Short-term rentals a growing issue in Charleston

Michele Ghastin, who rents out part of her home (above) near Hampton Park, is one of 63 people being sued for allegedly illegally operating a short-term rental unit.

Mary Cahill had a somewhat simple plan.

Two years ago, the Georgia resident bought a townhome in downtown Charleston near West and Archdale streets, about a quarter-mile from the historic City Market. The idea was to get a foothold in the downtown real estate market, rent out the unit and retire in three years.

“Nobody said a word about it,” Cahill said, referring to when she bought the property.

Cahill is now one of 63 residential property owners being sued in two lawsuits for allegedly operating illegal short-term rentals in the city. A judge heard the merits of the lawsuits Monday and is expected to issue a ruling later this month.

Short-term rentals — defined as stays of less than 30 days — aren’t new. But as they have mushroomed in recent years, they have set off a fresh debate, pitting the rights of private property owners against local government efforts to regulate these hotel alternatives.

“Cities all around the world are struggling with these issues, and we are no different,” said Jacob Lindsey, director of Charleston’s Department of Planning, Preservation and Sustainability. “Cities around the country deal with it in radically different ways.”

Right now, more than 500 properties in Charleston are on Airbnb, perhaps the most popular website for short-term rental listings, according to Airdna, which tracks the online booking service. But under current zoning rules, only properties in a specific district within the Cannonborough-Elliottborough neighborhood can be rented legally for fewer than 30 days. That area is bordered by Bee, Morris, President and Meeting streets up to the Septima P. Clark Parkway.

“At the moment we are staying with our current policy,” Lindsey said.

But some residents, such as the 30 or so who make up the South Carolina Vacation Rental Managers Association, want to work with the city to come up with a new policy regarding short-term rentals. The group, which meets privately, has a lawyer and has even drafted an ordinance.

“I think it’s a property-owner right,” said Denise Holtz, a real estate agent who founded the association.

Some Charleston property owners have been speaking out publicly to voice concerns and to show support for short-term rentals, including a group that addressed City Council late last month.

Though Lindsey said the city plans to stick with its existing policy, Mayor John Tecklenburg, who took office last month, is open to change. His wife was cited in 2015 for running a short-term rental, the Charleston City Paper reported.

“I feel the current situation needs review and I plan to call together a citizens committee of folks that may have an interest in the issue and have them knock around some good ideas,” the mayor told The Post and Courier.

The existing rules regulating the practice is part of the issue, he said.

“It’s allowed in some parts of the city and not others ... I think it’s just a matter of fairness, number one,” he said.

Tecklenburg also drew comparisons between short-term rental booking websites and Uber, the popular smartphone ride-hailing app that competes with taxicabs.

“I do believe we have to at least think about new technologies and ways of doing business as they come along,” he said.

The lawsuits targeting the alleged illegal short-term rental operators were filed not by the city but by an entity called Global Real Property Trust, which was described by its lawyer, Sean Trundy, as the sole member of several companies that own property and run businesses in Charleston.

Trundy would not identify the trustees or beneficiaries.

The trust said in court papers that it rents properties on a short-term basis but follows the letter of the law. It said it pays taxes to the city and has the proper business licenses.

It also alleged the property owners it is suing “compete unfairly.”

“By renting their real estate illegally, (the) defendants are able to save money by not paying for business licenses and not paying accommodation taxes,” according to one of the complaints.

Michele Ghastin, who rents out part of her home near Hampton Park, is named in one of the lawsuits.

“The city needs to accept and embrace this new generation of different types of businesses that are developing,” she said.

Ghastin said she and her spouse moved into the top portion of their home five years ago. Two years later, the long-term tenants who lived downstairs moved out.

“We had used Airbnb and VRBO and enjoyed it,” she said, referring to Vacation Rental By Owner, another online booking site.

Ghastin said she registered the property as a business, obtained a retail license from the city and pays taxes quarterly on the rental venture.

“It’s just worked out great for us,” she said.

Attorney Chris Murphy, who is defending multiple owners named in the lawsuits, said Global Real Property Trust doesn’t own property in the city under that name. Trundy called that a “red herring.”

Also, Murphy said, there’s the issue of proximity. A property owner has standing to sue a nearby neighbor for violating a local ordinance, “but you can’t sue someone 10 blocks away,” Murphy said.

“The times are changing with the Internet and with technology, and you’ve got to adapt to those times,” he said.

Attorney Chris Inglese has drafted a proposed ordinance for the owners, and it has been shared with the city, he said. He also represents 22 of the defendants in the lawsuits.

“These people don’t deserve to be sued over this,” Inglese said.

Companies like Airbnb are now starting to speak out about how to deal with the regulatory issues that have cropped up between property owners and local governments.

At the recent U.S. Conference of Mayors, The New York Times reported that Chris Lehane, head of global policy at Airbnb, said the company is willing to pay taxes.

“We want to demonstrate a seriousness of purpose,” Lehane told the newspaper. “I’m not aware of any company standing up at the U.S. Conference of Mayors and saying, ‘Please tax us.’ ”

Also, Airbnb, recently valued at more than $25 billion, released its “Community Compact,” detailing how it wants to work with municipalities.

“Based on our core principles to help make cities stronger, Airbnb is committed to working with cities where our community has a significant presence and where there is support for the right of people to share their homes, both when they are present and when they are out of town,” the document states.

Under one of its bullet points, the company said that “in those places that respect the right of people to share their home, we will work to ensure that the Airbnb community pays its fair share of taxes while honoring our commitment to protect our hosts’ and guests’ privacy.”

Some cities, such as Chicago and Jersey City, N.J., tax Airbnb rentals the same as conventional hotels, according to news reports. Lindsey, head of the planning office in Charleston, said, to his knowledge, no one with the city has been in talks with the company yet.

In South Carolina, changes have been bandied about in Columbia. Lawmakers filed two bills last year that would extend the statewide accommodation tax that hotels must pay to short-term rental operators. The supporters include a Columbia-based lobbying group for the hospitality industry.

“The South Carolina Restaurant and Lodging Association supports legislation which would level the playing field by requiring lodging providers, such as Airbnb, to pay taxes,” CEO John Durst said in a statement.

Durst added that his group “is also actively working with several other agencies and organizations to achieve this important goal.”

Reach Allison Prang at 843-937-5705 or follow her on Twitter @AllisonPrang.