A new ruling from the South Carolina Court of Appeals provides clarity on how local governments can treat fractional homeownership models under short-term rental regulations.
At issue was whether a fractional ownership home on Sullivan’s Island operated by Pacaso should be considered a prohibited vacation rental.
The S.C. Court of Appeals said fractional ownership models are not short-term rentals.
The Big Picture 🏡
Pacaso, like other entities, operates a co-ownership model that allows buyers to purchase a fractional interest in a home often 1/8 ownership. Each owner receives a share of the property and scheduled time to use it during the year while Pacaso manages the home.
This model is not new to the Charleston resort markets as fractional ownership has long been a part of the market in many of the barrier island communities around Charleston. However, in recent years, technology has allowed fractional ownership to connect a broader range of individuals together than previously seen.
As of Thursday, March 5, there are 29 fractional ownership opportunities actively for sale on the CHS MLS, with only a handful being Pacaso. More than 900 fractional ownerships have sold through CHS MLS since 2000.
Despite its tradition in the region, the Town of Sullivan’s Island argued the arrangement functioned like a short-term vacation rental, which is restricted under the town’s zoning ordinance.
However, the Appeals Court ruled that fractional ownership does not meet the town’s definition of a rental.
What the Court Decided ⚖️
The court reversed a previous ruling against Pacaso and the property owner, 2 SC Lighthouse, LLC.
Key findings from the decision are the following:
- Fractional Ownership is not a Rental: The people staying in the home are owners, not renters. Because they hold interests and do not pay to occupy the property during their stays, the court found there is no commercial transaction that would make the use a rental.
- Property Rights are Central: The Court noted it cannot interpret new restrictions into an ordinance that would limit property rights beyond what was intended by the local governing body.
- Jurisdiction on Zoning Enforcement: The Court also ruled the Board of Zoning Appeals overstepped by trying to apply additional zoning rules that weren’t in the original violation notice.
The decision clarifies that fractional co-ownership arrangements cannot simply be treated as short-term rentals under existing ordinances unless those ordinances specifically address that type of ownership.
The case may still see additional appeals, and communities may look at whether their ordinances need updates to address evolving ownership models.