[Damon Rawls]

I know that several of you will be traveling this week. I wanted to place the ordinance here for any questions. Notable changes that will be discussed tomorrow are: Exemptions for build-to-rent developers, local landlords, and large-scale investors. I welcome your feedback.

WHEREAS, Knox County has experienced significant population and urban growth, creating increased demand for single-family housing; and

WHEREAS, it has become increasingly common for large business entities — including hedge funds, private equity firms, real estate investment trusts, and corporate landlords — to purchase substantial numbers of single-family homes within Knox County for conversion to rental properties; and

WHEREAS, such bulk purchasing lowers the available supply of single-family homes for individual buyers, drives up purchase prices, and reduces homeownership opportunities for Knox County residents and families; and

WHEREAS, homeownership is one of the most reliable ways for families to build intergenerational wealth and economic stability; and

WHEREAS, Knox County does not wish to restrict the ordinary ownership of property but recognizes a compelling local interest in preventing the manipulation of the local housing market to the detriment of working families and prospective homeowners; and

WHEREAS, the Tennessee General Assembly considered but did not enact SB0242 / HB0298 (114th General Assembly), commonly known as the “Homes not Hedge Funds Act,” and Knox County finds it appropriate and within its authority to adopt substantially similar protections at the local level;

NOW, THEREFORE, BE IT ORDAINED BY THE KNOX COUNTY COMMISSION AS FOLLOWS:

SECTION 1. SHORT TITLE.
This ordinance shall be known and may be cited as the “Knox County Homes Not Hedge Funds Ordinance.”

SECTION 2. FINDINGS.
The Knox County Commission finds that:

(a) Knox County has experienced urban growth at levels significantly higher than many comparable Tennessee counties;

(b) It is becoming increasingly common for business entities to purchase substantial numbers of single-family homes within Knox County for use as rental properties, both lowering the supply of and increasing the cost of such homes;

(c) Homeownership is recognized as one of the most reliable ways for individuals and families to build wealth and economic security;

(d) The unchecked purchase of single-family homes by large institutional investors undermines the economic stability of Knox County neighborhoods and works against the County’s interest in promoting broad-based homeownership; and

(e) Knox County has a compelling interest in regulating local real property transactions to protect the health, safety, and welfare of its residents.

SECTION 3. DEFINITIONS.
As used in this Ordinance:

(a) “Affiliate”
means any entity that directly or indirectly controls, is controlled by, or is under common control with a person, including any entity in which a person holds a majority ownership or voting interest.

(b) “Person”
means any business entity, including but not limited to a corporation, limited liability company, partnership, limited partnership, real estate investment trust, hedge fund, private equity fund, or any other association of persons organized for business purposes. “Person” does not include a natural individual acting in their own name.

(c) “Single-family home”
means a detached residential dwelling unit designed and used for occupancy by a single household, including properties zoned or used as single-family residential, located within the unincorporated areas of Knox County.

(d) “Rental purpose”
means the intent, at the time of purchase or within twelve (12) months following purchase, to lease or rent the property to one or more tenants for residential occupancy in exchange for compensation.

(e) “Affordable housing”
means housing where the total monthly cost, including rent or mortgage, does not exceed thirty percent (30%) of the gross monthly income for households earning at or below eighty percent (80%) of the Area Median Income for Knox County as determined by the U.S. Department of Housing and Urban Development, adjusted for family size.

(f) “Qualifying build-to-rent program”
means a program under which a person purchases or constructs newly built single-family homes — meaning homes for which a certificate of occupancy has not been issued prior to the person’s acquisition — for the purpose of managing such homes as rental properties, whether within a community composed exclusively of renter-occupied single-family homes or within a community of mixed owner- and renter-occupied single-family homes.

SECTION 4. PROHIBITION.

(a)
It shall be unlawful for any person, including any affiliate of such person, to purchase more than one hundred (100) single-family homes within Knox County if such purchases are made primarily for rental purposes.

(b)
For purposes of this Section, the number of single-family homes owned by a person shall include all single-family homes owned by any affiliate of that person.

(c)
This prohibition applies to all purchase contracts entered into on or after the effective date of this Ordinance.

SECTION 5. EXEMPTIONS.
The prohibition in Section 4 shall not apply to the following:

(a) Affordable Housing Exemption
Single-family homes purchased or held exclusively for the purpose of providing affordable housing as defined in Section 3(e).

(b) Grandfather Clause
Any person who, as of the effective date of this Ordinance, already owns more than one hundred (100) single-family homes within Knox County for rental purposes — provided that such person shall not acquire any additional single-family homes within Knox County for rental purposes beyond the number held on the effective date.

(c) Governmental Entities
Knox County government, the Knox County Land Bank, or any other governmental or quasi-governmental entity.

(d) Domicile / Principal Place of Business Exemption
This Ordinance shall not apply to any person whose principal place of business or legal domicile is located within the State of Tennessee, provided that:

(1) The person’s principal executive offices, primary business operations, or registered principal place of business are physically located within the State of Tennessee as evidenced by state business filings with the Tennessee Secretary of State;

(2) The person is not a subsidiary, affiliate, or instrumentality of any entity whose ultimate parent company or controlling entity maintains its principal place of business outside the State of Tennessee; and

(3) The person is majority-owned — meaning more than fifty percent (50%) of its equity, membership interests, partnership interests, or voting shares — by natural persons who are domiciled within the State of Tennessee or by entities that themselves qualify under subsections (1) and (2) above.

This exemption recognizes that Tennessee-domiciled landlords are community stakeholders subject to local taxation, local ordinance, and community accountability in a manner that out-of-state institutional investors are not. The majority ownership requirement in subsection (3) is included to prevent evasion of this Ordinance through the formation of Tennessee-registered shell entities controlled by out-of-state principals.

(e) Market Capitalization Exemption
This Ordinance shall not apply to any person that is a publicly traded company — including any real estate investment trust, corporation, or other publicly traded entity — whose total market capitalization does not exceed One Billion Dollars ($1,000,000,000), provided that:

(1) Market capitalization shall be calculated as the total value of all issued and outstanding shares or equity interests of the person as of the last trading day of the most recently completed fiscal quarter;

(2) Any person claiming this exemption whose market capitalization subsequently exceeds One Billion Dollars ($1,000,000,000) during any fiscal quarter shall lose eligibility for this exemption as of the first day of the following fiscal quarter, and shall not acquire additional single-family homes within Knox County in violation of Section 4 from that date forward;

(3) For the purpose of calculating market capitalization under this Section, the market capitalization of any affiliate shall be aggregated with the market capitalization of the person claiming the exemption if such affiliate is engaged in the purchase, ownership, management, or rental of single-family homes within Knox County;

(4) This exemption shall not apply to any privately held entity, limited partnership, hedge fund, private equity fund, or other non-publicly traded investment vehicle, regardless of the estimated or reported value of assets under management.

This exemption is intended to distinguish smaller publicly accountable real estate companies, whose ownership is broadly dispersed among public shareholders and whose activities are subject to SEC disclosure requirements, from the large institutional investors whose bulk purchasing practices this Ordinance targets. The aggregation requirement in subsection (3) prevents evasion through affiliated structures.

(f) Build-to-Rent Exemption
This Ordinance shall not apply to any person that purchases single-family homes within Knox County pursuant to a qualifying build-to-rent program, subject to the following conditions:

(1) New Construction Requirement. The build-to-rent exemption applies only to homes that are newly constructed. The purchase of existing, previously occupied single-family homes for conversion to rental use shall not qualify under this exemption;

(2) Disposal Requirement. Any single-family home acquired under this exemption shall be offered for sale to an individual homebuyer within ten (10) years of the date of purchase. Prior to offering the home for sale to the general public, the person shall:

(a) Provide the current tenant, if any, with written notice of the pending sale no less than ninety (90) days in advance;

(b) Offer the current tenant a right of first refusal to purchase the home at fair market value; and

(c) Provide the current tenant a thirty (30) day exclusive first-look period during which no offer from any other buyer shall be accepted;

(3) Advertising Requirement. If the tenant declines to purchase or does not respond within the first-look period, the person shall list the home on the open market and make it broadly accessible to individual homebuyers. If no individual homebuyer purchases or makes a bona fide offer to purchase the home within sixty (60) days of listing, the person shall be deemed in compliance with the disposal requirement for that property;

(4) No Evasion Through Aggregation. This exemption shall not apply to any person who uses a build-to-rent program as a pretext to acquire existing single-family homes at scale. The Knox County Law Director may investigate and challenge any claimed build-to-rent exemption where the pattern of acquisitions suggests the program is not primarily engaged in new construction;

(5) Annual Reporting. Any person claiming this exemption shall file an annual report with the Knox County Law Director no later than March 31 of each year, identifying: the total number of single-family homes acquired under the build-to-rent exemption within Knox County; the address and year of acquisition of each such home; and the current rental or sale status of each such home. Failure to file shall render the person ineligible for the exemption for the calendar year in which the failure occurs.

The build-to-rent exemption is intended to encourage the construction of new housing supply in Knox County, which serves the public interest in expanding the overall residential housing stock. The disposal requirement and tenant first-look protections ensure that build-to-rent homes cycle back into the owner-occupied market over time, preserving the long-term homeownership goals of this Ordinance. The new construction limitation ensures this exemption cannot be used to justify the bulk acquisition of existing homes that would otherwise be available to individual buyers.

SECTION 6. ENFORCEMENT AND CIVIL ACTIONS.

(a) Attorney General / County Law Director Action.
The Knox County Law Director, in coordination with the Tennessee Attorney General as appropriate, may bring a civil action in Knox County Circuit or Chancery Court against any person believed to be in violation of this Ordinance.

(b) Private Right of Action.
Any Knox County resident who is directly harmed by a violation of this Ordinance — including any individual who was outbid on or otherwise prevented from purchasing a single-family home in Knox County as a result of a violation — may bring a civil action in Knox County Circuit or Chancery Court.

(c) Penalties and Remedies.
Upon finding a violation, a court may:

(1) Impose a civil penalty of up to $100 per day for each single-family home acquired in violation of this Ordinance;
(2) Award compensatory damages to a prevailing plaintiff;
(3) Award punitive damages in an amount not to exceed $50,000 or three times the total of compensatory damages, costs, and fees, whichever is greater;
(4) Award costs and reasonable attorney’s fees to a prevailing plaintiff; and
(5) Grant equitable relief, including injunctive relief requiring divestiture of homes acquired in violation of this Ordinance.

(d) Frivolous Actions.
A court may award a prevailing defendant costs and reasonable attorney’s fees if the court finds the action was not well-grounded in fact or law, or was frivolous.

(e) Joinder.
A court may order the joinder of parties for purposes of ensuring a proper accounting of the total number of single-family homes owned by a defendant and any affiliates, and for proper enforcement of any remedy.

SECTION 7. ANNUAL REPORTING.
The Knox County Law Director shall report annually to the Knox County Commission on the number of known complaints, investigations, and enforcement actions taken under this Ordinance, and on the status of corporate single-family home ownership within the County.

SECTION 8. SEVERABILITY.
If any provision of this Ordinance or its application to any person or circumstance is held invalid, the remainder of the Ordinance and its application to other persons or circumstances shall not be affected.

SECTION 9. EFFECTIVE DATE.
This Ordinance shall take effect upon passage and approval as required by the Knox County Charter and applicable Tennessee law, and shall apply to all single-family home purchase contracts entered into on or after that date.

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