Pacaso

Sullivan’s Island, Fractional Ownership, and the Limits of Zoning Law

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We all know that South Carolina has some of the most beautiful natural scenery in the nation.  As the weather gradually improves, and with Spring Break underway for many and the summer rental season right around the corner, tourists begin flocking to our beautiful beaches.

In February 2026, a legal dispute[1] on Sullivan’s Island quietly reshaped the conversation around property rights, zoning enforcement, and the future of residential ownership models in South Carolina’s coastal communities. At the center of the case was 2 SC Lighthouse, LLC, a property owner, and Pacaso, Inc., a company that facilitates fractional homeownership. On the other side stood the Town of Sullivan’s Island, determined to enforce its long‑standing restrictions on short‑term rentals.  While the case involved a single property, its implications reach far beyond one address.

Sullivan’s Island has long maintained strict zoning rules designed to preserve its residential character. Among those rules are limits on short‑term vacation rentals, which town officials argue can disrupt neighborhoods and strain local infrastructure. As new real estate models have emerged, the town has taken a close look at how these arrangements fit within existing ordinances.

That scrutiny intensified when a home owned by 2 SC Lighthouse, LLC was used in partnership with Pacaso. Pacaso’s model allows multiple buyers to purchase fractional ownership interests (in this instance, one‑eighth shares) in a single property. Each owner receives scheduled access throughout the year, and Pacaso manages maintenance and logistics. However, unlike a true rental property, occupants do not pay nightly or weekly fees to stay in the home; they are staying in a property they legally own.

Town officials concluded that the arrangement functioned like a vacation rental in practice, even if it was structured differently on paper. The Town’s Zoning Administrator issued a violation, asserting that the property was being used as a prohibited short‑term rental under Sullivan’s Island zoning laws. That decision was upheld by the Town’s Board of Zoning Appeals (BZA).

2 SC Lighthouse and Pacaso appealed to the Charleston County Circuit Court. The court sided with the Town, effectively agreeing that the zoning authorities’ interpretation of the ordinance should stand.

The property owner and Pacaso appealed, arguing that a fractional ownership is not a rental, and that the Town was stretching the definition of “short‑term rental” beyond what its ordinance actually said.

On February 18, 2026, the South Carolina Court of Appeals reversed the circuit court’s decision, siding with 2 SC Lighthouse and Pacaso. The ruling turned on the critical distinction between ownership and renting. The court emphasized that the individuals staying in the home were owners, not tenants. Without a rental transaction (no landlord‑tenant relationship and no payment for temporary lodging), the court found that the town’s definition of a short‑term rental did not apply.

In making its ruling, the court clarified that interpreting a zoning ordinance is a question of law rather than a factual determination entitled to broad deference. While zoning boards are given leeway in applying ordinances, they cannot rewrite or expand those ordinances. If a municipality wants to regulate fractional ownership, it must do so explicitly.

Although the ruling is an unpublished opinion and is not binding precedent, its practical impact is significant. For Sullivan’s Island, the decision places limits on enforcement under current zoning language. The town may still regulate short‑term rentals aggressively, but it cannot treat fractional ownership arrangements as rentals unless its ordinances are amended to say so.

For other South Carolina coastal communities, the case serves as a warning and a roadmap. Many towns face similar tensions between preserving neighborhood character and responding to evolving real estate practices. The decision signals that courts will closely scrutinize attempts to regulate new ownership models using old definitions.

For property owners, the ruling reinforces a core principle of land‑use law: property rights cannot be curtailed by implication. Restrictions must be clearly stated, not inferred based on policy concerns alone.

The decision does not end the debate over fractional ownership on Sullivan’s Island or elsewhere. Municipalities may respond by revising zoning ordinances to directly address co‑ownership models. Developers and property owners, meanwhile, will likely continue testing the boundaries of traditional zoning frameworks.

This case highlights the broader reality that zoning laws written decades ago are being asked to govern a rapidly changing housing market. As ownership models evolve, so too must the rules that regulate them—through legislation, not interpretation.

For now, 2 SC Lighthouse, LLC’s victory stands as a reminder that in land‑use law, words matter, and towns must play by the rules they have written.

[1] Pacaso, Inc. & 2 SC Lighthouse, LLC v. Town of Sullivan’s Island, South Carolina, Appellate Case No. 2024‑000134, 2026‑UP‑078 (S.C. Ct. App. Feb. 18, 2026) (unpublished).

Have you heard of Pacaso Second Homes?

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Dirt Lawyers: take a look at this company’s website: www.pacaso.com

(Photo by Robbi Pengelly/Index-Tribune)

I try to keep abreast of trends in the real estate market, but I missed this interesting story entirely. Luckily, my husband, Frank, a voracious purveyor of the news, pointed this article from NPR out to me. The story, dated August 24, is entitled “A Startup is Turning Houses into Corporations, And the Neighbors Are Fighting Back”. You can read the story in its entirety here.

It seems a “unicorn” (a startup corporation with a billion-dollar valuation) called Pacaso, is buying homes, slightly refurbishing them, furnishing them, and creating limited liability companies to own them. The ownership of each house is then divvied into eight fractional shares, and each share is marketed on the company’s website. Each share entitles an owner to 44 nights per year. Each visit is limited to no more than 14 days.

The corporation offers an app to handle booking, maintenance, and cleaning. The cost is 12% of the value of the property up front and monthly maintenance fees. After ownership for a year, each fractional owner is entitled to sell its interest at a gain or loss. Gifts of stays at the houses can also be made to friends or family members. The company advertises that it only buys luxury and super-luxury homes and that it is not competing with middle-class families for housing.

The news story and the company’s website indicate the corporation was founded in 2020 by two former Zillow executives. One of the founders who lives in Napa bought a second home in Lake Tahoe and immediately became inspired with making the dream of second home ownership available for more people.

This type of ownership is not new to real estate practitioners who practice on South Carolina’s coast. For sale signs for beachfront houses touting “Interval Ownership” are common. In fact, intervals in these homes seem to be perpetually for sale. 

My speculation about the frequency of these sales has always been that owning a home with multiple individuals and entities you don’t know can’t be much fun. It’s hard enough for two spouses to agree on when undertake major maintenance items. Imagine trying to decide when to spend the money on exterior painting with a large group.

 The crux of NPR’s article is the opposition being mounted by neighbors of some of the houses. It’s not surprising that owners in nice single-family neighborhoods would oppose the parade of vacationers interval ownership might create. One group of neighbors in Napa printed signs reading “No Pacaso” for homes and cars, wrote opinion pieces for local newspapers and were otherwise extremely vocal in their opposition.

Valid legal arguments might be made in these neighborhoods if restrictive covenants or zoning ordinances exclude timeshares or Airbnb-types of ownership, but Pacaso insists its model involves neither form. All real estate law is, of course, local, so various arguments will be mounted in different locations.

In response to the opposition in the Napa neighborhood, the company agreed to sell the home in question in the traditional manner. It also agreed to beef up noise provisions in its documents, to create a local liaison dedicated to assisting neighbors, to refrain from buying homes in the area valued less than $2 million and to donate funds to a local nonprofit dedicated to affordable housing.

I didn’t see any South Carolina homes in a quick review of the company’s website, but I did see homes located in Florida. I can only imagine that South Carolina’s beautiful coastline will be discovered soon. Real estate practitioners will likely be involved in both sides of this controversy.