Reported / Citable
Background
St. Stephen Missionary Baptist Church owned property at 170 Rittenhouse Street in Houston and received a religious-organization property-tax exemption. After the church defaulted on a loan secured by the property, it conveyed the land to BOKF National Association d/b/a Bank of Texas in 2019. The ownership change ended the exemption, although taxing authorities did not identify the resulting unpaid taxes until after BOKF sold the property.
BOKF contracted to sell the property to 170 Rittenhouse LLC in 2021. The contract generally prorated taxes at closing, but separately required the buyer to assume any past, present, or future “’rollback’ or similar taxes” resulting from a change in the property’s use, ownership, or classification. The tax bill at closing was zero. Harris County later pursued delinquent taxes, which 170 Rittenhouse paid, ultimately totaling $287,323. It then sued BOKF for breach of contract. The trial court granted summary judgment for BOKF.
The Court’s Holding
The First Court of Appeals held that the delinquent taxes were not statutory rollback taxes. The religious exemption at issue was for property used as a place of regular religious worship under Tax Code section 11.20(a)(1). Its loss resulted in recapture of escaped taxation, not a penalty for removing land from a favored use—the feature the court identified as central to a rollback tax.
But the court concluded that the phrase “rollback or similar taxes” was ambiguous as applied to these taxes. The taxes shared features with rollback taxes because they followed a loss of exemption and ownership change, yet differed because they carried no penalty or apparent policy aimed at preserving a particular land use. Because both parties offered reasonable interpretations, the parties’ intent must be determined by the factfinder. The court reversed BOKF’s summary judgment and remanded.
Key Takeaways
- Loss of the religious-worship exemption under Tax Code section 11.20(a)(1) did not itself create a rollback tax.
- A contractual reference to “rollback or similar taxes” can be ambiguous even when the taxes arose from an ownership change and loss of exemption.
- When competing contract interpretations are both reasonable, summary judgment is improper and intent is for the factfinder.
Why It Matters
Real-estate contracts often assign tax risk through broad proration and rollback-tax provisions. This decision underscores that a catchall reference to taxes “similar” to rollback taxes may not conclusively shift liability for later-assessed taxes arising from a lost exemption.
Parties seeking a clear allocation should specifically address recaptured or escaped taxes tied to the seller’s prior ownership or exempt status, rather than relying on the undefined term “similar taxes.”