Nashville Found Guilty of Contempt

 

Metro Nashville was found guilty of contempt today.

Last month, the city revoked nearly 150 Owner Occupied Short Term Rental permits due to a change in interpretation of the law (which they now claim was simply a mistake). Following those revocation notices, more than 45 homeowners filed lawsuits. A court-ordered agreement granted those homeowners permission to continue to rent their homes during the legal proceedings. Despite the judge’s order, on February 15th, the city sent those owners a second revocation notice, threatening “prosecution in environmental court.” The homeowners’ attorneys filed petitions for a civil contempt of court against the city of Nashville for violating the court order.

Today, the judge ruled in favor of the homeowners and found Metro Nashville government in contempt of court.

In our research, we have not found any other instance in the state of Tennessee where a city has been found in contempt of court, which makes this ruling even more significant.

The Nashville Area Short Term Rental Association has always been an advocate for operating within the law, even if we do not agree with those laws. The city regards any mistake homeowners make as unacceptable and holds the owners accountable with court appearances, fines, and, in many instances, the termination of their ability to temporarily or permanently rent their homes. In fact, just this week, news broke of a local home owner being sentenced to jail time for not obeying the city’s short term rental laws. 

Meanwhile, in this one instance alone, the city has admittedly made mistake after mistake, yet continued to ask that they not be held accountable for them. We are happy to hear that the city has been held to the same standard they hold homeowners to — and that they are being held accountable.

Update on March 8, 2019:

Metro Nashville was found in contempt in a dozen more cases, in addition to the 7 from earlier this week. Today, the Judge overseeing the first contempt charge case ruled that Metro Nashville government “willfully and contemptuously” violated a court order and found the city to be in contempt. To date, contempt orders against Metro have been issued for 12 out of a total of 21 plaintiffs, with 9 still remaining to be heard.

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This ruling does not mean that everyone impacted by the revocations gets their permit back.

Right now, this ruling only impacts these 7 homeowners, with several more owners awaiting the outcome of a judge’s ruling in the first contempt hearing from last week.

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Only a portion of the homeowners who filed lawsuits after the revocations also filed for contempt. That means several lawsuits will still need to go through the entire legal process. This could take months or longer.

If the lawsuits rule in favor of the owners, only those properties will be impacted; the ruling will not apply to all owners who received revocations.

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Those impacted by the revocation letters who did not file a lawsuit must still obey the revocation / cease order, which states they cannot rent or advertise their short term rental past February 15th, 2019.

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This ruling does not mean that new permits in HPRs / two-family dwellings will now be issued. They will not.

As always, we suggest seeking legal counsel in these matters.


Understanding the Context

In light of this significant ruling against the city, we want to provide a summary of what led to this situation as well as correct some misinformation that is circulating:

  • In February, 2018, a new short term rental bill passed into law (BL2017-608). In that bill, amendment 7 defines owner-occupied as follows:

“‘Owner-occupied’ means the owner of the property permanently resides in the STRP or in the principal residential unit with which the STRP is associated on the same lot; provided however that in order to qualify as owner-occupied, the owner of the property: (1) must be a natural person or persons; (2) may not be a limited liability entity, including without limitation a corporation or limited liability company; and (3) may not be an unincorporated entity, including without limitation a partnership, joint venture, or trust.”

  • The word “or” in the first line is very important in this definition because it provides the option of living in the STRP or in an associated unit on the same lot.

  • In the same bill, Amendment 9 was also introduced and passed. That amendment includes additional, not replacement, verbiage, as follows:

"By amending Section 6 by adding at the end of Section 17.16.250.E.1 as the appropriately designated subsections:

a. Only one (1) permit shall be issued per lot in single-family and two-family zoning districts.
b. Ownership of two-family dwellings.
i. The property ownership of the two-family units cannot be divided.
ii. The two-family units shall be owned by the same person and one of the two units shall be the primary residence of the owner.
iii. Prior to the issuance of a permit, an instrument shall be prepared and recorded with the register's office covenanting that the two-family dwelling may only be used under the conditions listed above as long as the STRP – Owner-Occupied permit is valid."

  • Amendment 9 was meant to be complimentary to further address the “or” portion of amendment 7 (the portion that reads "in the principal residential unit with which the STRP is associated on the same lot"} NOT to disallow someone from renting the property they reside in.

  • Because Horizontal Property Regimes (HPRs, or what are often referred to as the "tall and skinnys") were not spelled out in in either amendment, owners who owned both sides of an HPR, who wanted to live in one and STR the other, were actually denied permits up until the Codes reinterpretation in October, 2018. Codes, however, did allow owners who owned both sides of a duplex to obtain a STRP permit if they lived in one side and wanted to short term the other.

  • Meanwhile, the city issued nearly 150 permits over the course of 9 months to those who only owned one side of an HPR and wanted to rent it out as an owner occupied STRP, per the definition.

  • In October, 2018 the city suddenly began to deny new applicants in this scenario.

  • When NASTRA was made aware of these denials, we reached out to the Codes Department. The response we received in writing by the zoning examiner stated new permits were being denied because "there was a change in interpretation that I was made aware of just recently which is why there was the change I believe." No further information was provided at that time, though new permits continued to be denied and several people for whom permits had previously been issued were told their permits would either be revoked or not renewed.

  • In January, 2019 the Codes Department issued an official statement that they "made an error" and would be revoking those nearly 150 owner-occupied permits that had been issued.

Here are the biggest issues with those revocations:

  • BL2017-608 is the same bill that would have phased out all non-owner occupied short term rentals by 2020. However, in April, 2018, the Tennessee state legislature passed the Short Term Rental Unit Act, which "grandfathered" legally operating short term rentals who had been given permits by the city (or if the city had no permitting process in place, had paid sales taxes for 6 consecutive months). With this law, a STRP owner can lose there permit only 1 of 3 ways:

  1. Three violations of a generally applicable law

  2. Transfer ownership of the property (for instance, sell the property)

  3. Stop operating as a STRP for 30 continuous months

  • Because the state law was meant to protect against these types of changes, this is why the lawsuits came about when these recent permits were revoked. NASTRA’s position is that the revocations were a direct violation of the state law. Additionally, the city had originally taken the stance that this was a "reinterpretation of the law," not an error. Regardless, issuing a permit "in error" is not one of the three ways you can lose your STRP permit.

  • Those who filed suit (and only those who filed suit) received a temporary injunction before the February 15th deadline to cease rentals that allows the owners to continue to rent and advertise during legal proceedings.

  • However, the Codes Department ignored the court order and still sent those owners with temporary injunctions a second notice letter, something they do not do in normal practice with violation or revocation notices.

  • Because of those second notices, a judge heard petitions by 6 separate plaintiffs filed to hold the Metro Government in civil contempt of court last week. During the first hearing, the Codes Department claimed that the second revocation letter was simply a “courtesy” advising recipients of their right to appeal to the BZA. The February 15th letter did not mention those owners' rights to go to Circuit or Chancery Court, only the BZA.

  • The BZA has publicly stated that they will not be approving appeals in this matter (for both existing owners and those who were originally told they could receive a permit only to be later denied), because their "hands are tied".

  • Today a second hearing was held for an additional 7 plaintiffs and this judge ruled that the city was in contempt of court in all of those instances.