Opinion No. GA-0780

Attorney General of Texas — Opinion
June 10, 2010.

GREG ABBOTT, Attorney General of Texas

The Honorable Glenn Hegar Chair, Sunset Advisory Commission Texas State Senate Post Office Box 12068 Austin, Texas 78711-2068

Re: Application and constitutionality of section 5.017(b) of the Texas Property Code with respect to restrictive covenants that were hi existence and recorded in a county’s public records prior to the statute’s effective date (RQ-0843-GA)

Dear Senator Hegar:

Section 5.017 of the Texas Property Code prohibits and declares void deed restrictions and other covenants running with the land that require certain transfer fees. TEX. PROP. CODE ANN. § 5.017(b) (Vernon Supp. 2009). You ask first whether, as a matter of statutory construction, section 5.017(b) applies “to restrictive covenants[1] . . . which were recorded and in existence prior to its effective date.”[2] If so, you also ask whether “Section 5.017(b) as applied to pre-existing, recorded restrictive covenants . . . violate[s] the prohibition on retroactive laws and laws impairing the obligation of contracts contained in Article I, Section 16 of the Texas Constitution.” Request Letter at 3.

While you state your questions separately, a statute’s construction and its constitutionality are interrelated issues. When considering a statute challenged under article I, section 16, courts begin with the presumption that the statute is constitutional and, therefore, attempt “to avoid

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constitutional problems if possible.” Brooks v. Northglen Ass’n, 141 S.W.3d 158, 169-70 (Tex. 2004) (construing a homeowner association late fee statute in connection with an article I, section 16 challenge). Article I, section 16 prohibits the Legislature from making a “retroactive law, or any law impairing the obligation of contracts.” TEX. CONST, art. I, § 16. In general, a statute is unconstitutionally retroactive “if it takes away or impairs vested rights acquired under existing law.” City of Tyler v. Likes, 962 S.W.2d 489, 502 (Tex. 1997).[3] Also, under article I, section 16, a contractual “obligation is impaired when a statute is enacted that releases a part of [an] obligation or to any extent or degree amounts to a material change or modifies it.” Price Pfister, Inc. v. Moore Kimmey, Inc., 48 S.W.3d 341, 356 (Tex. App.-Houston [14th Dist.] 2001, pet. denied).

Whether a statute operates retrospectively depends on the Legislature’s intent. Deacon v. City of Euless, 405 S.W.2d 59, 61 (Tex. 1966). However, “[Retroactive statutes are generally regarded with disfavor.”Hutchings v. Slemons, 174 S.W.2d 487, 490 (Tex. 1943).[4] “Statutes are only applied retroactively if the statutory language indicates that the Legislature intended that the statute be retroactive.” In re M.C.C., 187 S.W.3d 383, 384 (Tex. 2006).[5] The Code Construction Act instructs that “[a] statute is presumed to be prospective in its operation unles expressly made retrospective” TEX. GOV’T CODE ANN. § 311.022 (Vernon 2005) (emphasis added). Any doubts about the intended operation of a statute are to be resolved against retroactive application. Exparte Abell, 613 S.W.2d 255, 258 (Tex. 1981); accord City of Houston, 196 S.W.3d at 283 n. 15.

With these principles in mind, we turn to subsection 5.017(b) of the Property Code, which provides:

A deed restriction or other covenant running with the land applicable to the conveyance of residential real property that requires a transferee of residential real property or the transferee’s heirs, successors, or assigns to pay a declarant or other person imposing the deed restriction or covenant on the property or a third party

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designated by a transferor of the property a fee in connection with a future transfer of the property is prohibited. A deed restriction or other covenant running with the land that violates this section or a lien purporting to encumber the land to secure a right under a deed restriction or other covenant running with the land that violates this section is void and unenforceable. For purposes of this section, a conveyance of real property includes a conveyance or other transfer of an interest or estate in residential real property.

TEX. PROP. CODE ANN. § 5.017(b) (Vernon Supp. 2009). Subsection (c) creates exceptions for fees that are payable to certain property owners’ associations, section 501(c)(3) entities, and governmental entities. Id. § 5.017(c).

Section 5.017(b) broadly prohibits deed restrictions requiring certain transfer fees.[6] The section does not state that it applies to deed restrictions in existence prior to the effective date of the statute, rendering them void. Nor does the section’s transition provision indicate that the statute operates retroactively to render existing and recorded restrictive covenants void. The transition clause for section 5.017 states:

The change in law made by this Act applies only to a transfer of property that occurs or a contract entered into on or after the effective date of this Act. A transfer of property that occurs or a contract entered into before the effective date of this Act is governed by the law in effect immediately before the effective date of this Act, and that law is continued in effect for that purpose.

Act of May 27, 2007, 80th Leg., R.S., ch. 1056, § 2, 2007 Tex. Gen. Laws 3654, 3655. The first sentence of the transition clause states that the statute applies to a property transfer that occurs or a contract entered into after the effective date, but does not address deed restrictions existing and recorded prior to the statute’s effective date. Id. The second sentence preserves the law in effect for a contract entered into prior to the statute’s effective date. A deed restriction or restrictive covenant is a type of contract. See Tien Tao Ass’n v. Kingsbridge Park Cmty. Ass’n, 953 S.W.2d 525, 533 (Tex. App.-Houston [1st Dist] 1997, no pet.) (stating that particular “deed restrictions comprise a contract between the homeowner and the neighborhood association”). Thus, the transition clause appears to preserve the law in effect for a deed restriction established prior to the statute’s effective date.[7]

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Neither section 5.017 nor the transition clause reveals legislative intent, express or otherwise, that would overcome the presumption that the statute is intended to operate prospectively. Consequently, we conclude that section 5.017(b) of the Property Code does not apply to restrictive covenants that were in existence and recorded prior to the statute’s effective date. Because we conclude that section 5.017(b) operates prospectively only, we do not reach your second question.

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SUMMARY

Section 5.017(b) of the Property Code does not apply to restrictive covenants that were in existence and recorded prior to the statute’s effective date.

Very truly yours,

ANDREW WEBER First Assistant Attorney General
JONATHAN K. FRELS Deputy Attorney General for Legal Counsel
NANCY S. FULLER Chair, Opinion Committee
William A. Hill Assistant Attorney General, Opinion Committee

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