Property on Ocean Boulevard in Myrtle Beach includes resort towers, private homes, businesses, churches, parks and amusements, pictured Nov. 13, 2024.

MYRTLE BEACH — Myrtle Beach's new long-term rental regulations face a legal challenge from a condo company that alleges the city's policy will cost the firm millions in profit.

MBSC Property South LLC has accused the city of causing them more than $10 million in damages. They also say the company will lose over $6 million in projected profit since the city enacted its moratorium and ban on where hotel rooms can be converted into long-term rentals.

The company spent $16.9 million in 2022 to purchase 169 hotel rooms at the Sandcastle Oceanfront Resort South Beach. The condos are presently valued at over $23.3 million, assuming average rents of $1,500 per month, according to court records.

MBSC contends it obtained the correct zoning for the conversion at the time, but the moratorium prevented them from obtaining the proper business license. The company accuses the city of violating state zoning laws and violating its vested rights and civil rights by way of housing discrimination, according to court records.

"The plan was to lease these units as long-term rentals in partnership with the Myrtle Beach Housing Authority through the use of Project Based Vouchers," according to the lawsuit filed Feb. 5. "(The city's actions) have crushed these reasonable, investment-backed expectations and caused millions of dollars in damages."

A city spokesman declined to comment on the pending litigation. MBSC's attorney Ross Appel could not be reached.

In 2022, MBSC purchased 169 of the 240 units at 2207 South Ocean Blvd., records show. MBSC also manages the remaining 71 units for third-party owners.

The city rejected MBSC's business license application on March 12, 2024, because "the property needs to be brought into compliance with all applicable codes in regards to the change in use from hotel to long-term rental," according to the lawsuit.

After this, MBSC's agents worked to comply with zoning and code-related matters in order to secure the conversion, the lawsuit stated.

Meanwhile, MBSC applied to the Myrtle Beach Housing Authority on April 2 for the Project-Based Housing Choice Voucher Program. But the MBHA denied the company's application on April 15, telling the company the denial was prompted by a moratorium, according to court records.

City Council passed the moratorium on May 14, which temporarily halted the city from accepting, reviewing and approving applications to convert short-term rental properties into long-term rental properties. The moratorium, which expired in January, affected properties from the east to seaward side of Ocean Blvd to Kings Highway, and from Grand Dunes to where Ocean Boulevard and Kings Highway intersect to the south.

Company officials said the moratorium prevented them from bringing the properties into compliance with zoning codes, which were outlined in the city's first March 12 letter.

Also, they claimed they submitted a second business license application on Aug. 27, 2024, to which the city never formally responded.

Then, the city passed an ordinance on Dec. 10, preventing anyone from obtaining a business license to rent units for more than 90 days at a time within the designated area.

Council members and staff maintain the city, Horry County and the state could have lost $7.6 million in tax revenue if converting short-term rentals to long-term rentals went unchecked. A city-commissioned study also found that the conversions would cut jobs and increase public safety response costs, according to court records.

The ban affects all parcels east of Kings Highway and applies to buildings that had been used as short-term rentals in the past. It does exclude single-family homes and duplexes.

Also, the ban does not affect someone who already had a business license for long-term rentals within that 10-mile stretch of the city.

The ban was prompted by landowners contacting the city about switching “numerous” properties from short-term to long-term, officials said after the ban received early approval.

The company has accused the city of violating the state's Local Government Comprehensive Planning Enabling Act in several ways.

For example, the zoning change does not comply with the city's comprehensive plan, as required by law, and the city cannot legally enact a zoning ordinance based explicitly on financial motivations, the complaint alleged.

"If local governments possessed such authority, they would be free to eliminate all multi-family or low-income housing ... on the grounds that doing so will attract higher value properties that generate greater property taxes, sales taxes, or other local revenue sources," according to the complaint.

MBSC claims the city has not properly distinguished long-term rentals from other residential uses since it allows "permanent residences" and "multi-family dwellings." The Sandcastle condos would still be considered permanent residences.

This lack of a distinction violates state law, the complaint alleged.

"The (ordinance) treats similarly situated property owners differently based on their location within the City and the nature of their existing and historic use as short-term rentals," according to the complaint. "The City has no rational basis for this differential and discriminatory treatment."

The company also accuses the city of violating the federal Fair Housing Act.

The company alleges the new ordinance will disproportionately harm Black residents and other minorities, including senior citizens, veterans and families with children, by making affordable housing unavailable along the city's oceanfront.

"Local government entities may not use their land use and zoning authority in a manner that has either a discriminatory intent or a discriminatory effect against minorities, familial status, or those protected parties under the FHA," the complaint read.

MBSC contends the more than $10 million in damages have come from interest, carrying costs and attorney fees and costs, according to court records.

Follow Nicole Ziege on Twitter @NicoleZiege.