Tennessee Lets HOAs Ban Rentals but Grandfathers Current Owners (T.C.A. § 66-27-703)

Part 7 of Title 66, Chapter 27 is titled "Homeowners' Association" and was created by 2021 Public Chapter 151, Senate Bill 1381, which passed on March 22, 2021 and took effect May 1, 2021. It is the closest thing Tennessee has to a general homeowners' association act, and it is only five sections long. Section 66-27-705, as rewritten by 2024 Public Chapter 691, provides that §§ 66-27-702, 66-27-703 and 66-27-704 apply to declaration amendments that are enacted on or after May 1, 2021. An amendment your association adopted in 2019 is therefore outside the statute entirely.

The definitions in § 66-27-701 do most of the work, and they exclude more property than owners expect. "Long-term rental property" means single family residential real property leased by the owner to a lessee for a period of 180 or more consecutive days, so a 90-day corporate lease and a weekend vacation rental are both outside the vested right. "Single family residential real property" means a separate free-standing building intended for use as a dwelling by a single family or individual that does not have a common or shared roofline with another building intended as another dwelling, and it expressly does not include a condominium or unit as those terms are defined by § 66-27-203. Attached townhomes and condominium units are therefore unprotected, and a condominium association may amend its declaration to bar leasing outright without grandfathering anyone. "Effectively prohibit" is defined as acting or failing to act in a manner that prevents an owner in reasonable compliance with the rules from using the property as a long-term rental, which catches indirect tactics such as refusing to process lease approvals rather than banning leases in words.

The vested right in § 66-27-703 runs until the owner transfers the property, and "transfer" is defined with carve-outs that keep the right alive through ordinary family and entity planning. For an individual owner, a sale, gift, grant, conveyance or assignment to an individual who is related to the owner, to an heir, or to a business entity in which the owner holds an ownership interest is not a transfer. "Related" is defined at length and covers children, parents, grandparents, any degree of great-grandparents, aunts or uncles, any degree of great-aunts, great-uncles or stepparent, first cousins, first cousins once removed, siblings of the whole or half degree, and spouses of those relatives. For a business entity owner, a conveyance to another business entity is not a transfer as long as the transferee is wholly owned and completely controlled by the owner or by an entity that wholly owns and controls the owner, and it is the first such conveyance since the owner acquired the property. Any other sale ends the right, and the buyer takes the lot subject to the ban.

Section 66-27-702 is the transparency half of the act. On written request from a member, the association must provide a record of the votes cast in a vote to amend the declaration to prohibit or effectively prohibit long-term rentals, and the record must include the language of the ballot questions used, proof of mailing, the number of members present at the meeting at which the vote was taken, the total number of members of the association, the total number of votes the governing body is entitled to cast, the number of members required for a quorum, and the final count of votes cast. The statute sets no deadline for producing that record and does not require the association to keep the physical ballots, a requirement that was stripped out by Senate amendment before passage.

Section 66-27-704 runs the other way and burdens investor owners. A business entity that owns residential property subject to a declaration must send the association written notice of a change in its contact information or a transfer of its ownership interest in the property, within 30 business days of the event. Notice may be given electronically to the association and to a property manager the association has designated, provided the association gave the entity contact information for electronic communication.

§ 55-31-201. If an association tries to enforce a post-2021 leasing ban against a grandfathered owner, the owner raises § 66-27-703 as a defense to the association's suit or files a declaratory judgment action in the chancery court of the county where the lot lies. If the association refuses to hand over the vote record required by § 66-27-702, the remedy is a mandatory injunction or a suit to invalidate the amendment for want of a properly documented vote, since the statute itself supplies no penalty.

A business entity that misses the 30-business-day notice in § 66-27-704 faces no statutory sanction, but the omission is worth avoiding because it hands the association an argument that the entity was not in reasonable compliance with the rules, which is part of the definition of effectively prohibit in § 66-27-701. Unpaid fines assessed over a leasing violation are collectible as ordinary debt against a subdivision lot, and in a condominium, which Part 7 does not cover, as a lien under § 66-27-415.