Folly Beach STR Ruling: Why Procedure Voided the 800-License Cap
August 20, 2026
Dustin Hofer
Founder
Folly Beach STR Ruling: Why Procedure Voided the 800-License Cap
On August 14, 2026, South Carolina Circuit Judge Thomas J. Rode held that Folly Beach's 800-license short term rental cap and its rental registration fees violate South Carolina law, the Post and Courier reported on August 15. Three and a half years after island residents approved the ordinance at the ballot box, the ruling voids that voter-passed cap, at least for now.
Ten days earlier, on August 5, 2026, the Fifth Circuit Court of Appeals upheld New Orleans' one-rental-per-block cap and its platform verification rules in Bodin v. New Orleans. In February 2026, a South Carolina appeals court had already upheld this same Folly Beach cap against a different legal attack.
In a capped market, and in cities still drafting a numerical limit, the Folly Beach opinion shows which defects have been fatal and which theories have already lost. Judge Rode's result turned on who adopted the rule and where the fee revenue was deposited.
Key facts
On August 14, 2026, South Carolina Circuit Judge Thomas J. Rode struck down Folly Beach's 800-license short term rental cap ordinance and its rental registration fees as violations of South Carolina law, according to the Post and Courier.
Calculated on gross rental revenue and deposited into the city's general fund, the registration fee was ruled an improper tax disguised as a fee, per the same report.
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Voters approved the cap 656 to 579 in a February 7, 2023 referendum, per the Carolina News and Reporter. The judge found that South Carolina reserves taxing power for city councils, not ballot measures.
Folly Beach says it will appeal and is not immediately stopping enforcement of the cap, per the Post and Courier.
On August 5, 2026, the Fifth Circuit upheld New Orleans' short term rental caps and platform verification requirements in Bodin v. New Orleans, No. 25-30524.
What the judge actually ruled on August 14
Park Lane Partners LLC and Elizabeth Spratt Cooper filed the suit in August 2024. They had bought a Folly Beach house in 2017 to operate as a short term rental, according to the Post and Courier. Hearings followed in January and April 2026. On August 14, Judge Rode held that both the cap ordinance and the city's rental registration fees violate South Carolina law.
The referendum problem
The city council never enacted this cap. Voters did, in a February 7, 2023 referendum: 656 to 579, per the Carolina News and Reporter. That is a margin of 77 votes out of 1,235 cast, or 53.1 percent in favor (656 divided by 1,235). The measure capped investor-owned rental licenses at 800 while leaving owner-occupied licenses unlimited, and it let existing licenses continue until the property changed hands.
Before the ordinance, the island had about 1,125 rental properties, roughly 43 percent of its housing, per the Post and Courier. Reducing 1,125 licenses to 800 requires about 325 licenses, 28.9 percent of the pre-cap total, to lapse as ownership turns over.
The legal pivot was taxing power. South Carolina vests that authority in a city council, not in a ballot measure. Once the court treated the registration fee as a tax, adopting it by referendum was improper. Folly Beach's reply, per the Post and Courier, is that the ruling judged the method of adoption, not the cap as policy, and that the city will appeal.
The general-fund test: why the fee counted as a tax
Fee and tax are not interchangeable labels. A fee reimburses the government for a defined service the payer receives: processing a license application, inspecting a property. A tax raises general revenue for whatever the government chooses to fund.
Folly Beach calculated its rental registration fee on a property's gross rental revenue and deposited the proceeds in the city's general fund rather than applying them to a specific service, per the Post and Courier. A charge that scales with revenue and finances general operations is a tax on the rental business, whatever the ordinance calls it. That characterization is the defect the court treated as fatal.
How the same cap survived a different lawsuit in February
This ordinance had already survived 2026 review under a different theory.
In February 2026, the South Carolina Court of Appeals rejected a challenge from Folly East Indian Co. The owners argued that the cap was an illegal zoning change that stripped the economically viable use of a newly built rental property. The court held that the cap regulates business licenses rather than zoning, noting it "did not amend City's zoning ordinance, did not rezone any properties," per the Post and Courier. On March 4, 2026, ABC News 4 reported that the cap still stood; the mayor observed that tourism numbers had held steady.
A property-rights attack failed in February; a taxing-procedure attack succeeded in August, on the same ordinance.
Folly Beach and Bodin, ten days apart
Judge Rode's August 14 ruling arrived ten days after the Fifth Circuit decided Bodin v. New Orleans on August 5, 2026. New Orleans limits non-commercial short term rental licenses to one property per residential block, awarded by lottery. Since 2024, booking platforms must verify a listing's license status before facilitating a booking and reverify every 30 days.
The Fifth Circuit upheld the entire scheme. On the cap, the court rejected the hosts' takings claim, finding slight economic impact and characterizing the rule as reasonable zoning regulation. "The 2023 Ordinance may have frustrated the Hosts' ambitions to operate short-term rentals," the panel wrote, but owners retained the ability to rent long term, so nothing was taken. On the platform rule, the court held that Section 230 of the Communications Decency Act does not shield platforms from a duty to verify licenses, because compliance uses internal license data rather than policing public listing content. The New Orleans City Council's August 2026 statement confirms that the city treats both ordinances as fully operative.
New Orleans enacted its rules through council procedure and tied enforcement to licensing mechanics. Folly Beach adopted its cap at the ballot box and sent a revenue-based charge to the general fund. Nothing in Bodin treats a numerical cap as unconstitutional. A cap can still be unlawful under state law when the adoption path or the fiscal design is defective, which is the ground Judge Rode used.
Reading a local cap against these defects
Who adopted it, where the money goes, and which theory is pleaded
A cap enacted by a council exercising business-licensing authority has survived both state and federal review this year. A referendum that exercises a power reserved to the council, taxing among them, is exposed. Preemption from above can remove the question entirely: as we explained in our breakdown of the Idaho and Indiana preemption laws, some legislatures have stripped local governments of cap authority. The first inquiry is whether the city possessed the power at all.
Fees calibrated to the cost of a service (license processing, inspections) have held. Charges that scale with revenue and land in the general fund are taxes, and taxes come with strict rules about who may levy them.
The pleaded theory has been decisive. Takings and zoning arguments lost in Bodin and at the South Carolina Court of Appeals in February. Procedure and fiscal-design arguments succeeded on August 14. Anyone funding or joining a challenge should read that record before writing a complaint.
What to check on your own city's fee schedule
Read the ordinance and the fee resolution, not the summary on the city website. Determine whether the registration or permit charge is a flat amount or a percentage of revenue. Locate where the proceeds are budgeted; most cities publish that assignment in the annual budget document. Then establish the adoption path: a council vote, or a ballot measure.
If the fee is a percentage of gross revenue and the money is not earmarked for short term rental administration or enforcement, it may share the defect that voided Folly Beach's fees. Whether that defect is actionable depends on the state's law. Treat this as background for a conversation with a licensed attorney, not legal advice.
While a challenge is pending, keep paying and remain licensed. Folly Beach is continuing enforcement during its appeal. In a capped market, a lapsed license may be unrecoverable.
What happens next on Folly Beach
The city will appeal and is not pausing enforcement in the meantime, per the Post and Courier. As of August 18, 2026, the cap and the fees remain operative in practice. Until an appellate court says otherwise, anyone licensed on the island should treat both as still in force.
The ruling also arrived midstream in the city's own 2026 STR ordinance review, which opened with a public input meeting on May 28, 2026 and includes a planned third-party study, with any changes targeted before the 2027 licensing period, per ABC News 4. One plausible resolution is that the council readopts a version of the cap through proper procedure, paired with a cost-based fee, curing both defects the court identified.
In a market that rations licenses, the guest relationship attached to one of those licenses is the part of the business no ordinance can cap or revoke. Haven holds that relationship on a branded direct-booking site, with the guest CRM and email marketing attached to the property and no booking commission on the stay. The direct booking guide covers how to start.
FAQ
Is the Folly Beach short term rental cap still in effect after the August 2026 ruling?
In practice, yes. Judge Rode's August 14, 2026 ruling found that the cap ordinance and registration fees violate South Carolina law, but the city says it will appeal and is not immediately stopping enforcement, per the Post and Courier. Anyone licensed on Folly Beach should keep that license current until the appeal is resolved.
Can short term rental hosts sue a city over permit caps or registration fees?
Yes. The 2026 cases show which theories have worked. Challenges built on takings or zoning lost at the Fifth Circuit on August 5 and at the South Carolina Court of Appeals in February. The challenge built on improper taxing procedure succeeded on August 14. Outcomes turn heavily on state law; consult a local attorney before funding a case.
What is the difference between a permit fee and an illegal tax for short term rentals?
A fee recovers the cost of a specific service, such as processing a license or inspecting a property. A tax raises general revenue. Folly Beach's charge was based on gross rental revenue and went to the general fund, which is why the court treated it as a tax the referendum had no power to impose.
Did the Fifth Circuit's Bodin ruling make short term rental caps legal everywhere?
No. Bodin binds federal courts in Louisiana, Mississippi, and Texas. It held that New Orleans' one-per-block cap is not a taking and that Section 230 does not block platform verification duties. Caps can still fall on state-law grounds, as the Folly Beach ruling showed nine days later.
