Legal drama in Tennessee town hinges on question: Are Airbnb rentals homes or hotels?

Vacation rental companies like Airbnb and Vrbo have blurred the line between home and hotel, and perhaps nowhere are the resulting legal issues so thorny as in Lone Mountain Shores, a development on Norris Lake entering its third year of a divisive legal dispute.

Lawyers representing the board of the Lone Mountain Shores Owners Association and a handful of homeowners whom the board sued over short-term rentals made their cases before a judge in Claiborne County Chancery Court on Jan. 25.

Their arguments hinged on a simple question: Is a home rented on Airbnb or Vrbo more like a single-family home or a hotel when strangers come to stay?

The neighborhood rules in Lone Mountain Shores do not prohibit short-term vacation rentals by name or place a time limit on rentals. They were amended in 2013 to ban "any rental accommodations and services" provided by hotels, motels, bed and breakfasts, boarding houses, apartments or condominiums.

They also ban "atypical rental services of a commercial nature."

Preston Hawkins, the lawyer for the homeowners' board, argued the rules clearly forbid short-term vacation rentals, some of which cost over $900 a night during peak travel season in Lone Mountain Shores.

Ryan Sarr, lawyer for the defendants, argued the rules were ambiguous and his clients did not provide the same services as a hotel.

Short-term rentals are defined by the state of Tennessee as rentals shorter than 30 days. The Lone Mountain Shores homeowners' association board allows long-term rentals, which the board says falls under single-family residential use.

Both sides have filed for summary judgement, asking the judge to rule that the facts so clearly favor their side that a trial is unnecessary. Chancellor Elizabeth Asbury could rule in favor of the HOA board or the defendants by Feb. 25, ending the saga before it heads to trial.

Courtroom is split, just like the neighborhood

The Jan. 25 courtroom crowd, like Lone Mountain Shores itself, was split between homeowners who support the homeowners' board in its mission to enforce rules against short-term rentals and homeowners defending what they see as a property right.

In August 2022, the board sent cease-and-desist letters to homeowners who were using their homes at short-term rentals and a lawsuit came a few months later. Several homeowners who say they were not renting at the time or who swore they would stop renting have since been released from the lawsuit.

More than a year later, on one side of the courtroom, a packed crowd of full-time residents nodded along as the HOA board's attorney spoke. Some said the neighborhood rules didn't mention short-term vacation rentals by name because Airbnb was not as ubiquitous 10 years ago.

They also said the rentals change the residential peace of their New Tazewell neighborhood by bringing in a steady stream of strangers. Last year, they put up signs on Lone Mountain reading "People Over Profit: Save Our Community" and "Vacation Rentals Not Welcome Here." The signs have since been taken down.

On the other side sat fewer than 10 homeowners supporting the right to rent their homes through Airbnb and Vrbo. Many of the defendants and their supporters have permanent addresses in other states and use rental revenue to pay for the vacation homes.

Founded in 1998 and home to more than 500 voting members, Lone Mountain Shores is a retirement destination where most homeowners live only part-time.

Defendants have said they were misled about the board's intentions to sue them, and some even mounted a case against board members personally, alleging they committed civil conspiracy to defraud homeowners.

That separate case is ongoing, fueled by the deep pockets and deeper resentment of part-time residents who say they bought property in Tennessee because they were seeking greater personal liberty.

Both sides think Tennessee Supreme Court case favors them

The Tennessee Supreme Court took up a similar vacation rental dispute in a Middle Tennessee neighborhood, ruling last October that a homeowner could not list his home on sites like Airbnb and Vrbo.

In Lone Mountain Shores, both sides say the ruling bolsters their case.

The state's highest court said the Center Hill Lake neighborhood's original rules were too ambiguous to ban short-term rentals on their own, since they limited property use to "residential" purposes. In the court opinion, Justice Sarah K. Campbell turned to dictionary definitions of "residential" to argue the word was too ambiguous.

But the court ruled that a later amendment banning rentals fewer than 30 days applied to all homeowners, even if they moved into the neighborhood before the amendment.

For the defendants in Lone Mountain Shores, the ruling simplified their argument: As long as the neighborhood rules could be deemed ambiguous, they would not prohibit short-term rentals on their own.

The ruling, however, is a precedent for a court preventing homeowners from using their homes as short-term rentals.

It also provides another pathway to rid Lone Mountain Shores of Airbnb and Vrbo. Even if the HOA board loses the case in Claiborne County, it could try to amend its rules to ban short-term rentals by name and length of stay.

Ryan Sarr, representing the defendants, said in court that the board does not want to have to pass an amendment because they are worried they would not get a majority of members to vote for the measure.

Though elections in Lone Mountain Shores tend to favor candidates who support banning short-term rentals, they are sometimes won or lost by razor-thin margins. When pro-renters tried to oust a former HOA board president in a recall vote last summer, he kept his position by just two votes.

In board elections last September, anti-renter candidates won by slightly larger margins.

Defendants say they will appeal if judge rules for HOA

The case of Lone Mountain Shores might not end even if the judge rules in the HOA's favor and says the rules clearly ban short-term rentals.

For one thing, residents say the divide on the mountain could take years to heal. For another, defendants have told Knox News they plan to appeal the decision if the judge rules against them.

Those statements have made their way into the politics of the neighborhood, causing concerns that a small group of residents is willing to drag the case out to get their way.

Claudio Biltoc, a retired Navy officer and the HOA board president who inherited the case, said in campaign statements that he does not hate short-term rentals and that there was "too much anger, vitriol, and frankly personal attacks" in the neighborhood.

Central to the case is the decision by previous boards to allow short-term rentals, even as the neighborhood rules prohibited "any rental accommodations and services."

Referencing a Knox News article, Biltoc said he would work with defendants to try to avoid further appeals. If Asbury sides with the defendants, he said he would work to develop a code of conduct for renters.

"I have no idea which way the judge will decide," Biltoc said. "In either case, my plan is to accept the current case disposition as issued by the presiding Judge, and take that as the definitive answer and move forward."

Daniel Dassow is a growth and development reporter focused on technology and energy. Phone 423-637-0878. Email daniel.dassow@knoxnews.com.

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This article originally appeared on Knoxville News Sentinel: Airbnb rentals in Tennessee vacation town at stake in legal fight