Property Management Legislative UpdatePresented by Andrew Cates, Associate Counsel & Abby Lee, Associate Counsel

May 22, 2013

OutlineOverview of Legislative ProcessHow to Stay InformedKey IssuesBills Affecting Property ManagementEviction Rules UpdateQuestions

Overview of Legislative ProcessWhat is it? How does it work?When does it occur? How long is it?Regular v. Special Session?

Overview of Legislative ProcessWhat is it? Generally, session is the period of time in which a legislature is convened for the purpose of lawmaking.

Overview of Legislative ProcessHow does it work?The Legislature is the lawmaking body of the State of Texas. It consists of two chambers, the house of representatives and the senate.

Overview of Legislative Process

Overview of Legislative ProcessWhen does it occur? The Legislature meets in regular session on the second Tuesday in January of each odd-numbered year.

Currently, we are in the 83rd Regular Session. Session began on Tuesday, January 8, 2013.

Overview of Legislative Process How long is it?The Texas Constitution limits the regular session to 140 calendar days.

Regular session will end on Monday, May 27, 2013.

Overview of Legislative ProcessRegular v. Special Session?Only the Governor may call the Legislature into special sessions. The Governor may call as many sessions as he or she wishes. The Texas Constitution limits the duration of each special session to 30 days; lawmakers may consider only those issues designated by the Governor in his "call," or proclamation convening the special session (though other issues may be added by the Governor during a session).

Overview of Legislative Process

How many bills have been filed this session?5,867

How many is TAR following?2,130

How to Stay Informed

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Key IssuesTransportation Energy Water Appraisal reform: CADsSales price disclosureSales tax on real estate transactionsProperty tax lenders

Key IssuesTransportation What are the issues? In order to ensure a safe and efficient transportation system, the following must be addressed:congestion, capacity, construction and maintenance costs,safety, age and condition of roadways, and the impact transportation delays have on air quality, costs of goods, and quality of life.

Key IssuesTransportation What does this mean for real estate?An insufficient transportation network:impedes commerce,Increases the costs of goods and services,creates air quality issues,limits viable housing options, andand decreases the quality of life.

Key IssuesTransportation What is our position? The Texas Association of REALTORS supports the following:a statewide, multi-modal transportation system that facilitates safe and efficient movement of people and goods, including sufficient transportation choices, such as roads, freight and passenger rail, waterways, sea and inland ports, and air,dedicated, permanent, sustainable funding sources should be grated to the states transportation funds, including the Texas Mobility Fund and the Rail Relocation Fund,all non-education diversions from the state gasoline tax should cease, andthe Texas Transportation Commission should endure accountability, transparency, and public involvement in the planning process.

Key IssuesEnergyWhat are the issues? The costs of energy (natural gas, electricity, and gasoline) have increased over the past several years, and Texans have had to dedicate a growing portion of their household income toward these costs.Texas companies also need adequate, reliable, and reasonably priced energy. Without access to energy, the economic prosperity of Texas and its citizens is threatened.

Key IssuesEnergyWhat does this mean for real estate? With the population of Texas expected to nearly double by 2060, lawmakers must find ways to support expansion of the energy system to ensure availability, reliability, and affordability for future generations.

Without expansion of current capacity and development of other generation sources, inadequacy in the current electric system during peak usage will lead to brownouts and blackouts. A state that cant provide adequate and reliable energy to consumers will not be able to support population growth or the expansion of business and manufacturing in the state, which would dramatically affect the vitality of the real estate industry in Texas.

Key IssuesEnergyWhat is our position? The Texas Association of REALTORS supports the following:the establishment of a comprehensive statewide energy policy,the movement toward non-polluting energy sources, having the state evaluate the effectiveness of deregulation and regulation of the electric industry, encourage the expansion and addition of electric generation capacity, and provide incentives for consumer compliance with voluntary green standards for homes and businesses, andmaintaining the electric system independence to ensure system reliability.

Key IssuesWaterWhat are the issues? In serious drought conditions, Texas does not and will not have enough water to meet needs of the people, businesses, and agricultural enterprises.The Texas Water Development Board (TWDB) estimated that more than 50% of the projected population (it is estimated that the population will increase approx. 82% by 2060, from 25 million to 46.3 million) will not have enough water during drought conditions.There is no dedicated state funding source to pay for strategies and projects identified by TWDB to meet the states growing need. The strategies and projects identified in the current water plan are estimated to cost about $53 billion.

Key IssuesWaterWhat does this mean for real estate?The availability of water supports the economic growth and settlement patterns of the state. Hence, if Texas cant secure clean and reliable water supplies to meet the demands of its growing population, the growing population will turn into a diminishing population.As a result, businesses will relocate or not consider Texas as a viable option for investment or expansion.Economic losses from not meeting water supply needs could result in a reduction in income and loss of jobs.Landowners must also be able to rely on secure private property rights as the state looks to ensure water availability through management and conservation.

Key IssuesWaterWhat is our position? The Texas Association of REALTORS supports the following:funding the state water plan,finding financial resources to ensure a safe and abundant water supply for future generations, and having groundwater conservation districts balance the rights of permit holders with the needs of the area the district serves. Such districts should be required to apply rules and regulations consistently and fairly.

Key IssuesAppraisal reform: Central appraisal districtsWhat are the issues?Many commercial and residential property owners believe the appraisal and protest processes are not transparent, fair, or uniform across central appraisal districts (CADs). The appraisal process and local taxing jurisdictions budget processes have become increasingly convoluted and difficult to understand.

Key IssuesAppraisal reform: Central appraisal districtsWhat does this mean for real estate?A transparent and improved appraisal process for commercial and residential property means a more stable and reliable real estate market.

Key IssuesAppraisal reform: Central appraisal districtsWhat is our position?The Texas Association of REALTORS supports legislation that:changes how an effective tax rate is calculated to ensure no new revenue is realized by local taxing jurisdictions when local property values increase,repeals the petition requirement before a rollback election for a city or county is held, andrepeals Section 41A.031 of the Tax Code (expedited arbitration) for property tax appeals.

Key IssuesSales price disclosureWhat are the issues? Some appraisal districts, cities, and counties argue for full disclosure of all real estate sales prices to establish the value of real property in Texas.There are numerous problems with basing value (especially taxable value) on the sales price. For instance, appraisal districts do not consider seller concessions, which can lead to artificially high tax appraisal values in the year of purchase and beyond.There is also a problem with subdivisions that feature unequally sized lots or custom built homes.

Key IssuesSales price disclosureWhat are the issues? Other issues concern farm and ranch properties where improvements like trade fixtures and livestock are included in the sales price.Additionally, issues arise with commercial properties, which may include a business and/or trade fixtures and properties where mineral rights are included or excluded from the sale.

Key IssuesSales price disclosureWhat does this mean for real estate?Sales price disclosure will lead to a more than $250 million property tax increase for property owners. Increasing property taxes would be a disincentive to homeownership and enterprise resulting in harm to the real estate market and the economy in Texas.

Key IssuesSales price disclosureWhat is our position?The Texas Association of REALTORS opposes mandatory sales price disclosure because of the following: sales price is not necessarily a good indicator of taxable value,its an unnecessary invasion of privacy, andit could pave the way for a new real estate transfer tax in Texas, as most states that require sales price disclosure use it to compute tax liability for the transfer of real estate.

Key IssuesSales tax on real estate transactionsWhat is the issue?There are proposals for an expansion of the sales-tax base to include the sale or lease of real property.

Key IssuesSales tax on real estate transactionsWhat does this mean for real estate?A sales tax on real estate transactions would make real property less affordable and result in fewer transactions. Any sales tax applied to real estate transactions would require purchasers to bring more money to the table.Applying sales tax to real estate transactions would initially destroy the first time homebuyer sector.

Key IssuesSales tax on real estate transactionsWhat is our position?The Texas Association of REALTORS opposes efforts to expand the sales tax base to include real estate transactions.

Key IssuesProperty tax lendersWhat are the issues?Property tax loans are a legitimate tool for residential and commercial property owners, but high interest rates, exorbitant fees, unregulated entities, and deceptive and aggressive marketing practices plague the industry.The Texas Tax Code establishes the authority and procedure for entities to pay delinquent and non-delinquent taxes of property owners. Additionally, the law enables entities to assume priority lien status upon payment of property taxes. This super priority status enables the entity to conduct non judicial foreclosure proceedings upon a default of a loan.Property tax lenders are regulated by the Office of Consumer Credit Commissioner (OCCC). However, the introduction of a robust secondary market has complicated the issue by bringing unlicensed and unregulated entities into the equation.

Key IssuesProperty tax lendersWhat does this mean for real estate? Some property tax lenders sell their notes to investors and hedge funds, which forces property owners to pay interest and penalties to an unlicensed and unregulated entity. The OCCC has failed to take any action to prevent this.These investors are likely to foreclose unlike most banks and taxing entities, which could lead to the next foreclosure crisis.

Key IssuesProperty tax lendersWhat is our position?The Texas Association of REALTORS believes the following should be addressed:property tax lenders should be regulated by an agency with the proper expertise and experience,liens associated with defaulted property tax loans should not take priority over other liens, andcurrent law should be expanded to mandate installment plans for delinquent property taxes.

Bills Affecting Property ManagementHouse billsSenate bills362252332443463563883895325401086126315161732177220672438250225483021306830793667117576630815837848946990112012241260

Bills Affecting Property ManagementHB 1086 Relating to interruption of electric service by a residential landlord.

Summary:

The bill adds an exception to the general rule that a landlord may not interrupt of utilities (water, gas, electric, etc.) provided to tenant by landlord unless it is due to an emergency, construction, or a bona fide repair.

The exception allows a landlord who submeters or allocates electricity to disconnect service for nonpayment of an electric bill if: (contd on next page)

Bills Affecting Property ManagementHB 1086 Relating to interruption of electric service by a residential landlord.

Summary, contd: The landlord's right to interrupt electric service is in a written lease;The bill is not paid on or before the 12th day after issuance;Advance written notice of termination is delivered to tenant by mail or hand delivery which 1) prominently displays "electricity termination notice", 2) includes a location where tenant can pay, 3) the amount to be paid, 4)application of those funds cannot go to rent first, 5) landlord cannot evict until payment has not been received for two days following interruption (not including weekends or holidays), 6) tenant's rights if disconnection would result in serious illness, and 7) the notice is delivered not earlier than the first day after the bill is past due or later than the fifth day before the interruption date stated in the notice;Once the service is interrupted, the landlord provides an additional written notice to tenant which includes the same information as above.

The bill also provides a litany of situations where a landlord cannot interrupt service.

Bills Affecting Property ManagementHB 1772 Relating to the disconnection of electric or gas utility service.

Summary: Notice from Customer (Landlord/Property manager) to Tenant: A customer (including landlord or property manager) must provide written notice of a service disconnection to each tenant or owner at a nonsubmetered master metered property not later than the fifth day after the date the customer receives a notice of service disconnection from an electric service provider or gas utility. A customer must provide the notice by mail to the tenant or owner's preferred mailing address. The written notice must state the service to be disconnected, the date and reason for the disconnection, the customer's contact information, and the tenant's remedies under Section 92.301, Property Code. If the property is located in a municipality, the customer shall provide the notice to the governing body of that municipality by certified mail. The notice must include the following text in both English and Spanish:"Notice to residents of [name and address of nonsubmetered master metered multifamily property]: Electric (or gas) service to this property is scheduled for disconnection on [date] because [reason for disconnection]."

Bills Affecting Property ManagementHB 3068 Relating to debit card surcharge.

Summary: In the sale of goods or services, a merchant cannot impose a surcharge on a buyer who uses a debit card or a stored value card."Merchant" could include landlord.

Bills Affecting Property ManagementSB 630 Relating to certain obligations of and limitations on residential landlords.

Summary: Once a landlord and tenant(s) enter into a lease (signed by both parties), the landlord must provide at least one copy to at least one tenant within three BUSINESS days. If there is more than one tenant, the landlord must provide a copy of the lease to a tenant that submits a written request to the landlord, within three BUSINESS days of receipt of that written request.

In a legal action brought to enforce a written lease, other than an action for nonpayment of rent, there is a rebuttable presumption that the tenant doesn't know the lease terms if the landlord failed to comply. The presumption can be rebutted if the landlord proves the tenant had actual knowledge of the lease terms on which the legal action is based.

Bill also adds language which states that a landlord may not retaliate against a tenant because the tenant establishes, attempts to establish, or participates in a tenant organization.

Bills Affecting Property ManagementSB 946 Relating to the right to terminate a lease and avoid liability by a victim of certain sexual offenses or stalking.

Summary:

A tenant may terminate a lease if, in the preceding 6 months and on the premises, the tenant is a victim, or parent or guardian of a victim of:indecency with child sexual performance by a child an attempt to commit any of the offenses listed as described in TX Penal Code 15.01 (qualifies as criminal attempt) stalking (in this situation, tenant must provide landlord with protective order, documentation from service provider, AND a police report or similar document from law enforcement).A tenant who terminates a lease under these circumstances is released from all liability for any delinquent, unpaid rent if the lease does not contain language substantially equivalent to the following: "Tenants may have special statutory rights to terminate the lease early in certain situations involving certain sexual offenses or stalking."A tenant who is a parent or guardian of a victim must reside with the victim to exercise these rightsA person who receives this information (landlord, property manager, etc.) may not disclose the information to any other person except for a legitimate or customary business purpose or as otherwise required by law.

Bills Affecting Property ManagementSB 990 Relating to criminal history record information obtained or disseminated by a private entity.Summary: A person who purchases, accesses, or otherwise receives criminal history record information and uses the information as the basis for an adverse action for purposes of employment, licensing, or housing has to disclose the name and contact information of the entity from which the person received the information.

Bills Affecting Property ManagementSB 1120 Relating to a residential tenant's lease obligation after the loss of the leased premises resulting from a natural disaster.Summary: If a rental premises is, as a practical matter, totally unusable for residential purposes as a result of a natural disaster such as a hurricane, tornado, flood, extended freeze, or widespread windstorm, a landlord that allows a tenant to move to another rental unit owned by the landlord may not require the tenant to execute a lease for a term longer than the term remaining on the tenant's lease on the date the premises was rendered unusable as a result of the natural disaster.

Bills Affecting Property ManagementHB 1263/SB 576 Relating to the abolishment of the small claims court.

Summary: Requires Supreme Court to promulgate new justice court rules (including eviction rules) by May 1, 2013, but extends timelines so that rules will not be effective until August 31, 2013.

Eviction Rules UpdateLast session, HB 79 was passed which merged the small claims and justice courts and directed the Supreme Court to promulgate rules for eviction proceedings.In order to accomplish this, the Supreme Court Advisory Committee (SCAC) charged a separate task force to develop a set of proposed rules.TAR and other interested parties across the state, became concerned with many of these proposed rules. TAR formally commented to the SCAC and attended all meetings in which the rules were discussed.The Supreme Court, based on the SCAC comments and other public comments received, set about to draft a new set of proposed eviction rules.Those rules are published and were open for public comment until April 1, 2013. See http://www.supreme.courts.state.tx.us/MiscDocket/13/13904900.pdf

ConclusionQuestions?

If you have further questions, please contact the Governmental Affairs Department or the Legal Hotline at 512.480.8200Look for the next Property Management webinar on August 21st!