Site Owner Entitled to Property Tax Exemption

Facts: A nonprofit corporation owns a site for the elderly that was financed by HUD. With the financing, the corporation entered into a Project Rental Assistance Contract with HUD in which the corporation agreed to provide housing for low-income elderly persons at the property, and HUD agreed to provide monthly subsidies to “[to] cover the difference between [owner’s] Operating Expenses and tenant payments as determined in accordance with the HUD-established schedules and criteria.”

Beginning in 1997, the corporation received property tax exemptions from the county. Then, in October 2012, the county appraiser sent a letter to the corporation, requesting it “to file a new application to confirm current qualification for the exemption.” The corporation filed an “Application for Charitable Organization Property Tax Exemption.” With regard to its function, the owner checked the box on the form that stated, “Provides permanent housing and related social, health care and educational facilities for persons 62 years of age or older without regard to ability to pay.” When asked to describe the use of the property, the owner responded, “This property is used to provide housing for low income elderly without regard to ability to pay.”

The county appraiser denied the property-tax-exemption request for tax years 2012 and 2013. The county took the position that the corporation was not providing its residents with housing or other services without regard to the residents’ ability to pay. For that reason, the county asserted that it was not entitled to a property tax exemption.

The owner sued, seeking judicial review of the county’s denial of its request for a property-tax exemption. The county asked for a judgment without a trial. In support of its motion, the county offered the site’s Tenant Selection Plan, which indicated that tenants must pay a security deposit at move-in, and tenants must agree to pay the rent required by the program under which they are receiving assistance. The county also pointed to the site’s eviction policy, which detailed the procedure by which a tenant would be evicted for nonpayment of rent.

The corporation asserted that it treated all rental applicants the same, regardless of their ability to pay. The owner offered evidence showing that, although the market value of each apartment is $389, no resident pays the full $389 out of his or her own funds. Instead, the amount that each resident pays is determined by a HUD formula.

The owner also offered a list indicating, as of October 2012, what each resident had paid in monthly rent and what HUD had paid each month for each apartment. The list indicated that most of the tenants paid between $100 and $200 per month in rent with HUD paying the remainder of the $389. A few of the residents were responsible for payments as low as $13 per month in rent. In those cases, the remaining $376 was paid by HUD. The owner further offered evidence showing that it had a corporate policy “to maintain in residence any senior citizen resident who becomes unable to pay the regular charges if, after investigation, the Board of Trustees determines that said resident is without financial ability to pay.” The trial court granted the county’s request, and the corporation appealed.

Ruling: A Texas appeals court reversed the lower court’s ruling.

Reasoning: The court didn’t put weight on the site’s eviction policy that “relates directly to a tenant’s ability to pay.” The county believed that the eviction policy showed that the owner had “affirmatively consider[ed] the ability to pay before accepting a tenant.” The court said that this didn’t conclusively establish that the owner considered a resident’s ability to pay. Only residents who had a “very low” or “extremely low” income were permitted to live at the site. No minimum income was required. No resident directly paid the full amount of the rent from his or her own funds. The site also provided its residents with monthly electric utility allowances, which at times, resulted in a net gain for a resident if the allowance exceeded the amount of rent and utilities charged to the resident.

Also, although it had an eviction policy, the site didn’t enforce the policy. Its long-standing corporate policy is to maintain in residence any senior citizen resident who becomes unable to pay the regular charges if, after investigation, the Board of Trustees determines that the resident is without financial ability to pay. The site didn’t evict any residents in 2012 or in 2013 for nonpayment of rent, nor did the owner charge any late fees during this period. In light of the evidence, the court found that the eviction policy didn’t conclusively establish that the owner considered its residents’ ability to pay when deciding whether to admit or to retain a resident.

• National Church Residences of Alief v. Harris Cty. Appraisal Dist., December 2017