Short Term Rental Properties – AG's Opinion

Back on February 20, we discussed briefly a bill pending before the Tennessee General Assembly which would limit the regulatory power of local governments in dealing with short-term rental properties. Senate Bill 1086 is still pending before the Tennessee General Assembly, but recently, the Tennessee Attorney General has weighed in on the legislation confirming that for the most part the proposed legislation is constitutional. A copy of the opinion can be found here.

The first question had to do with exempting local governments with legislation regarding STRPs before January 1, 2014. The question was whether or not distinguishing between local governments which had legislation before that date vs. those which did not pass legislation until after that date was impermissible constitutionally. The AG's opinion is that it would not render the proposal impermissible.

The second question was whether or not the fact that the proposed legislation would allow local governments which prohibited STRPs on or before August 1 of 2017 to continue the prohibition, while it would not permit other local governments which did not enact legislation prior to that date to so prohibit STRPs. This time, the AG felt that there is no rational relationship between the date and distinction between those two classes of regulations. The opinion states:

Proposed $ 13-7-603(b) states that its purpose is "to prevent recent and future
overregulation of short-term rental units by a local governing body." On its face, this purpose appears legitimate. If the General Assembly determines that a prohibition or effective prohibition on short-term rental units is "overregulation," it can act to address that problem. But if a prohibition or effective prohibition enacted on August 2,2017, is an "overregulation" that warrants legislative action, then it is unclear why the same prohibition or effective prohibition passed on July 3 7,2017 , would not warrant the same action. 

As a practical matter, the date appears to have been chosen to nullify the Metropolitan
Government of Nashville and Davidson County's act in November 2017 to ban short-term rentals. The proposed legislation would apply more broadly, of course, to prevent any local government from taking similar action in the future. The prohibition does not, however, distinguish among local jurisdictions based on facts that are conceivably relevant to the regulation of short-term rental units, such as population size, tourism, or urban density.  

The proposed legislation instead distinguishes among local jurisdiction based solely on the date on which the jurisdiction enacted a prohibition on short-term rental units. Because that date does not appear to be reasonably related to any conceivable state interest in the regulation of shortterm rentals, this provision would likely violate the Tennessee Constitution. In contrast to the date in the continued-use provision-which corresponds roughly to the point at which the use of residential property for short-term rentals became widespread and relates to the legislature's concern about preserving property owners' reasonable expectations for the use of their property the date chosen after which no local government may prohibit short-term rental units is arbitrary
and unrelated to the interests underlying the legislation.

The third question involve the extent to which the proposed legislation might have an impact on taxation and run afoul of the Tennessee Constitution on that issue. The AG distinguished between the use of property for tax purposes and the use of property for zoning and land use purposes; just because the property is classified as commercial for one use, is not require that it is considered as commercial for another.

Finally, the fourth question had to do with whether or not the proposed legislation would be unconstitutional given that it effectively only applies to Davidson County (at the present time) and, whether or not the use of terms such as reasonable compliance and effectively prohibit were too vague to survive constitutional scrutiny. In both instances the AG responded in the negative. With regard to the first question, since other jurisdictions could theoretically be subject to the law in the future, it was not class based legislation prohibited by the Tennessee Constitution. Furthermore, the terminology of the proposed legislation is capable of reasonable understanding by ordinary citizens. In addition, since the legislation as proposed would limit the powers of local governments, and because local governments have no due process protections against the legislation, there likely would not be any due process violation either.

Of course, it is useful to bear in mind that the AG only offers an opinion, and while those opinions are certainly useful and offer guidance, they do not have the force or effect of law. Only a judicial decision would carry that weight. It will be interesting to see what the General Assembly does with the legislation. Furthermore, there may be litigation arising out of the legislation if it passes.