Say you're three weeks from closing on a rental cottage near the pier. The listing says the property comes with an active short-term rental license. Your lender has your projected income figures. Your agent has run the comps. Then you read that a Charleston County judge just voided the entire cap system the license depends on, and two weeks after that, the city froze new applications altogether.
That is exactly the situation anyone under contract on a Folly Beach investment property is sitting in right now. And the twist most buyers miss is that the ruling changes almost nothing about whether your own license transfers with the sale. It never did, and it still doesn't.
What actually happened this summer
Folly Beach's short-term rental cap has been law since voters approved it in a referendum on February 7, 2023, by a margin of 656 to 579. The cap set a ceiling of 800 licenses for investor-owned rentals, left owner-occupied licenses uncapped, and grandfathered existing licenses until the property changed hands. Before the vote, the island had roughly 1,125 rental properties, about 43 percent of its housing stock. The last time active licenses had dipped below 800 was back in 2019, which tells you the cap was designed to shrink the investor pool over time, not just hold it steady.
Two rulings this year moved in opposite directions:
- In February 2026, the South Carolina Court of Appeals upheld the cap against a challenge from Folly East Indian Co., which argued the ordinance amounted to an illegal zoning change. The court disagreed, holding that the cap regulates business licenses rather than zoning.
- On August 14, 2026, Charleston County Circuit Judge Thomas J. Rode struck down the same cap and its registration fee, ruling on entirely different grounds. His decision held that South Carolina reserves taxing power for city councils, not ballot referendums, and that a registration fee calculated on gross rental revenue and deposited into the general fund functioned as a tax, whatever the ordinance called it. The suit had been filed in August 2024 by Park Lane Partners LLC and Elizabeth Spratt Cooper, who bought a Folly Beach house in 2017 to run as a short-term rental.
Folly Beach is appealing, and an automatic 10-day stay kept the ruling from taking immediate effect. Rather than let the cap dissolve into open enrollment while the appeal plays out, City Council voted 4-1 on August 26 to install a temporary moratorium on new short-term rental applications, first read on August 19. The freeze exempts license renewals, the roughly 200 names still sitting on the old waitlist, 72-day licenses, and 54 applications submitted in the days immediately after the ruling. It stays in place until a commissioned regulatory study wraps up, or until 2027, whichever comes first.
Mayor Chris Bizzell has framed the moratorium as a bridge, not a resolution, while the city figures out what a legally durable version of the cap looks like. That work was already underway before Judge Rode's ruling. The council had spent May and July soliciting public input on the ordinance, weighing everything from keeping the cap unchanged to removing it entirely, with College of Charleston help drafting a request for proposal on an independent study.
The license terms that don't wait on the appeal
Whatever happens to the 800-number itself, the mechanics that govern any individual license are set by the city's existing short-term rental ordinance, and none of them moved this summer.
| License type | Who qualifies | Tax rate | Rental day limits | Starting fee |
|---|---|---|---|---|
| Long Term (LTR) | Any owner | Standard | 30+ day rentals only | $45, covers first $2,000 income |
| Owner-Occupied Short Term (OSTR) | Owner-occupied, 4% property tax rate | 4% | Capped at 72 days per year to keep the 4% rate | $245, covers first $2,000 income |
| Investor Short Term (ISTR) | Non-owner-occupied, 6% property tax rate | 6% | No limit on nights | $245, covers first $2,000 income |
The detail that trips people up in a purchase contract: no license transfers on sale, full stop, regardless of type. Every new owner has to apply fresh, and the city treats the parcel's rental history as belonging to the prior owner, not the deed. If you're buying a home advertised with an active ISTR license and current bookings on the calendar, South Carolina's Vacation Rental Act gives you a narrow bridge, not a guarantee. The city will issue a temporary license valid for 90 days after closing so you can honor reservations the seller already took, but you need the closing statement or signed contract, the seller's list of qualified rentals, and the rental management agreement in hand to get it. After 90 days, you're back to applying under whatever the cap situation looks like at that moment, which today means a moratorium with a narrow set of exemptions.
A few other terms worth knowing before you assume rental income transfers cleanly: a property must be rented at least 28 days a year to keep any license active as of the 2024 license year. Tear the house down and rebuild, and the license lapses, meaning you reapply under the cap rules in effect when you're ready to rent again. Add bedrooms, and you have to update the license and show proof of adequate parking and septic capacity for the new count.
What the market is already telling you
None of this has been theoretical for pricing. In January 2026, before the August ruling even happened, Folly Beach's median sale price dipped 16 percent to $1.25 million, well above the Charleston County median of $715,000 for the same month. Homes also sat far longer, a median of 168 days on market, up 110 percent from the prior year, and sellers were netting about 87 percent of original list price, down from close to 91 percent a year earlier.
Read those three numbers together and the story isn't that Folly Beach stopped being desirable. It's that the island's median price and days on market have always run partly on rental-income assumptions, and when the rules underneath those assumptions get shakier, buyers slow down and sellers concede more on price to close. That was true in January, months before a judge touched the cap. The August ruling and the moratorium that followed only add a second layer of uncertainty on top of one that was already showing up in the comps.
What this means if you're the one closing
If you're buying an investment property here right now, treat the rental license as a live variable in your underwriting, not a fixed asset that comes with the house. Confirm in writing from the city whether the specific parcel has an active ISTR or OSTR license, what the 90-day temporary license would look like if you needed it to honor existing bookings, and whether the property would even qualify for a new license today given the moratorium's exemptions. None of that shows up on the MLS sheet, but it will show up in your first year of cash flow.
If you're selling a licensed rental, understand that your buyer's financing and their expected income may hinge on details you can help document, since the seller's list of qualified rentals and rental management agreement are literally part of what the buyer needs to bridge the gap after closing.
If you're weighing whether to buy on Folly Beach at all versus a nearby barrier island, this is worth factoring in as one more piece of due diligence alongside the usual list, right next to a home inspection and a flood insurance quote.
A few questions worth asking directly
Does the August ruling mean the 800-license cap is gone for good? Not yet. The city is appealing, and the moratorium approved on August 26 is explicitly a placeholder while that appeal and a regulatory study play out, with an outside deadline in 2027.
If I buy a home with an active rental license, does it come with the house? No license transfers on sale under the current ordinance. You would need to apply fresh, and the state's Vacation Rental Act only bridges the first 90 days after closing to honor bookings the seller already made.
Could the license count go up if the cap is eventually struck down for good? It's possible, but city leaders have said the goal of the ongoing review is a legally durable version of the ordinance, not necessarily a higher number, and opponents of any cap have floated a class-action to recoup fees paid since 2023 if the ruling holds on appeal.
Rental rules like these are exactly the kind of local detail that doesn't show up until you're already deep in a contract. If you're weighing a Folly Beach purchase, sale, or just want a straight read on what a specific address can and can't do under the current ordinance, reach out to Andrew Scherl at Charleston House Now and we'll walk through it before you write an offer, not after.
