Airbnb in Sea Pines?

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Court of Appeals says “yes” under some circumstances

I wouldn’t have predicted it, based on the history of exclusive Sea Pines Plantation in Hilton Head, its extensive set of restrictive covenants and the aggressive efforts to enforce those restrictive covenants over the years. But our Court of Appeals approved an owner’s rental through Airbnb of a portion of a residence in a December 6, 2017 case*.

Mr. and Mrs. Wall bought their residence at 48 Planters Wood Drive in 1998. The second story of the home consists of a guest suite that is accessible only by an outside staircase. In 2012, the Walls began renting a room through Airbnb, an online rental broker. The Airbnb listing was titled “Hilton Head Organic B&B, Sea Pines”. The Walls cooked breakfast for their renters.

AirBnB

Community Services Associates, Inc. (CSA), the property owners’ association in power to enforce Sea Pines’ restrictive covenants, expressed concern about the Airbnb listing, and the Walls changed the listing to the “Whole House” category and began renting out the entire first floor of their home while living in the second-story guest suite. They also dropped the “Hilton Head Organic B&B, Sea Pines” title and stopped cooking breakfast for their renters.

CSA filed suit seeking temporary and permanent injunctions against the Walls because of their alleged operation of a “bed and breakfast” in their home and the rental of less than the entire residence.

Here are the operative provisions of the restrictions:

  1. All lots in said Residential Areas shall be used for residential purposes exclusively, No structure, except as hereinafter provided, shall be erected, altered, placed or permitted to remain on any lot other than one (1) detached single dwelling not to exceed two (2) stories in height and one small one-story building that may include a detached private garage and/or servant’s quarters, provided the use of such dwelling or accessory building does not overcrowd the site and provided further that such building is not used for any activity normally conducted as a business. Such assessor building may not be constructed prior to the main building.

  2. A guest suite or like facility without a kitchen may be included as part of the main dwelling or accessory building, but such suite may not be rented or leased except as part of the entire premises, including the main dwelling, and provided, however, that such guest suite would not result in over-crowding of the site.

CSA took the position that the restrictions authorized the short-term rental of the entire residence but not part of the residence, that the Walls were operating an offending bed and breakfast, and that the guest suite included a second kitchen.

At a hearing before the master-in-equity, Mr. Wall testified that the couple kept an induction plate, a toaster oven, and a mini-refrigerator in the guest suite, and they occasionally prepared their food and washed their dishes in the suite.

The master denied the motion for injunctive relief and dismissed CSA’s complaint.

The Court of Appeals affirmed, stating that the dorm-style portable appliances used by the Walls did not create a kitchen. The Court held that the express terms of paragraph 6 require a residence with a guest suite to be rented in its entirety when the guest suite is rented out, but paragraphs 5 and 6 do not, by their express terms or by plain and unmistakable implication, require a residence with a guest suite to be rented in its entirety in every circumstance.

At best, according to the Court, paragraphs 5 and 6 are capable of two reasonable interpretations: (1) a residence with a guest suite must be rented in its entirety in every circumstance, or (2) the owners of a single family dwelling with a guest suite may stay in the guest suite themselves while renting out the remaining space. Because the latter interpretation least restrict the use of the property, the Court adopted that interpretation.

Understanding a little about the culture of Sea Pines, I will be surprised if we don’t hear more about this Airbnb issue in the future.

SC residential tax breaks are “two ships in the night”

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ships passing night.jpg

“Ships that pass in the night, and speak each other in passing, only a signal shown, and a distant voice in the darkness”  – Longfellow

Tax cases can be complicated, but this one seems relatively simple. The South Carolina Court of Appeals held in late December that the homestead exemption and the primary residence (4%) classification are two entirely separate matters*.

The taxpayer, Frank Mead, turned sixty-five in 2004 and received the homestead exemption from 2005 to 2010 on his home located in beautiful Hilton Head Island. In 2011, he had a brilliant idea and rented his home for 138 days during which he traveled part of the time and stayed in a rental apartment the remainder of the time.

The Beaufort County Tax Assessor didn’t approve of Mr. Mead’s brilliant idea. She revoked the homestead exemption for 2011 on the theory that he no longer qualified because he rented his home for more than fourteen days.  Mr. Mead believed the fourteen-day limitation applied only to the primary residence (4%) classification and appealed to the Beaufort County Tax Equalization Board.

He lost in that forum but then appealed to the Administrative Law Court. The ALC found for Mr. Mead and determined that the homestead exemption and the primary residence classification are “two ships in the night” with different requirements. The Tax Assessor appealed to the Court of Appeals.  The issue was whether the homestead exemption under §12-37-250 of the South Carolina Code is available only to property that also qualifies for the preferential residential assessment ration set out in §12-43-220(c).

Section 12-37-250 provides for a homestead exemption for a person sixty-five or older when that person has been a resident of South Carolina for at least one year. Section 12-43-220(c) provides for a special property tax assessment ratio of 4% (as opposed to the normal 6%) for owner occupied legal residences.

To make the matter a little more complicated, but more advantageous to the taxpayer, the assessment ratio statute further provides that the owner-occupant of a legal residence is not disqualified from receiving the 4% classification if the requirements of Internal Revenue Code §280A(f)[2] as defined in section 12-6-40 (A), meaning the property may be rented for less than fifteen days.

The Court of Appeals noted that nothing in the homestead exemption statute makes reference to the primary residence classification statute and that the 14-day rule applies only to the four percent assessment ratio. Simple, right? Not quite so simple: interestingly, the Department of Revenue had taken the same position in a 1997 memorandum that the Tax Assessor in this case took, but withdrew that memorandum two years later.

For now, the rules are separate and distinct, and the taxpayer wins!

Hilton Head Timeshare Project Entangled In Consumer Litigation

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Lawsuits involve tales of fraudulent sales tactics

Hilton Head’s Island Packet newspaper continues to report on approximately sixty state and federal lawsuits pitting disgruntled consumer purchaser plaintiffs against The Coral Sands Resort timeshare project on Pope Avenue in Hilton Head. The cases have been weaving their way through the court systems for three years.

shutterstock_47620291The lawsuits involve tales of fraudulent tactics by timeshare salesmen, such as promises of extra weeks in related projects that never materialize, promises of waived maintenance fees that never materialize, a pattern of baiting-and-switching units, promises that the developer will purchase timeshare units owned by the consumers in other projects as a sort of trade in, and sales of weeks that are available only every other year or every third year as if they were available every year. In short, the purchasers claim they were misled by sales pitches, and the documents they received did not reflect what had been told.

Most recently, Dan Burley reported on July 1 that two out-of-state couples received full refunds through arbitration. These two decisions are the first rulings in the various cases.

According to the July 1 article, separate arbitrators voided the couples’ contracts and ordered refunds because the contracts were determined to have violated aspects of the South Carolina Timeshare Act.

But the relief the consumers had requested went far beyond the refund of several thousand dollars. One of the cases was arbitrated by Hilton Head lawyer Curtis Coltrane. His twelve-page Award was attached to the news report and discussed allegations of common law fraud, negligent misrepresentation, civil conspiracy and Unfair Trade Practices, among others. All of those claims were dismissed for lack of evidence.  The arbitrator stated that the plaintiffs were intelligent individuals who should have been able to ascertain the contents of the documents by reading them.shutterstock_55553422

The second suit was arbitrated by Florence lawyer Richard L. Hinson with a similar result. As in the first case, all claims were dismissed except for the causes of action for Violation of the South Carolina Timeshare Act, in Mr. Hinson’s two-page award.

Representatives of the project are quoted as saying that thousands of customers are pleased with their Coral Resorts experience, and that owners who suffer from buyers’ remorse can ask for a refund within five days of signing the contract.

Mr. Burley’s previous articles in The Island Packet provide additional detail. I recommend the previous …and future articles on this litigation for interesting reading!