N.C. Court of Appeals reaches verdict on Wilmington STR case

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  • Wilmington can keep parts of the ordinance that, for instance, require owners to provide at least one parking space for every bedroom, to post emergency numbers and other information inside the rental unit, to prohibit cooking in bedrooms and restrict whole-house lodging in certain zoning districts.
    Wilmington can keep parts of the ordinance that, for instance, require owners to provide at least one parking space for every bedroom, to post emergency numbers and other information inside the rental unit, to prohibit cooking in bedrooms and restrict whole-house lodging in certain zoning districts.
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A North Carolina appeals court has struck down parts of Wilmington’s short-term rental ordinance that required owners to register their rental properties.

In North Carolina, the state statute prohibits local governments from requiring “permits and permissions to lease or rent” and “registrations of rental properties,” according to the court’s opinion, which was released on Tuesday.

Instead of striking down the entire rental ordinance, as the New Hanover judge did in 2019, the appeals court ruled that parts of the ordinance not tied to rental permitting or registration can remain in place.

That means Wilmington can keep parts of the ordinance that, for instance, require owners to provide at least one parking space for every bedroom, to post emergency numbers and other information inside the rental unit, to prohibit cooking in bedrooms and restrict whole-house lodging in certain zoning districts.

The ruling centers around an ordinance the Wilmington City Council approved in February 2019 in an effort to limit the impact of short-term rentals on the city’s neighborhoods and housing market, some city leaders and residents said at the time.

The ordinance passed in Wilmington required at least 400 feet of separation between short-term rentals. It also capped the percentage of short-term rentals at 2 percent of the residential lots inside the city’s 1945 corporate limits and 2 percent outside of the limits.

The separation and cap requirements meant rental operators needed to register their properties with a registration system created by the city, which gave out the registrations by lottery.

David and Peg Schroeder operated a short-term rental in a townhome they owned in Wilmington when the ordinance was approved in January 2019. They tried to register their property but ended up losing out because another property within 400 feet drew a lower number.

They appealed to the Wilmington Board of Adjustment, which upheld their registration denial. They then filed a lawsuit in New Hanover County in October 2019.

That court struck down the ordinance in its entirety but dismissed the Schroeder’s constitutional claims. The city of Wilmington then appealed the ruling to the state court of appeals, as did the Schroeders.

In reaching their decision on Tuesday, the court had to sift through “three competing interpretations and applications,” from the city of Wilmington, the Schroeders and the New Hanover court.

Ultimately, the court’s opinion rejected the specific legal interpretations presented by the city of Wilmington and the Schroeders. It also ruled the New Hanover court shouldn’t have struck down the entire ordinance but just the parts relating to permitting and registration.

“After reviewing the language of the statutes, we hold that Wilmington’s registration requirements for rentals, and those provisions of the ordinance inseparable from them, are prohibited by state statute and therefore invalid,” the appeals court wrote.

The court’s decision was announced by a press release from the Institute for Justice, a nonprofit public interest law firm, that has represented the couple.

“We are overjoyed,” wrote Peg Schroeder in the release. “We knew all along that what Wilmington was doing was clearly illegal. It’s a shame that it took over two years of litigation to get to this point, but it’s gratifying to see another court tell Wilmington what we’ve been saying all along: Wilmington needs to follow the law.”

Upon the opinion being released, Jennifer Huff with the Save Highlands group told The Highlander that the decision confirms that local municipalities cannot place restrictions on vacations rentals.

“The Schroeder decision confirms that local municipalities cannot place restrictions on vacation rentals that are in violation of state law,” Huff said. “Requiring vacation rental owners to register their properties is only one example of a restriction that state law prohibits. Enacting ordinances that take away or diminish vested rights is another such prohibition. Both of these prohibitions run afoul of state law and the settled principle that no provision of a local ordinance may exceed the boundaries set by state law. Save Highlands continues to seek reasonable regulations that comply with well-established law, and this case is yet another example of why a municipality cannot just ignore the law.”

On the other side of the aisle, Cathy Henson with the Highlands Neighborhood Coalition said they believe the decision upholds the longstanding legal principle that local governments have the power to regulate land use through zoning codes and regulations.

“We believe it upholds the longstanding legal principal that local governments have the power to regulate land use through zoning codes and regulations, including the authority to designate certain areas to be solely residential without any commercial activity, including short term rentals,” Henson said. “This is essentially how local governments control growth and development to implement a master land use plan that reflects the community they wish to create.

“It appears that the Town of Wilmington ran afoul of a process (requiring a complex registration system) rather than the substance of the zoning (prohibiting short term rentals in certain residential zones.)  We believe this means the Town of Highlands can move forward with enforcing prohibitions on short term rentals in certain zones, specifically R-1, R-2, and/or R-3, as currently written or perhaps as may be rewritten or amended in the near future.  Although we believe the UDO is clear and unambiguous enough to give any reasonable owner/buyer notice that short term rentals are prohibited activities, we do understand that the UDO might be updated to reflect current terminology just to be absolutely clear - i.e., ‘short term rental’ in addition to ‘overnight accommodations.’”

One person who has been vocal about waiting on the Wilmington decision from the beginning of the Highlands short-term rentals issue was Commissioner Marc Hehn. During several meetings, Hehn asked attorneys what their thoughts were on the Wilmington situation.

“Most of my career was in planning, design and construction of public water, sewer and transportation projects,” Hehn said. “My master’s in city and regional planning was invaluable as public infrastructure guides growth patterns. This is the time for Peace, Kindness and Transparency.”

After reading the decision, Hehn said it gives clear guidance that registration of STRs is not allowed.    

“Schroeder v. the City of Wilmington gives us clear guidance that registration of short-term rentals is not allowed by the General Statutes of the State of North Carolina,” Hehn said. “I have already suggested we return the registrations that are on file at Town Hall.  It will be difficult to impossible to regulate the residential use of short-term rentals. Continued bickering benefits no one.  There are very qualified attorneys on both sides of this issue that care about Highlands as much as I do. This is the time for polite conversation with these stake holders and their attorneys. Vested Rights and Common Law Vested Rights are a given. There are widows who have to rent all or portions their homes in order to stay here. I hear my anti-short-term rental friends that want to have quiet enjoyment of their property. Many of those that are opposed to short term rentals want to preserve the same rights as their vested rights neighbors and they have valid points also.  God Bless Commissioner Buz Dotson, he readily admits he was not aware in 2012 when the Uniform Development Ordinance was passed that the Town Board actually allowed short term rentals. The only path forward is to add a professional planner to our staff to assist with zoning enforcement. The regulations in place are vague and the Comprehensive Plan makes several recommendations that are valid. We can reach a compromise that will do the greatest good for the greatest number of people.”

Highlands Mayor Patrick Taylor said town attorneys are carefully reviewing the decision before any action is taken.

“The attorneys retained by the town concerning STR issues are carefully reviewing this decision,” Taylor said. “I anticipate the town board receiving legal advisement concerning the specifics of the ruling very soon. Upon receiving the legal updates and opinion, the board will proceed to address the planning boards’ STR recommendations and related issues.”

The City of Wilmington still has the option to appeal the ruling to the North Carolina Supreme Court.

- By Christopher Lugo