Folly Beach's Rental Cap Is Dead. The Waitlist Isn't.

A buyer touring a raised cottage on East Arctic Avenue this month will likely hear some version of the same pitch: the house already has a short-term rental history, the numbers pencil, and the city's cap on rental licenses just got struck down in court, so nothing stands between closing and cash flow. Two of those three things are true. The house probably does have a rental history. The cap probably was struck down. But the license that made that history possible almost never survives the sale, and the city spent the back half of August making sure that, cap or no cap, nothing new is getting issued anyway.

That gap between what the headline says and what actually happens at closing is the whole story right now on Folly Beach.

How the license system actually works

Since February 2023, Folly Beach has capped the number of non-owner-occupied short-term rental licenses at 800. Voters approved that number in a referendum, and at the time there were 1,125 rental properties on the island, accounting for 43 percent of its housing stock. The cap didn't touch owner-occupied rentals, which remain unlimited in number but are restricted to 72 rental days a year.

The detail that trips up buyers is what happens to a license when a house changes hands. The ordinance made investor licenses non-transferable, with a short list of exceptions carved out over time for inheritance and medical hardship. Buy a house with an active rental history from someone who isn't your parent, and in most cases that license lapses at the closing table. You go to the back of the waitlist, not the front of the market.

That waitlist has been a slow-moving line for years. When the cap took effect, 926 license holders were grandfathered in, which is 126 more than the 800-license target. That means 126 existing licenses had to lapse before a single new one could be issued, before anyone even got to the roughly 200 entries sitting on the waitlist behind them. As of the most recent count reported by the Post and Courier, nobody had moved off that list.

The ruling that sounded like the end of the cap

On August 14, 2026, Ninth Judicial Circuit Judge Thomas J. Rode struck down both the 800-license cap and the rental registration fee that funded it. The suit, filed in 2024 by Park Lane Partners LLC and property owner Elizabeth Spratt Cooper, argued the cap and its fee amounted to a tax, and that South Carolina law reserves taxing power for city councils, not ballot referendums. The judge agreed on both counts: the fee, calculated on gross rental revenue and deposited into the city's general fund rather than tied to any specific service, functioned as a tax the referendum had no authority to impose.

This wasn't the cap's first trip through a courtroom. A separate lawsuit had already argued the cap functioned as an illegal zoning change, and in February 2026 the South Carolina Court of Appeals rejected that theory, ruling the ordinance amended business regulations, not zoning. The cap survived that challenge. It didn't survive this one, because this one attacked the funding mechanism instead of the zoning question nobody had defended against.

The city's own read of the ruling, posted publicly after the decision, tried to draw a narrow line around what changed:

"The ruling made no judgement on the cap itself, only on how it was adopted."

What the city did instead

An automatic stay attached to the city's appeal, so on paper the old cap remains the operative rule while the case moves through appellate review. Folly Beach didn't wait to find out how that plays out. On August 19, City Council gave first-reading approval to a moratorium on new short-term rental licenses, and on August 26 it passed 4-1, pausing nearly all new license issuance until an ongoing regulatory study wraps up or the freeze expires sometime in 2027, whichever comes first.

The moratorium carved out a few narrow exceptions:

Mayor Chris Bizzell framed the vote as a defensive move rather than a verdict on the policy itself. "Today was really about just what's best interest for the city," he said, framing the choice as one about preserving the city's legal options rather than settling the cap's fate. "It really wasn't about litigating the cap," he added. Not everyone on the island reads it that way. Resident Larry Powers, who supports some form of rental regulation, questioned whether the specific 800-license structure was ever the right tool, calling it "a solution in search of a problem." Short-term rental owner Tim Burke went further, arguing the cap had "absolutely diminished property values on Folly Beach."

Why this doesn't change what you're underwriting today

Here's the part that matters if you're actually running numbers on a Folly Beach purchase this fall. Whether you believe the cap should stay struck down, get reinstated on appeal, or get rewritten from scratch, the practical answer to "can I get a new investor rental license this year" was no in July and it's still no today. The court case changed which government body gets to write the next rule. It didn't change whether a new rule exists yet, and it didn't put a single new license in your hands.

That matters more on Folly Beach than in most Charleston-area markets because of what homes cost here relative to what they cost nearby. In January 2026, the median sale price on Folly Beach was $1.25 million, well above the Charleston County median of $715,000 for the same month, and homes that month sat on the market 168 days, sellers receiving about 87 percent of original list price on average, according to the Post and Courier. When a purchase price runs that far above the county median, rental income tends to be part of the math buyers bring to the table. A license that doesn't transfer, sitting behind a waitlist that hasn't moved, sitting behind a moratorium with a 2027 backstop, is a variable worth pricing into that math rather than assuming away.

What's still moving, and what isn't

The city has already put out a request for proposals for a third-party firm to study the cap's effects on housing, tourism, and the local economy, work the College of Charleston's Riley Center for Livable Communities helped scope. Councilmember Blair Holladay has pushed for the study to look closely at property values and tourism impact specifically. That study is the thing that will actually shape whatever regulatory structure comes next, not the appeal, which is more about which branch of government gets to write the rules than what those rules will say.

None of that resolves quickly. The appeal could take months. The study has no announced completion date beyond the moratorium's outer edge sometime in 2027. If you're closing on a Folly Beach property in the next several months, you're closing into a regulatory pause, not a resolution.

A few questions worth asking before you write an offer

Does an existing rental license transfer with the sale? In most cases, no. Investor licenses lapse when ownership changes, with exceptions carved out for inheritance and medical hardship. Confirm directly with the city which category, if any, applies to a specific property before assuming rental history carries forward.

Can I apply for a new license right now? New investor license applications are effectively frozen under the moratorium passed August 26, with narrow exceptions for renewals, prior waitlist offers, owner-occupied 72-day licenses, and a small batch of applications filed immediately after the August 14 ruling.

When will this get sorted out? No fixed date. The appeal is pending, the city's regulatory study is still in the RFP stage, and the moratorium's hard stop is sometime in 2027 if nothing resolves sooner.

If you're weighing a purchase on Folly Beach with rental income in the plan, the honest starting point is a direct check with the city on that specific address, not an assumption based on what the seller's listing says the house currently earns. Anna Gruenloh works this market closely enough to help you ask the right questions before you're under contract, not after. Let's connect.