Texas Legislative Update: New Laws Impacting Real Estate Developers and Builders
More than 10,000 bills were filed during the 86th Texas legislative session. Some of the bills that were filed and ultimately signed into law specifically impact the real estate and construction industries. Below is a breakdown of six new laws that will likely impact real estate developers and builders in Texas.
HB 852 – Building Permit Fees
The Texas Constitution prohibits municipalities from imposing fees that are considered an occupation tax. In determining whether a fee imposed by a municipality’s ordinance is an occupation tax, courts look to see if the fee raises revenue in excess of what is reasonably needed for the regulation. More specifically, to be reasonable, the fee charged for the permit cannot be more than it costs to run the program. In other words, building permit fees should only cover the municipality’s direct costs and reasonable indirect costs associated with review of building plans, inspections, and permit processing.
Despite this existing requirement, rather than base the cost of residential building permits on the cost to perform the services, numerous municipalities calculate their permit fees based on the alleged value of the property as set forth in a chart created by the International Code Council. This type of calculation typically leads to revenues in excess of what it costs to provide building permits.
HB 852 was introduced to combat this type of permit calculation. This bill amends the Texas Local Government Code to prohibit municipalities from using the valuation or construction cost of a residential dwelling to determine the amount of permit or inspection fees charged. This new law also prevents municipalities from requiring disclosure of information related to the valuation or construction cost of a residential dwelling as a condition for obtaining a building permit, unless required for FEMA National Flood Insurance Program participation. This new law is effective immediately.
HB 1743 – Reducing Agriculture Rollback Tax
In order to lower their taxes, many property owners maintain land as agricultural before they develop it into another kind of use. When the land receiving the agricultural exemption changes to a non-agricultural use, the property owner who changes the use will owe a rollback tax. The rollback tax is the difference between the taxes paid on the land’s agricultural value and the taxes paid if the land had been taxed on its higher market value. The rollback tax is due for each of the previous five years in which the land received the lower appraisal. Plus, the property owner pays 7% interest for each year from the date the taxes would have been due.
This bill amends the Texas Tax Code to lower the number of years that the agriculture rollback tax is due from five years to three years and lowers the interest rate owed on those back taxes from 7% to 5%. This new law is effective on September 1, 2019.
HB 2439 – Prohibition on Governmental Product Mandates
This bill amends the Texas Government Code to prohibit cities and other governmental entities from using building codes or other local ordinance powers to mandate vendor-driven and product-specific mandates in construction, which result in the direct or indirect prohibition of other products approved by national codes and standards. Specifically, this new law provides that a governmental entity may not adopt a rule, charter, ordinance, building code, or other regulation that:
(a) prohibits or limits, directly or indirectly, the use or installation of a building product or material in the construction, renovation, maintenance, or other alteration of a residential or commercial building if the building product or material is approved for use by a national model code published within the last three code cycles that applies to the construction; or
(b) establishes a standard for a building product, material, or aesthetic method in construction, renovation, maintenance, or other alteration of a residential or commercial building if the standard is more stringent than a standard for the product, material, or aesthetic method under a national model code published within the last three code cycles that applies to the construction.
This new law does, however, have numerous exemptions, including historic buildings, certain government funded housing and disaster recovery programs, and certain lighting requirements to meet dark sky ordinances. This new law is effective on September 1, 2019.
HB 3167 – Consistent Development Plan and Plat Review Timelines
This bill amends the Texas Local Government Code to provide certain timelines for city/county review of development plans and plats. Under this new law, the municipal authority responsible for approving a plat shall approve, approve with conditions, or disapprove a plan—including subdivision development plans, subdivision construction plans, site plans, land development applications, and site development plans—and a plat within 30 days after the date the plan or plat is filed. Previously, this timeline requirement only applied to plats, not plans. Additionally, if a plan or plat is required to be approved by the governing body of the municipality in addition to the planning commission, the governing body must approve, approve with conditions, or disapprove the plan or plat within 30 days after the date the plan or plat is approved by the planning commission. While the parties can agree to extend the deadline by no more than 30 days, if the governing body fails to timely address the plan or plat, it is automatically approved.
Additionally, a municipal authority or governing body that conditionally approves or disapproves a plan or plat is required to provide the applicant with written conditions or reasons for disapproval that clearly articulate each specific condition for the conditional approval or reasons for disapproval. Each reason must include a citation to the law that is the basis for the conditional approval or disapproval and the reasons must not be arbitrary.
The applicant then has the opportunity to submit a written response that satisfies each condition for the conditional approval or remedies each stated reason for disapproval. After receiving the applicant’s response, the municipality has 15 days to either approve or disapprove the plan or plat. If the municipality fails to timely do so – and the applicant adequately addresses all of the conditions or reasons for the disapproval – then the plan or plat is approved. Additionally, the municipality is prohibited from coming up with new reasons to deny the plan or plat that were not previously stated by the municipality.
In a legal action challenging the disapproval of a plan or plat, the municipality has the burden of proving by clear and convincing evidence that the disapproval meets the requirements of the new law. Moreover, a court may not use a differential standard in favor of the municipality. This new law is effective on September 1, 2019.
HB 2496 – Historic Landmark Designation
This bill is supposed to protect individual property rights and provide uniformity and fairness in the process to designate property as a historic landmark. Under this new law, a municipality may not designate a property as a local historic landmark unless: (1) the owner of the property consents to the designation; or (2) the designation is approved by a three-fourths vote of the governing body of the municipality and the zoning, planning, or historical commission of the municipality. Religious institutions are provided even more protections. Under the new law, a municipality may designate a religious organization’s property as a local historic landmark only if the religious organization consents. This new law is effective on September 1, 2019.
HB 347 – Annexation
In the 2017 legislative session, SB 6 was passed, which significantly changed annexation laws in Texas. SB 6 divided counties into two tiers. Municipalities in tier 2 counties—counties with over 500,000 in population—could annex land only after holding an election in the area proposed to be annexed and having a majority of the voters approve the annexation. However, municipalities in tier 1 counties—counties with less than 500,000 in population—could annex land without holding an election or receiving approval from a majority of the landowners. Under the new law, as set forth in HB 347, all counties are considered the same for purposes of annexation. There is no longer a two tiered system. Now, if a municipality wants to annex land in any county, it must hold an election in the area proposed to be annexed and have a majority of the voters approve the annexation. This new law is effective immediately.
As a partner in Jackson Walker’s Dallas office, Steven W. Dimitt has built a practice representing clients—including large corporations, small businesses, and individuals—in a broad range of matters involving disputes in state and federal court, drafting and negotiating transactions, and serving as an outside general counsel. Steven takes the time to gain a thorough understanding of his clients’ needs and provides value-added solutions to help his clients through any legal issues they are facing in their businesses. Since 2016, Steven has been named among D Magazine‘s “Best Lawyers in Dallas” list.
The opinions expressed are those of the author and do not necessarily reflect the views of the firm, its clients, or any of its or their respective affiliates. This article is for informational purposes only and does not constitute legal advice.