows: 12-15 CHAPTER 205. RESTRICTIVE COVENANTS APPLICABLE TO REVISED 12-16 SUBDIVISIONS IN CERTAIN COUNTIES 12-17 Sec. 205.001. DEFINITIONS. In this chapter, "restrictions" 12-18 and "subdivision" have the meanings assigned by Section 201.003. 12-19 Sec. 205.002. APPLICABILITY. This chapter applies only to a 12-20 county with a population of 65,000 or more. 12-21 Sec. 205.003. RESTRICTIONS APPLICABLE TO REVISED 12-22 SUBDIVISIONS. (a) If all or part of a subdivision plat is revised 12-23 to provide for another subdivision of land within all or part of 12-24 the earlier subdivision, the restrictions that apply to the 12-25 subdivision before the revision apply to the newly created 12-26 subdivision. 12-27 (b) The property owners of the newly created subdivision 13-1 must comply with the petition procedures prescribed by Chapter 204 13-2 to modify the restrictions. 13-3 SECTION 4. The importance of this legislation and the 13-4 crowded condition of the calendars in both houses create an 13-5 emergency and an imperative public necessity that the 13-6 constitutional rule requiring bills to be read on three several 13-7 days in each house be suspended, and this rule is hereby suspended.