Neither appraisal district nor religious organization established entitlement to MSJ on tax exemption question regarding elderly housing, so full case remanded says 1st Court of Appeals

National Church Residences of Alief, TX v. Harris County Appraisal District, 01-15-00900-CV (Tex. App- Houston [ 1st Dist.] August 9, 2016)

This is a tax exemption case where the First District Court of Appeals reversed the trial court’s order denying a religious organization’s exemption from taxation because it helped senior citizens with their housing as part of a federally-subsidized housing program.

This is a 28-page opinion, so the summary is a bit long.  National Church Residences of Alief (“NCR”) is a non-profit 501(c)(3) which owns a 62-unit apartment complex. NCR obtained financing from the Department of Housing and Urban Development (“HUD”) to develop the Property into low-income rental housing for either elderly or disabled persons.  Pursuant to the program, a tenant would pay a portion of the monthly rent, calculated under HUD’s formulas depending on the tenant’s income, and HUD would pay the remainder. NCR had a published eviction policy, providing that, if a tenant fails to pay his non-subsidized portion of the rent they could be evicted. NCR applied for an ad valorem exemption from taxation.  HCAD took the position that NCR was not providing its residents with housing or other services without regard to the residents’ ability to pay because tenants were required to pay some rent and security deposits. NCR filed suit in district court, seeking judicial review of HCAD’s denial of its request for a property-tax exemption.  The trial court granted HCAD’s motion for summary judgment, denied NCR’s summary judgment and NCR appealed.

Texas Tax Code §11.18(d)(3) states an entity is entitled to property tax exemptions if it was “providing support without regard to the beneficiaries’ ability to pay to . . . elderly persons.” NCR also claimed that it was entitled to an exemption under §11.18(d)(13) because it was “providing permanent housing and related social, health care, and educational facilities for persons who are 62 years of age or older without regard to the residents’ ability to pay.” Id. § 11.18(d)(13). NCR asserted the requirements tenants make some level of payment is not their policy, but is instead HUD requirements, and that NCR must follow these requirements before it can permit a resident to rent an apartment. NCR asserted no resident pays the full market value rent out of his or her own funds. Instead, the amount that each resident pays is determined by a HUD formula.  HCAD asserts NCR charged security deposits and partial rent making it ineligible for the exemption. The Court of Appeals utilized various statutory constructions principles in applying the Tax Code to NCR’s situation. The court held a resident’s ability to pay the deposit and other obligations is not the focus of the NCR policies, but are instead, HUD regulations. The HUD handbook makes clear that the significance of the security deposit is to protect the landlord from any costs, resulting from a tenant’s breach of the lease. The security deposit remains in a separate interest-bearing account until the tenancy ends. Should the resident comply with the lease, the security deposit is refunded. Further, the eviction policy must be viewed in light of other resolutions of NCR, including the one which held it would assist any tenant who could not pay with other forms of assistance. As a result, the court held HCAD did not show as a matter of law that NCR should be denied the exemption. However, after a long analysis of NCR’s summary judgment, the court concluded the evidence is insufficient to demonstrate it was entitled to the exemption. In other words, both parties were not entitled to summary judgment so the case is remanded for trial.

If you would like to read this opinion click here. The Panel: Justice Higley, Justice Bland, and Justice Massengale. Justice Higley delivered the opinion of the court.  Attorneys for the Appellant are Tanya Nicole Garrison, Donald. T Keller Jr., and Misty Gasiorowski. Attorneys for the Appellee are Denis Potvin, and Eric C. Farrar.