A federal appellate court has upheld the City of New Braunfels’ regulations on short-term property rentals.
The case highlights an ongoing debate over whether a homeowner’s assumed right to lease their property on a short-term basis outweighs a local government’s interest in preventing nuisances and protecting the residential character of its neighborhoods.
Background
In 2006, the City of New Braunfels enacted a comprehensive zoning ordinance.
This included certain restrictions on the occupancy of one- or two-unit dwellings “for less than 30 consecutive days” outside of certain commercial districts. It also prohibited short-term rentals in certain districts that are zoned “residential.”
The ordinance was amended in 2011 to significantly expand the regulation of short-term rentals.
Rafael Marfil, Verge Productions LLC, Enrico Marfil, Naomi Marfil, Korey Rholack, Daniel Olveda, and Douglas Mathes purchased their New Braunfels properties between 2011 and 2018, all located in residential zoning districts where short-term rentals are prohibited.
The ordinance contains a provision allowing property owners to apply for a zoning change to their property for the purpose of engaging in short-term rentals. Each of the aforementioned property owners, other than Mathes, applied for a zoning change and was denied.
In response, the property owners filed a federal lawsuit against the City of New Braunfels in the U.S. District Court for the Western District of Texas, arguing that the ordinance violated their rights under the Due Process and Equal Protection Clauses of the U.S. and Texas Constitutions.
Specifically, the plaintiffs asserted that the “right to lease” is an “inherent liberty and property right.”
In December 2024, District Judge Alan Albright ruled in favor of the city on all claims. Plaintiffs appealed this decision to the U.S. Fifth Circuit Court of Appeals in New Orleans.
The Ruling
Last week, the Fifth Circuit affirmed Judge Albright’s order, finding that the city ordinance passed constitutional muster.
First, the court refuted the plaintiffs’ claim that “Texas courts have repeatedly held that this right to lease includes the right to lease one’s home on a short-term basis,” finding that it either overstated or misstated the holdings of the Texas courts.
The opinion highlighted two relevant rulings from Texas appellate courts, concerning ordinances passed by the cities of Grapevine and Fort Worth. The rulings held that such a right existed only retroactively, when a property owner had already been engaged in short-term leasing prior to the ordinance’s enactment, effectively being “grandfathered in.”
Moreover, the state courts had determined that there was “no vested right to lease the properties short-term,” and “the city’s ordinances were rationally related to legitimate government interests in preserving the character of single-family residential neighborhoods.”
Because Texas courts have not recognized such a right, the Fifth Circuit struck down plaintiffs’ due process claim, finding that they were not deprived of a constitutionally protected right.
On the equal protection claims, the plaintiffs had argued that the city’s distinction between 29- and 30-day rentals is arbitrary or does not meaningfully advance a legitimate government interest. The same argument was made regarding the city’s line drawing when creating residential zoning districts.
However, the Fifth Circuit determined that the lines would have to be drawn somewhere, and that residents on either side of the line would have reasonable “favored treatment” claims no matter where it was drawn.
The court further held that an ordinance “explicitly intended to enhance property values, promote economic development, and provide identity and a sense of community” concerned purposes that “easily serve” as legitimate local justification for a municipal zoning ordinance.
“Finding no reversible error, we AFFIRM the judgment of the district court,” the opinion concluded.
Cities across the country, and world, have begun to crack down on Airbnb-style rentals in residential neighborhoods—in an attempt to preserve community character in light of increased “nuisance” party houses. Cities like New York City, Santa Monica, and Barcelona have adopted 30-day restrictions closely mirroring that of New Braunfels.
Courts have largely upheld these measures in favor of local municipalities, finding that they serve a legitimate government purpose, fueling the debate over what property owners can do with their homes.
If you or anyone you know has information regarding court cases, please contact our tip line: scorecardtips@protonmail.com.
