AUSTIN (KXAN) — Wednesday, the Austin-based Third District of the Texas Court of Appeals struck down two parts of the City of Austin’s rules for short-term rentals.

Short-term rentals are properties that can be rented out for a few days or weeks, commonly known for the companies that offer a platform, such as Airbnb, Vrbo and TurnKey Vacation Rentals.

This is the latest development in an ongoing lawsuit and a contentious policy debate.

This particular suit was filed by several city of Austin residents — some of whom own short-term rental properties and others of whom are regular short-term rental users — against the City of Austin, Austin Mayor Steve Adler and the State of Texas. The Austin residents suing are represented by counsel from the Texas Public Policy Foundation, an Austin-based conservative think tank.

The legal action Wednesday was an appeal of the judgment signed by a trial court on Nov. 21, 2017. It found two parts of the city’s short-term rental rules to be unconstitutional: a sunset on Type 2 short-term rentals and limits on how many people can gather in a short-term rental home.

• Read More: Austin short-term rentals caught between state, local policy

The rules that have changed

Austin’s council passed rules for short-term rentals (STRs) in 2016. 

By 2022, the ordinance would have eliminated Type 2 STRs in residential areas, though they could continue to be built in commercial areas. These Type 2 STRs are dwellings where the owner doesn’t live on-site or isn’t associated with the site.

But the court decision Wednesday makes this sunset on Type 2 STRs void.

Another part of the city’s ordinances passed three years ago set the rules for how many people could be in a STR:

• No more than two adults per bedroom plus two additional adults between 10 p.m. and 7 a.m.
• A rental can’t be used for a gathering between 10 p.m. and 7 a.m.
• A rental cannot be used for an outside gathering of more than six adults between 7 a.m. and 10 p.m.
• A rental cannot be used by more than ten adults at one time or more than six unrelated adults.

All of those rules are made void by the new court judgment.

The response to the judgement

For the City of Austin, this ruling wasn’t the news they were hoping for.

“We are disappointed in the appellate court decision, which overturns the ruling of the local district court,” said a city of Austin spokesperson in a statement. “We will be reviewing the judgment and responding appropriately.”

The city said it’s too early to say whether they will appeal this court ruling or not. Additionally, the city said it is looking into what the policy impacts of this ruling will be.

The Texas Public Policy Foundation, on the other hand, sees this judgment as a win.

“We’re really excited about it,” said Chance Weldon, an attorney with TPPF. “It’s a great victory for our client, it’s a great victory for property rights in Texas.”

“We think the court got it right,” he said, noting that the court struck down all of the provisions that TPPF addressed in this lawsuit.

Weldon explained that this legal effort has been a while in the making, clients first reached out to TPPF for help when the city’s ordinance was first passed.

Weldon said TPPF got involved because they, “have a long history of looking out for free enterprise and economic liberty and private property rights.”

Tim Klitch said he’s been renting out his home for about three and a half years now. He said when the new ordinances went into effect, “It’s really impaired our bookings.”

He explained, “We had to tell everybody you had to be inside after 10 p.m. In fact, one of my guest reviews specifically cited the fact that ‘don’t come here to expect to stay outside late at night, you can’t.'”

Klitch said he was using the money he was earning to pay his property tax bills, which jumped from roughly $4,000 a year in 1993 to $30,000 now.

T.J. Clark, co-founder and president of TurnKey Vacation Rentals, said “We think the ruling was a return to common sense.

He said, “We have always supported the need to have permits, the need to pay taxes and the need for STRs to be good neighbors in their neighborhoods,” but the 2016 rules went too far by limiting what people can or cannot to in a home they were paying to rent.

Austin City Council Member Kathie Tovo has been very active in discussions about short term rental policy and said to KXAN that the court’s decision Wednesday worries her.

“It’s my hope that the City of Austin is going to continue to pursue this through whatever legal channels are available to us and to stand strong behind what is a very sensible short-term rental policy, to allow homeowners to continue to rent our their properties on a limited basis, but to phase out the commercial mini-hotels form operating within our residential areas.” 

“I’m very concerned about the appeals decision, I think it’s really off base multiple points,” Tovo said, explaining that she believes the dissenting opinion from the court brought up valid points.

Tovo has been involved with local policy to try and track down the few “bad actor” STR properties that are making more work for the city’s Code Department. 

Tovo has told KXAN in past interviews that she believes the city’s current policy is necessary to avoid giving  “an incentive to have people want to convert short-term rentals in the middle of our neighborhoods.”

In a Tuesday release, Vrbo responded to the news, saying in part:

“Austin is Vrbo’s home and we will continue to support short-term rental regulations that strike the right balance of respecting private property rights while addressing community concerns and maintaining the residential character of our neighborhoods. We stand ready and willing to be a part of such a balanced solution.

Enacting policies that responsibly encourage and regulate such an important part of the Texas economy can and should be the goal of policymakers across the state.”