BILL ANALYSIS

C.S.H.B. 4211

By: Noble

State Affairs

Committee Report (Substituted)

BACKGROUND AND PURPOSE

The bill author has informed the committee that there are residential developments in Texas that have been structured as business entities, where individuals purchase ownership interests in the development, and that current law does not address this type of ownership in which residential arrangements are controlled by business entities. The bill author has also informed the committee that, if ownership entitles the investor to direct title to the property, it can create uncertainty for investors, particularly regarding their rights to possess, transfer, or sell their interests. The bill author has further informed the committee that the lack of statutory clarity and oversight leaves individuals vulnerable to unfair treatment, legal disadvantages, and deceptive practices, as such managing entities can impose restrictive rules, high fees, or discriminatory practices that would be unlawful in traditional housing contexts. C.S.H.B. 4211 seeks to address these issues by providing a regulatory framework for business entity-owned residential arrangements to ensure that individuals investing in these arrangements receive basic protections similar to traditional property owners.

CRIMINAL JUSTICE IMPACT

It is the committee's opinion that this bill does not expressly create a criminal offense, increase the punishment for an existing criminal offense or category of offenses, or change the eligibility of a person for community supervision, parole, or mandatory supervision.

RULEMAKING AUTHORITY

It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency, or institution.

ANALYSIS

Residential Arrangements Controlled By Business Entities

General Provisions

C.S.H.B. 4211 amends the Property Code to set out provisions relating to the regulation and enforcement of certain residential arrangements controlled by business entities. The bill's provisions expressly do not apply to a timeshare plan, defined by reference to the Texas Timeshare Act. The bill establishes that a violation of its provisions is a deceptive trade practice under the Deceptive Trade Practices-Consumer Protection Act and that the remedies provided by its provisions are in addition to any other remedy or procedure provided by state or federal law. For purposes of the bill's provisions, the bill defines the following terms:

·"business entity" as a partnership, corporation, joint venture, limited liability company, nonprofit organization, or other business organization or business association, however organized;

·"managing entity" as a business entity that owns or controls residential property used in a residential arrangement;

·"residential arrangement" as an arrangement in which the purchaser of an interest in a business entity is entitled to exclusive possession of or an interest in residential property owned or controlled by the entity as long as the purchaser holds the interest in the business entity; and

·"residential property" as the real property or improvements for a dwelling, including a single-family house, duplex, condominium unit, or unit in a multiunit residential structure.

Regulation of Residential Arrangements

Agreements and Rules

C.S.H.B. 4211 requires an agreement documenting a residential arrangement or for the purchase of an interest in a managing entity to disclose to the purchaser if the agreement is for the purchase of an interest in the entity and not in any residential property. The bill requires a dispute concerning such an agreement, a related agreement, or rules governing a residential arrangement or an ownership interest in a managing entity to be brought before a court established under state or federal law and be adjudicated under those laws. The bill establishes the following with respect to such a dispute resolution:

·any decision relating to the dispute issued by an arbitrator, an organization offering alternative dispute resolution services, or any other tribunal other than a court established under state or federal law is void and unenforceable; and

·a provision in an agreement that requires the dispute to be governed by a law other than those laws is void and unenforceable.

C.S.H.B. 4211 prohibits a managing entity from taking an action or refusing to take an action with respect to an interest in an entity in a manner that would be a violation of the Texas Fair Housing Act if the interest in the entity were an interest in real property, including any of the following actions:

·restricting the transfer of the interest;

·imposing requirements to maintain the interest; or

·refusing to grant an interest in the entity to a bona fide purchaser or investor.

Transfer of Interest; Charges

C.S.H.B. 4211 authorizes an owner of an interest in a managing entity, notwithstanding any provision in an agreement relating to a residential arrangement, to transfer the interest without approval from the managing entity. The bill establishes that any restriction of the transfer of interest is void and unenforceable. The bill prohibits a managing entity from charging a fee for or sharing in the proceeds of the transfer of an interest in the managing entity from an owner to a subsequent purchaser.

Enforcement and Remedies

Attorney General Enforcement Action; Effect on Petition

C.S.H.B. 4211 authorizes the attorney general to bring an action for declaratory or temporary or permanent injunctive relief to enforce the bill's provisions. The bill requires the attorney general to file notice of the action for recording in the real property records of each county where any part of the real property subject to the residential arrangement that is the subject of the action is located. The bill authorizes a court to issue an order enjoining a managing entity or a person affiliated with the managing entity from taking action in furtherance of development of or construction on residential property used in a residential arrangement subject to such an action, including any of the following actions:

·filing a petition with the Texas Commission on Environmental Quality (TCEQ) for the creation of a municipal utility district (MUD);

·taking action in connection with a petition for the creation of a MUD filed before the issuance of the order; or

·receiving, directly or indirectly, any public money or benefit, defined as state or local funds, grants, or tax incentives or credits, or the issuance of a required construction or development permit.

C.S.H.B. 4211 requires the attorney general, on entry of an order under these provisions, to do the following:

·file notice of the order for recording in the applicable real property records and attach a copy of the order as an exhibit; and

·notify the TCEQ and any governmental entity the attorney general determines may provide any public money or benefit to the managing entity or other person that is subject to the injunction imposed by the order.

The bill specifies that "governmental entity" includes a state governmental entity and a political subdivision as those terms are defined by Government Code provisions relating to consulting services.

C.S.H.B. 4211 sets out the following requirements on receiving notice from the attorney general and until final judgment is entered in an action:

·for the TCEQ to stay consideration of a petition to create a MUD consisting of territory that is subject to a residential arrangement that is the subject of the order; and

·for a governmental entity to cease providing any public money or benefit to the managing entity or other person that is the subject of the injunction imposed by the order.

The bill requires the attorney general, on entry of final judgment in the action, to file notice of the judgment for recording in the applicable real property records and attach a copy of the judgment as an exhibit. However, the bill requires the TCEQ to deny a petition to create such a MUD if the judgment entered in the action finds that the residential arrangement violates the bill's provisions.

Investigation; Interrogatories and Records

C.S.H.B. 4211 authorizes the attorney general to conduct discovery to investigate an action or potential action for declaratory or temporary or permanent injunctive relief to enforce the bill's provisions, including by doing the following:

·petitioning for an order authorizing the taking of a deposition before a suit or to investigate claims under applicable provisions of the Texas Rules of Civil Procedure; or

·if the attorney general has reason to believe that a person may be in possession, custody, or control of any documentary material or other evidence or may have any information relevant to an investigation of a suspected violation of the bill's provisions, issuing in writing and serving on the person a civil investigative demand requiring the person to:

oproduce any of the documentary material for inspection and copying;

oanswer in writing any written interrogatories;

ogive oral testimony; or

oprovide any combination of those civil investigative demands.

The bill requires the secretary of state, on request by the attorney general, to serve interrogatories on an individual or entity as necessary to determine the ownership or control of a business entity that is the subject of an action by the attorney general under the bill's provisions and provide to the attorney general all records held by the secretary relating to the ownership or control of a business entity that is the subject of such an action.

Prohibited Use or Receipt of Public Money or Benefit

C.S.H.B. 4211 prohibits a governmental entity, on issuance of an order for injunctive relief under the bill's provisions or entry of a judgment finding that a residential arrangement or a managing entity or other person violated the bill's provisions, from granting, issuing, approving, or permitting the use of any public money or benefit for residential property used in a residential arrangement subject to the order or judgment.

EFFECTIVE DATE

On passage, or, if the bill does not receive the necessary vote, September 1, 2025.

COMPARISON OF INTRODUCED AND SUBSTITUTE

While C.S.H.B. 4211 may differ from the introduced in minor or nonsubstantive ways, the following summarizes the substantial differences between the introduced and committee substitute versions of the bill.

The substitute revises provisions of the introduced relating to the regulation of residential arrangements, as follows:

·with respect to the requirement for an agreement for the purchase of an interest in a managing entity to disclose to the purchaser if the agreement is for the purchase of an interest in the entity and not in any residential property, makes the requirement applicable to an agreement documenting a residential arrangement, which the introduced did not do;

·replaces the prohibition against the purchase agreement and any other agreement or rules governing the residential arrangement or the ownership interest in the entity requiring that a dispute concerning the arrangement or interest be brought before a tribunal other than a court established under state or federal law, as in the introduced, with the following:

orequirements for an applicable dispute to be brought before a court established under such laws and be adjudicated under those laws; and

oa provision establishing the circumstances in which a decision or a provision in an agreement relating to an applicable dispute is void and unenforceable;

·with respect to the prohibition against a managing entity taking an action with respect to an interest in the entity in a manner that would be a violation of the Texas Fair Housing Act if the interest in the entity were an interest in real property:

oalso prohibits a managing entity from refusing to take such an action, whereas the introduced did not; and

ochanges one of the examples of the prohibited acts from refusing to grant an interest to an otherwise qualified person, as in the introduced, to refusing to grant an interest in the entity to a bona fide purchaser or investor; and

·with respect to the authorization for an owner of an interest in a managing entity to transfer the interest without approval from the managing entity:

ochanges the condition of that authorization from notwithstanding any provision in an agreement between the owner and the managing entity, as in the introduced, to notwithstanding any provision in an agreement relating to a residential arrangement; and

oincludes a provision absent from the introduced establishing any restriction of transferring of interest is void and unenforceable.

The substitute includes provisions, which did not appear in the introduced, relating to the following:

·for purposes of the bill's provisions providing for enforcement and remedies, the definitions for "commission," "district," "governmental entity," and "public money or benefit";

·the authority of the attorney general to bring an action for declaratory or temporary or permanent injunctive relief to enforce the bill's provisions and the manner in which the attorney general may do so;

·the petition for the creation of a MUD and receipt of public money or benefit;

·the authority of the attorney general to conduct discovery to investigate such an enforcement action or potential action;

·the prohibition against the use or receipt of public money or benefit for residential property used in a residential arrangement subject to the order or judgment; and

·the provision establishing that the remedies provided by the bill's provisions are in addition to any other remedy or procedure provided by state or federal law.

The substitute revises the definitions which appeared in the introduced as follows:

·expands the definition of "business entity" to include a nonprofit organization;

·expands the definition of "managing entity" to include a business entity that controls residential property used in a residential arrangement;

·specifies that the definition of "residential arrangement" means an arrangement in which the purchaser of an interest in a business entity is entitled to exclusive possession of or an interest in residential property owned or controlled by the entity as long as the purchaser holds the interest in the business entity; and

·replaces the definition of "residential property" as real property and improvements for a single-family house, duplex, triplex, or quadruplex with the definition of real property or improvements for a dwelling, including a single-family house, duplex, condominium unit, or unit in a multiunit residential structure.

The substitute omits the introduced version's provision establishing that the religious organization, private club, and appraisal exemption under the Texas Fair Housing Act does not apply to the sale, rental, or occupancy of a dwelling that is a single-family house, duplex, triplex, or quadruplex located on a subdivided lot in a parcel of land 25 acres or greater owned by a religious organization, association, or society or a nonprofit institution or organization operated, supervised, or controlled by or in conjunction with a religious organization, association, or society.

The substitute changes the bill's effective date to provide for its possible immediate effect, contingent on receiving the requisite constitutional vote, whereas the introduced provided only for the bill to take effect September 1, 2025, with no possibility for immediate effect.