Latest STRP scam

I’ve stumbled into learning about a scam to get Metro Codes to issue an improper owner-occupied short term rental permit when the property is really a large investor-owned hotel-like property.

Here’s how it works. There is a corporate development company that is setting up multiple LLCs each to own a single property.  In one example, the LLC has a 95% owner and a 5% owner.

The 95% owner is yet another company related to the corporate developer. And the 5% owner is an individual person employed by the development company or related to the owner of the development company. Then the individual 5% owner applies for an owner-occupied permit in parts of town where there are no more investor-owner permits available. This violates the spirit of the law by pushing the number of corporate owned units higher than allowed. This also violates the letter of the law because the individual who is applying simply is not the owner — the LLC is the owner.

These LLCs can’t even keep their story straight about where they “live.”  Every LLC in Tennessee has to provide a “principal place of business” to the Secretary of State.  In two examples I have seen, the supposed owner-occupying LLC listed the parent development company’s downtown business address as the LLC’s principal place of business. So for the State of Tennessee, these LLCs operate principally from a downtown address. But for their short term rental permit application, each “resides” in a different home around town.

These units push the envelope and break at least the spirit of the law in other ways too.  At least one of these homes is being advertised online in a way that indicates the rental is for the whole house, 5 bedrooms, and 10 beds — for nearly $800 per night. The advertisement mentions that 12 is the maximum capacity. But when you list 5 bedrooms and 10 beds, you are clearly sending the message that more than 12 guests is acceptable.

Amazingly, this scam has worked at least twice that I know about, and Codes has issued owner-occupied permits for these properties!

I don’t know whether to more bothered by the clearly intentional efforts to sneak by Nashville’s laws, or Metro’s inability to sniff out a scam before a permit is issued.

It doesn’t matter, I guess.  Either way, the whack-a-mole character of short term rental enforcement continues. I am asking Codes to tighten up their processes to enforce our laws, and not allow an LLC to have an owner-occupied permit.  I am also asking for these two owner-occupied permits to be revoked because the owner (an LLC) doesn’t reside there.

 

Bob Mendes

Bob Mendes represents all of Nashville as a Council-At-Large member of Nashville’s Metro Council. He is Chair of the Council’s Charter Revision Committee, a member of the Metropolitan Audit Committee, and a member of the Council’s Budget & Finance Committee, Rules & Confirmations Committee, and Ad Hoc Affordable Housing Committee. Bob also practices business law at Waypoint Law PLLC. Bob’s complete bio is here. You can follow Bob @mendesbob.