                                 ATTORNEY GENERAL OF TEXAS
                                               GREG        ABBOTT




                                                    June 10,2010



The Honorable Glenn Hegar                                 Opinion No. GA-0780
Chair, Sunset Advisory Commission
Texas State Senate                                        Re: Application and constitutionality of section
Post Office Box 12068                                     5.017(b) of the Texas Property Code with respectto
Austin, Texas 78711-2068                                  restrictive covenants that were in 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' ... which were recorded and in existence prior to its
effective date. ,,2 If so, you also ask whether "Section 5.0 17(b) as applied to pre-existing, recorded
restrictive covenants ... violate[s1 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


         lUnder the Property Code, a "restrictive covenant" includes "any covenant, condition, or restriction contained
in a dedicatory instrument." TEx. PROP. CODE ANN. § 202.001(4) (Vernon 2007). A "dedicatory instrument" is a
"governing instrument covering the establishment, maintenance, and operation of a residential subdivision, planned unit
development, condominium or townhouse regime, or any similar planned development." Id. § 202.001(1).

          'See Request Letter at 3 (available at http://www.texasattorneygeneral.gov) (footnote added). Although you
ask broadly about section 5.017(b)'s application to restrictive covenants in general, you also ask about the section's
application to a specific deed restriction that requires owners of property in the Weston Lakes residential development
to acquire and maintain a membership in the Weston Lakes country club. !d. at 1-2. However, section 5.017(b)'s
application to a specific deed restriction cannot be determined without first construing the deed restriction, a function
that is beyond the scope of an attorney general opinion. See Tex. Att'y Gen. Op. No. GA-0594 (2008) at 4 n.5
(observing that because "[i]nstruments such as dedications and restrictive covenants are subject to the general rules of
contract construction ... it may not be possible to construe them in an attorney general opinion"). Accordingly, we
confme our consideration to your broader question as it is stated above. See Tex. Att'y Gen. Op. No. GA-0l76 (2004)
at 2 (stating that this office generally does not construe the terms of a particular contract but will address applicable
general legal principles).
The Honorable Glenn Hegar - Page 2                     (GA-0780)



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 "ifit 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 [anJ 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.J2001, 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, "[rJetroactive 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 MC.C., 187 S.W.3d 383, 384 (Tex. 2006).5 The Code Construction
Act instructs that "[aJ statute is presumed to be prospective in its operation unless expressly made
retrospective." TEx. GOV'T CODE ANN. § 311.022 (Vemon 2005) (emphasis added). Any doubts
about the intended operation of a statute are to be resolved against retroactive application. Ex parte
Abell, 613 S.W.2d 255, 258 (Tex. 1981); accord City ofHouston, 196 S.W.3d at 283 n.15.

       With these principles in mind, we tum 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 assigus to pay a declarant or other person imposing the
                  deed restriction or covenant on the property or a third party


          3Detennining whether a statute has retroactive effects is but one step in the analysis of a statute's
constitutionality under article I, section 16, however. See Subaru ofAm., Inc. v. DavidMcDavidNissan, Inc., 84 S. W.3d
212,219 (Tex. 2002). "A retroactive statute only violates our Constitution if, when applied, it takes away or impairs
vested rights acquired under existing law." !d. Furthennore, the constitutionality of a retroactive statute may depend
on other considerations, such as whether the statute is a valid exercise ofthe state's police powers. See, e.g., Barshop
v. Medina County Underground Waler Conservation Dist., 925 S.W.2d 618,633-35 (Tex. 1996) (stating that "[aj valid
exercise ofthe police power by the Legislature to safeguard the public safety and welfare can prevail over a fmding that
a law is unconstitutionally retroactive," and that "the contract clause may yield to statutes which are necessary to
safeguard the public safety and welfare").

        4See also City of Houston v. Houston Firefighters' Relief & Ret. Fund, 196 S.W.3d 271, 283 n.15 (Tex.
App.-Houston [1st Dist.j2006, no pet.) (noting ''that 'Texas law militates strongly against the retroactive application
of laws"') (quoting Houston Indep. Sch. Dist. v. Houston Chronicle PubZ'g Co., 798 S.W.2d 580, 585 (Tex.
App.-Houston [1st Dist.jI990, writ denied)).

        'The general presumption that a statute operates prospectively does not apply for a statute that is merely
procedural or remedial. State v. Fid. & Deposit Co. ofMd., 223 S.W.3d 309, 312 n.2 (Tex. 2007).
The Honorable Glenn Hegar - Page 3                      (GA-0780)



                   designated by a transferor ofthe 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. § 5.0 17(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. ld. § 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. ld. 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



          'While you do not raise them in your request, we are aware that there are additional questions about the proper
construction ofsectiou 5.017(b). We confme our consideration to the questions as posed by you and, therefore, do not
address any such collateral questions. Tex. Att'y Gen. Op. No. GA-0762 (20 I 0) at 4 n.5 (attorney general opinions are
limited to the specific questions asked by an authorized requestor). Nothing in this opinion should be interpreted to limit
the rights of any party to pursue claims for violations of section 5.017.

        'The transition clause appears in House Bill 2207 ofthe 80th Legislature, regular session, which added sections
5.016 and 5.017 to the Property Code. Act of May 27, 2007, 80th Leg., R.S., ch. 1056, § 2, 2007 Tex. Gen. Laws 3654,
3655.
The Honorable Glenn Hegar - Page 4              (GA-0780)



       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 5.0 17(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.
The Honorable Glenn Hegar - Page 5           (GA-0780)



                                      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.




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
