Folly Beach freezes new short-term rental licenses

Key Takeaways

Folly Beach has temporarily stopped issuing most new short-term rental licenses while the city studies its rules
The move follows a court ruling that struck down the city’s voter-approved 800-license cap and registration fee
The city is appealing the ruling, leaving prospective operators caught between the court fight and a new licensing freeze

Getting a new short-term rental license in Folly Beach, South Carolina just got a lot harder.

The popular beach town, located about 11 miles outside of historic downtown Charleston, has temporarily stopped issuing most new STR licenses while city leaders study what to do next with one of the most fought-over rental rules in the state.

Earlier this week, the City Council approved the moratorium 4-1, according to Live 5 News.

The Aug. 26 freeze comes less than two weeks after a Charleston County judge struck down Folly Beach’s voter-approved cap of 800 investment short-term rental licenses and the registration fee tied to it.

Instead of opening the door to more licenses, the city is appealing the ruling and putting most new applications on hold while a third-party review of its STR rules moves forward.

A court ruling put the 800-license cap in jeopardy

The latest fight goes back to an Aug. 14 ruling that found key parts of the city’s short-term rental system were unfairly adopted.

Voters approved the 800-license cap through a referendum. A judge later ruled that voters did not have the authority to make decisions about taxes and business licensing, which fall to City Council.

The ruling also found problems with the city’s rental registration fee.

For operators waiting for a license, the decision initially looked like it could create an opening.

That opening did not last long.

On Aug. 19, council voted to appeal and moved forward with a moratorium on new licenses. The second and final reading followed on Aug. 26.

Not every short-term rental application is frozen

The moratorium is not a blanket ban on every type of license.

Existing licenses can still be renewed, and the city has carved out exceptions for certain applicants, including some owner-occupied rentals, medical hardship cases and properties that qualify under inheritance rules.

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Folly Beach also has a separate owner-occupied license for legal residences that are rented no more than 72 nights a year.

That distinction matters for anyone buying property on the island with plans to operate it as a full-time short-term rental.

The city’s code still says investment STR licenses are capped at 800 and that a waitlist should be maintained when the cap is reached.

Those investment licenses are also generally non-transferable when a property changes hands, with limited exceptions.

What this means for buyers and STR investors

For someone shopping for a Folly Beach property today, the biggest mistake would be assuming a home can automatically be converted into a short-term rental after closing papers are signed.

A property that has been used as an Airbnb or Vrbo in the past does not necessarily mean a new owner will be able to keep operating it the same way.

Investment short-term rental licenses are generally tied to the existing owner and terminate when the property transfers.

That makes license status, property tax classification and the type of STR permit just as important as projected nightly rates when underwriting a purchase.

Prospective buyers should verify the property’s exact licensing status with the city before relying on short-term rental income in a deal.

The rules could change again

The city is now waiting on two separate tracks.

One is the court appeal over the 800-license cap. The other is a broader study of Folly Beach’s short-term rental rules.

Mayor Chris Bizzell has said the city wants to use the study to help shape what comes next.

Until then, the practical result is pretty simple: most new investment STR operators are not getting licenses.

And even after the study is finished, Folly Beach could end up with another version of the cap, a different licensing system or another round of changes depending on what happens in court.