The Tennessee Short-Term Rental Unit Act plays a pivotal role in regulating short-term rentals. This legislation defines how local governments can regulate short-term rentals in their municipalities and guides grandfathering existing rentals. What this Act does not affect, though, are homeowners associations and condominiums.
What Is the Tennessee Short-Term Rental Unit Act?
In 2018, then-Governor of Tennessee Bill Haslam passed the Tennessee Short-Term Rental Unit Act (SB1086). The Act, effective May 17 of that same year, aimed to offer guidance on how local municipalities could restrict and regulate short-term rentals in the Volunteer State.
According to this short-term rental law in Tennessee, a short-term rental unit is classified as “a residential dwelling, including a single-family dwelling or a unit in a multi-unit building, such as an apartment building, condominium, cooperative, or time-share, that is rented wholly or partially for a fee for a period of less
than thirty (30) continuous days.”
Understanding the Provisions in the Tennessee Short-Term Rental Unit Act
A significant effect of the Tennessee Short-Term Rental Unit Act is the regulation of grandfathering existing rentals. Also known as the Legacy Clause, this clause states that any regulation or requirement that prohibits or otherwise restricts the use of a property as a short-term rental unit does not apply to properties already being used as short-term rental units before the regulation or requirement was enacted.
In other words, new rules will not affect existing short-term rentals before the passing of those new rules. Additionally, the short-term rental law that governs short-term rentals will remain effective for that property until it changes hands or stops its operations as a short-term rental unit for 30 continuous months. Another condition that will trigger the applicability of a new law is if a property violates general local laws at least three times.
In Nashville, rental operators who had permits before BL2017-608 was passed could still maintain their permits without legal repercussions. Because of the Tennessee Short-Term Rental Unit Act, those permits did not phase out by 2020.
Summary of Provisions
Here are the key points outlined in the law:
- Hosts that have a permit or obtain a permit in the future are grandfathered under the law that was/is in effect at the time of the issuance of the permit.
- If an area does not require a permit, hosts are also grandfathered in, provided they remit sales tax according to state laws for at least 6 months before the Short-Term Rental Unit Act becomes effective or any local law that mandates a permit becomes effective.
- Non-owner-occupied properties did not get phased out.
- Hosts can lose their grandfathered permit in one of a few ways:
- Committing three (3) violations of a generally applicable local law;
- Transferring the ownership of the property; or,
- Ceasing short-term rental operations for 30 continuous months.
- False complaints against a short-term rental unit or operator are considered perjury and shall be punished as such.
- Hosts cannot transfer permits, even by sale or transfer of ownership.
- Short-term rental unit providers must maintain at least $500,000 in liability insurance.
- Short-term rental unit providers must comply with the requirements concerning smoke alarms, fire sprinklers, and carbon monoxide alarms under Title 68, Chapter 120 of the Tennessee Code.
Other City-Level Tennessee Airbnb Laws
Aside from the state-level Short-Term Rental Unit Act and the Nashville laws, there are other laws at the city level worth mentioning.
In Brentwood, the municipal code prohibits short-term rentals in single-family residential districts for periods under three (3) months. Those who violate this code receive citations from the city government. Aside from this, though, Brentwood has no other Airbnb laws. Passing unifying laws that protect homeowners while inviting visitors has been a struggle for the city.
In 2023, the Chattanooga City Council passed a law concerning short-term rentals. Existing short-term rentals, though, have been grandfathered in. They will need to renew this grandfather permit every year.
The new law makes significant changes to short-term rentals in the city. It prohibits short-term rentals in residential areas except if the owner resides in the home full-time. New short-term rentals can operate in commercial districts that permit hotels. If a property undergoes a rezoning from residential to commercial, applicants must wait 18 months before applying for an STR permit.
Hosts must also pay an annual renewal fee of $250 for homestays. They must also have a local contact person available at all times via phone. Additionally, this local contact must be able to reach the rental unit within 2 hours. Short-term rentals can have a maximum of five bedrooms and must have a minimum stay of 24 hours. Rentals must also provide adequate on-site parking.
Furthermore, hosts must comply with tax regulations as well as safety codes. For any rule violations, cases will go before an administrative hearing officer. This officer can levy a fine of up to $500 per day for broken rules.
Can HOAs Impose Rental Restrictions in Tennessee?
While the Tennessee Short-Term Rental Unit Act imposes several regulations, none apply to homeowners associations. The legislation mainly targets local governing bodies, defined as “the legislative body of a municipal, metropolitan, or county government.”
Additionally, Section 13-7-605 of the Tennessee Code permits homeowners associations, condominiums, and co-ops to prohibit or restrict the use of properties as short-term rentals. Such a prohibition or restriction, though, must exist within the association’s governing documents. If the governing documents do not prohibit or restrict short-term rentals, an association may not have the authority to enforce such a rule.
It is important to note that Tennessee does not have a dedicated Act governing homeowners associations. It does have the Tennessee Condominium Act of 2008, but it has yet to pass a similar statute for single-family communities. That being said, the Tennessee Nonprofit Corporation Act does apply to associations organized as non-profits in terms of corporate structure and procedure.
The Bottom Line
The Tennessee Short-Term Rental Unit Act is a valuable piece of legislation that governs how local governing bodies can regulate STRs. Short-term rental operators must understand the provisions of this Act to know their rights and better comply with the law. Of course, not everyone is well-versed in legal matters, so it helps to hire a property manager or lawyer.
Homeowners associations struggling with short-term rentals can turn to an HOA management company like Cedar. Call us today at (877) 252-3327 or contact us online to learn more!
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