1-1 By: Bailey, Combs (Senate Sponsor - Gallegos) H.B. No. 2152 1-2 (In the Senate - Received from the House May 10, 1995; 1-3 May 11, 1995, read first time and referred to Committee on 1-4 Jurisprudence; May 25, 1995, reported favorably by the following 1-5 vote: Yeas 4, Nays 0; May 25, 1995, sent to printer.) 1-6 A BILL TO BE ENTITLED 1-7 AN ACT 1-8 relating to restrictive covenants in certain residential real 1-9 estate subdivisions. 1-10 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-11 SECTION 1. (a) Public policy considerations require that a 1-12 procedure be available to allow for the extension of, addition to, 1-13 or modification of existing property restrictions in residential 1-14 real estate subdivisions. 1-15 (b) The legislature finds that: 1-16 (1) property owners' associations serve to benefit 1-17 residential real estate subdivisions and assist in avoiding the 1-18 problems described by Section 201.002, Property Code; 1-19 (2) there is a special relationship between property 1-20 owners' associations and the property owners within the 1-21 subdivisions; 1-22 (3) it is in the best interest of residential real 1-23 estate subdivisions that a procedure be available to readily 1-24 facilitate increases in the amount of the regular or special 1-25 assessments to allow the property owners' associations to better 1-26 provide services to the subdivisions; and 1-27 (4) restrictions that severely limit the amount of the 1-28 regular assessment may result in the inability of an ineffective 1-29 property owners' association to maintain common area facilities, 1-30 including swimming pools, tennis courts, clubhouses, greenbelt 1-31 areas, or jogging trails, or to provide services, including 1-32 streetlights, security, architectural control, and deed restriction 1-33 enforcement. 1-34 (c) The purpose of this Act is to: 1-35 (1) provide a less burdensome procedure for extending 1-36 the term of, adding to, or modifying residential real estate 1-37 restrictions by approval and circulation of a petition by a 1-38 property owners' association; 1-39 (2) provide for the removal of any restriction or 1-40 other provision relating to race, religion, or national origin that 1-41 is void and unenforceable under either the United States 1-42 Constitution or Section 5.026, Property Code; and 1-43 (3) codify certain powers of property owners' 1-44 associations. 1-45 SECTION 2. Title 11, Property Code, is amended by adding 1-46 Chapter 204 to read as follows: 1-47 CHAPTER 204. POWERS OF PROPERTY OWNERS' ASSOCIATION RELATING 1-48 TO RESTRICTIVE COVENANTS IN CERTAIN SUBDIVISIONS 1-49 Sec. 204.001. DEFINITIONS. In this chapter: 1-50 (1) "Restrictions," "residential real estate 1-51 subdivision," "subdivision," "owner," "real property records," and 1-52 "lienholder" have the meanings assigned by Section 201.003. 1-53 (2) "Dedicatory instrument," "petition," and 1-54 "restrictive covenant" have the meanings assigned by Section 1-55 202.001. 1-56 (3) "Regular assessment" means an assessment, charge, 1-57 fee, or dues that each owner of property within a subdivision is 1-58 required to pay to the property owners' association on a regular 1-59 basis and that are to be used by the association for the benefit of 1-60 the subdivision in accordance with the original, extended, added, 1-61 or modified restrictions. 1-62 (4) "Special assessment" means an assessment, charge, 1-63 fee, or dues that each owner of property within a subdivision is 1-64 required to pay to the property owners' association, after a vote 1-65 of the membership, for the purpose of paying for the costs of 1-66 capital improvements to the common areas that are incurred or will 1-67 be incurred by the association during the fiscal year. A special 1-68 assessment may be assessed before or after the association incurs 2-1 the capital improvement costs. 2-2 Sec. 204.002. APPLICATION. (a) This chapter applies only 2-3 to a residential real estate subdivision, excluding a condominium 2-4 development governed by Title 7, Property Code, that is located in 2-5 whole or in part in a county with a population of 2.8 million or 2-6 more. 2-7 (b) This chapter applies to a restriction regardless of its 2-8 effective date. 2-9 (c) This chapter does not apply to portions of a subdivision 2-10 that are zoned for or that contain a commercial structure, an 2-11 industrial structure, an apartment complex, or a condominium 2-12 development governed by Title 7, Property Code. For purposes of 2-13 this subsection, "apartment complex" means two or more dwellings in 2-14 one or more buildings that are owned by the same owner, located on 2-15 the same lot or tract, and managed by the same owner, agent, or 2-16 management company. 2-17 Sec. 204.003. PROVISIONS OF RESTRICTIVE COVENANTS PREVAIL IN 2-18 CERTAIN CIRCUMSTANCES. An express designation in a document 2-19 creating restrictions applicable to a residential real estate 2-20 subdivision that provides for the extension of, addition to, or 2-21 modification of existing restrictions by a designated number of 2-22 owners of real property in the subdivision prevails over the 2-23 provisions of this chapter. 2-24 Sec. 204.004. PROPERTY OWNERS' ASSOCIATION. (a) A property 2-25 owners' association is a designated representative of the owners of 2-26 property in a subdivision and may be referred to as a "homeowners 2-27 association," "community association," "civic association," "civic 2-28 club," "association," "committee," or similar term contained in the 2-29 restrictions. The membership of the association consists of the 2-30 owners of property within the subdivision. 2-31 (b) The association must be nonprofit and may be 2-32 incorporated as a Texas nonprofit corporation. An unincorporated 2-33 association may incorporate under the Texas Non-Profit Corporation 2-34 Act (Article 1396-1.01 et seq., Vernon's Texas Civil Statutes). 2-35 (c) The association's board of directors or trustees must be 2-36 elected or appointed in accordance with the applicable provisions 2-37 of the restrictions and the association's articles of incorporation 2-38 or bylaws. 2-39 Sec. 204.005. EXTENSION OF, ADDITION TO, OR MODIFICATION OF 2-40 EXISTING RESTRICTIONS. (a) A property owners' association has 2-41 authority to approve and circulate a petition relating to the 2-42 extension of, addition to, or modification of existing 2-43 restrictions. A property owners' association is not required to 2-44 comply with Sections 201.009-201.012. 2-45 (b) A petition to extend, add to, or modify existing 2-46 restrictions approved and circulated by a property owners' 2-47 association is effective if: 2-48 (1) the petition is approved by the owners, excluding 2-49 lienholders, contract purchasers, and the owners of mineral 2-50 interests, of at least 75 percent of the real property in the 2-51 subdivision or a smaller percentage required by the original 2-52 dedicatory instrument; and 2-53 (2) the petition is filed as a dedicatory instrument 2-54 with the county clerk of the county in which the subdivision is 2-55 located. 2-56 (c) If a subdivision consisting of multiple sections, each 2-57 with its own restrictions, is represented by a single property 2-58 owners' association, the approval requirement may be satisfied by 2-59 obtaining approval of at least 75 percent of the owners on a 2-60 section-by-section basis or of the total number of properties in 2-61 the property owners' association's jurisdiction. 2-62 (d) If approved, the petition is binding on all properties 2-63 in the subdivision or section, as applicable. 2-64 (e) A property owners' association that circulates a 2-65 petition must notify all record owners of property in the 2-66 subdivision in writing of the proposed extension, addition to, or 2-67 modification of the existing restrictions. Notice may be 2-68 hand-delivered to residences within the subdivision or sent by 2-69 regular mail to the owner's last known mailing address as reflected 2-70 in the ownership records maintained by the property owners' 3-1 association. The approval of multiple owners of a property may be 3-2 reflected by the signature of a single co-owner. 3-3 Sec. 204.006. CREATION OF PROPERTY OWNERS' ASSOCIATION. (a) 3-4 If existing restrictions applicable to a subdivision do not provide 3-5 for a property owners' association and require approval of more 3-6 than 60 percent of the owners to add to or modify the original 3-7 dedicating instrument, a petition to add to or modify the existing 3-8 restrictions for the sole purpose of creating and operating a 3-9 property owners' association with mandatory membership, mandatory 3-10 regular or special assessments, and equivalent voting rights for 3-11 each of the owners in the subdivision is effective if: 3-12 (1) a petition committee has been formed as prescribed 3-13 by Section 201.005; 3-14 (2) the petition is approved by the owners, excluding 3-15 lienholders, contract purchasers, and the owners of mineral 3-16 interests, of at least 60 percent of the real property in the 3-17 subdivision; and 3-18 (3) the procedure employed in the circulation and 3-19 approval of the petition to add to or amend the existing 3-20 restrictions for the specified purpose complies with the 3-21 requirements of this chapter. 3-22 (b) If the circulated petition is not approved by the 3-23 required percentage of owners within one year of the creation of 3-24 the petition committee, the petition is void and another petition 3-25 committee may be formed. 3-26 (c) If the petition is approved, the petition is binding on 3-27 all properties in the subdivision or section, as applicable. 3-28 Sec. 204.007. EFFECT ON LIENHOLDERS. (a) Extensions of, 3-29 additions to, or modifications of restrictions under this chapter 3-30 are binding on a lienholder, excluding restrictions relating to 3-31 regular or special assessment increases if the assessment is not 3-32 subordinated to purchase money or home improvement liens. 3-33 (b) If the assessment lien of the property owners' 3-34 association is subordinate to purchase money or home improvement 3-35 liens, the lienholder is not entitled to notice of the proposed 3-36 dedicatory instrument and the lienholder is bound by the instrument 3-37 if the instrument is approved. If the assessment lien is not 3-38 subordinated, a lienholder who is not a signatory to the dedicatory 3-39 instrument and whose lien was established before the effective date 3-40 of the dedicatory instrument is not bound by the portion of the 3-41 dedicatory instrument that increases the amount of the regular or 3-42 special assessment during any period of ownership by the 3-43 lienholder. 3-44 (c) A person who acquires title to the property at a 3-45 foreclosure sale or by deed from a foreclosing lienholder is bound 3-46 by the assessment increase. 3-47 Sec. 204.008. METHOD OF ADOPTION. An extension, addition 3-48 to, or modification of restrictions proposed by a property owners' 3-49 association may be adopted: 3-50 (1) by a written ballot that states the substance of 3-51 the amendment and specifies the date by which a ballot must be 3-52 received to be counted; 3-53 (2) at a meeting of the members represented by the 3-54 property owners' association if written notice of the meeting 3-55 stating the purpose of the meeting is delivered to each owner of 3-56 property in the subdivision; 3-57 (3) by door-to-door circulation of a petition by the 3-58 property owners' association or a person authorized by the property 3-59 owners' association; 3-60 (4) by a method permitted by the existing 3-61 restrictions; or 3-62 (5) by a combination of the methods described by this 3-63 section. 3-64 Sec. 204.009. TEXAS NONPROFIT CORPORATIONS. (a) If the 3-65 property owners' association is referenced in the existing, 3-66 extended, added to, or modified restrictions as a Texas nonprofit 3-67 corporation, the instrument contemplates the interaction of a 3-68 nonprofit corporation, its articles of incorporation, and its 3-69 bylaws. 3-70 (b) The property owners' association has the powers and 4-1 shall promote the purposes enumerated in the articles of 4-2 incorporation and bylaws. These powers and purposes necessarily 4-3 modify the express provisions of the restrictions to include the 4-4 referenced powers and purposes. 4-5 Sec. 204.010. POWERS OF PROPERTY OWNERS' ASSOCIATION. (a) 4-6 Unless otherwise provided by the restrictions or the association's 4-7 articles of incorporation or bylaws, the property owners' 4-8 association, acting through its board of directors or trustees, 4-9 may: 4-10 (1) adopt and amend bylaws; 4-11 (2) adopt and amend budgets for revenues, 4-12 expenditures, and reserves and collect regular assessments or 4-13 special assessments for common expenses from property owners; 4-14 (3) hire and terminate managing agents and other 4-15 employees, agents, and independent contractors; 4-16 (4) institute, defend, intervene in, settle, or 4-17 compromise litigation or administrative proceedings on matters 4-18 affecting the subdivision; 4-19 (5) make contracts and incur liabilities relating to 4-20 the operation of the subdivision and the property owners' 4-21 association; 4-22 (6) regulate the use, maintenance, repair, 4-23 replacement, modification, and appearance of the subdivision; 4-24 (7) make additional improvements to be included as a 4-25 part of the common area; 4-26 (8) grant easements, leases, licenses, and concessions 4-27 through or over the common area; 4-28 (9) impose and receive payments, fees, or charges for 4-29 the use, rental, or operation of the common area and for services 4-30 provided to property owners; 4-31 (10) impose interest, late charges, and, if 4-32 applicable, returned check charges for late payments of regular 4-33 assessments or special assessments; 4-34 (11) if notice and an opportunity to be heard are 4-35 given, collect reimbursement of actual attorney's fees and other 4-36 reasonable costs incurred by the property owners' association 4-37 relating to violations of the subdivision's restrictions or the 4-38 property owners' association's bylaws and rules; 4-39 (12) charge costs to an owner's assessment account and 4-40 collect the costs in any manner provided in the restrictions for 4-41 the collection of assessments; 4-42 (13) adopt and amend rules regulating the collection 4-43 of delinquent assessments and the application of payments; 4-44 (14) impose reasonable charges for preparing, 4-45 recording, or copying amendments to the restrictions, resale 4-46 certificates, or statements of unpaid assessments; 4-47 (15) purchase insurance and fidelity bonds, including 4-48 directors' and officers' liability insurance, that the board 4-49 considers appropriate or necessary; 4-50 (16) if the restrictions allow for an annual increase 4-51 in the maximum regular assessment without a vote of the membership, 4-52 assess the increase annually or accumulate and assess the increase 4-53 after a number of years; 4-54 (17) subject to the requirements of the Texas 4-55 Non-Profit Corporation Act (Article 1396-1.01 et seq., Vernon's 4-56 Texas Civil Statutes) and by majority vote of its board of 4-57 directors, indemnify a director or officer of the property owners' 4-58 association who was, is, or may be made a named defendant or 4-59 respondent in a proceeding because the person is or was a director; 4-60 (18) if the restrictions vest the architectural 4-61 control authority in the property owners' association or if the 4-62 authority is vested in the property owners' association under 4-63 Section 204.011: 4-64 (A) implement written architectural control 4-65 guidelines for its own use or record the guidelines in the real 4-66 property records of the applicable county; and 4-67 (B) modify the guidelines as the needs of the 4-68 subdivision change; 4-69 (19) exercise other powers conferred by the 4-70 restrictions, its articles of incorporation, or its bylaws; 5-1 (20) exercise other powers that may be exercised in 5-2 this state by a corporation of the same type as the property 5-3 owners' association; and 5-4 (21) exercise other powers necessary and proper for 5-5 the governance and operation of the property owners' association. 5-6 (b) Powers enumerated by this section are in addition to any 5-7 other powers granted to a property owners' association by this 5-8 chapter or other law. 5-9 Sec. 204.011. ARCHITECTURAL CONTROL COMMITTEE. (a) This 5-10 section applies to restrictions providing for the creation and 5-11 operation of an architectural control committee with the power to 5-12 approve or deny applications for proposed original construction or 5-13 modification of a building, structure, or improvement. 5-14 (b) Unless the restrictions applicable to a residential real 5-15 estate subdivision vest the architectural control committee 5-16 authority in the property owners' association before either of the 5-17 following events, the architectural control committee authority 5-18 automatically vests in the property owners' association when: 5-19 (1) the term of the architectural control committee 5-20 authority expires as prescribed by the restrictions; 5-21 (2) a residence on the last available building site is 5-22 completed and sold; 5-23 (3) the person or entity designated as the 5-24 architectural control committee in the restrictions assigns, in 5-25 writing, authority to the property owners' association; or 5-26 (4) an assignee of the original holder abandons its 5-27 authority for more than one year. 5-28 (c) If the architectural control committee authority is 5-29 transferred to the property owners' association, the authority is 5-30 vested in the property owners' association until: 5-31 (1) the restrictions are modified to reflect 5-32 otherwise; 5-33 (2) the restrictions are terminated; or 5-34 (3) the property owners' association ceases to exist. 5-35 SECTION 3. Title 11, Property Code, is amended by adding 5-36 Chapter 205 to read as follows: 5-37 CHAPTER 205. RESTRICTIVE COVENANTS APPLICABLE TO REVISED 5-38 SUBDIVISIONS IN CERTAIN COUNTIES 5-39 Sec. 205.001. DEFINITIONS. In this chapter, "restrictions" 5-40 and "subdivision" have the meanings assigned by Section 201.003. 5-41 Sec. 205.002. APPLICABILITY. This chapter applies only to a 5-42 county with a population of 65,000 or more. 5-43 Sec. 205.003. RESTRICTIONS APPLICABLE TO REVISED 5-44 SUBDIVISIONS. (a) If all or part of a subdivision plat is revised 5-45 to provide for another subdivision of land within all or part of 5-46 the earlier subdivision, the restrictions that apply to the 5-47 subdivision before the revision apply to the newly created 5-48 subdivision. 5-49 (b) The property owners of the newly created subdivision 5-50 must comply with the petition procedures prescribed by Chapter 204 5-51 to modify the restrictions. 5-52 SECTION 4. The importance of this legislation and the 5-53 crowded condition of the calendars in both houses create an 5-54 emergency and an imperative public necessity that the 5-55 constitutional rule requiring bills to be read on three several 5-56 days in each house be suspended, and this rule is hereby suspended. 5-57 * * * * *