A Texas court recently ruled on a significant breach of contract case involving property taxes that affects both buyers and sellers in real estate transactions. The Texas Court of Appeals issued its opinion on August 6, 2026, in the case of 170 Rittenhouse LLC v. BOKF National Association D/B/A Bank of Texas (docket number 01-25-00487-CV). This ruling clarifies the meaning of the term "rollback" taxes, which has implications for future real estate contracts in Texas.
The case centers around a dispute between 170 Rittenhouse LLC, the appellant, and BOKF National Association, the appellee. The disagreement arose after 170 Rittenhouse purchased a piece of property that had previously belonged to a religious organization. The property was subject to certain tax exemptions that became complicated when ownership changed hands. The court's ruling is important because it addresses how property taxes should be allocated in such transactions and what responsibilities buyers and sellers have regarding these taxes.
The background of the case involves a piece of land located at 170 Rittenhouse Street in Houston, Texas. This land was owned by the St. Stephen Missionary Baptist Church until mid-2019 when the church defaulted on a loan from BOKF. Unable to recover from the default, the church conveyed the property to BOKF in a deed recorded in early 2020. As a result of this transfer, the property lost its tax exemption status, which had significant tax implications.
After the property was sold to 170 Rittenhouse in 2021, the Harris County taxing authorities later sued for delinquent taxes, which had accumulated due to the loss of the tax exemption. Initially, the taxes were recorded as zero, but two years later, a tax bill of approximately $119,000 surfaced, which eventually grew to $287,323. This led 170 Rittenhouse to file a breach of contract claim against BOKF, arguing that the contract stipulated the seller’s responsibility for certain taxes.
The contract in question contained a section regarding the proration of taxes, specifically mentioning "rollback or similar taxes." The disagreement arose over the interpretation of this phrase. BOKF argued that the taxes owed were indeed rollback taxes due to the change in ownership and use of the property. Conversely, 170 Rittenhouse contended that these taxes were not rollback taxes because they did not represent a penalty for changing the use of the property.
The court ultimately ruled in favor of 170 Rittenhouse, stating that the taxes in question did not qualify as rollback taxes. Justice David Gunn, writing for the panel, noted, “The loss of the (a)(1) exemption resulted in an additional tax, but not a rollback tax, because a rollback tax entails a penalty for taking the land out of a favored use.” The court emphasized that the taxes owed were due to the loss of the exemption rather than a penalty for changing the land's use.
In its analysis, the court acknowledged that both parties had reasonable interpretations of the contract language. The court stated, “Both parties advance a reasonable interpretation of the contractual language,” indicating that the terms used in the contract were ambiguous. As a result, the court reversed the trial court’s summary judgment in favor of BOKF and remanded the case for further proceedings.
This ruling has significant implications for future real estate transactions in Texas. It clarifies how similar phrases in contracts should be interpreted and establishes that not all taxes resulting from a change in ownership are classified as rollback taxes. This distinction is crucial for buyers and sellers, as it affects their financial responsibilities regarding property taxes.
Going forward, real estate professionals and legal advisors will need to pay close attention to the language used in contracts, particularly regarding tax responsibilities. This case sets a precedent that may influence how similar disputes are resolved in the future, potentially leading to more detailed and specific language in real estate contracts to avoid ambiguity.
As for what’s next, the case has been remanded to the lower court for further proceedings. There is no indication that this ruling will be appealed, but the outcome of the remanded proceedings could lead to additional legal developments.