Update: Wednesday afternoon the City of Wilmington issued a brief statement:
“In light of the Judge’s recent ruling relating to short-term whole-house rentals in residential and historic districts within the City of Wilmington, City Council, in consultation with the City Attorney’s Office, will review the ruling and consider an appropriate way forward over the next few weeks. Staff will request Council enter into a closed session to discuss the ongoing litigation as early as October 5, at which time we hope to be able to provide further comment.”
WILMINGTON — A Superior Court judge ruled this week that the City of Wilmington’s ordinance regulating short-term rentals, specifically the requirement that property owners register their rentals, is prohibited by state law and is thus “void and unenforceable.” The ruling came several weeks after the case was taken up by the Institute for Justice law firm.
The City of Wilmington has not yet announced whether it intends to take the issue to the state’s court of appeals; if it does, the issue of short-term rentals will remain in limbo. However, unless the city moves for a stay (and succeeds), it appears rentals will again be allowed until the court decides the issue conclusively.
At the heart of the ruling is a legal interpretation of whether state laws prohibit local governments from requiring owners to register their property before they can rent it. In the past, the City of Wilmington has claimed that state laws don’t apply to its ordinance, in part due to recent amendments and in part due to the fact that these laws are written under sections concerning inspections, not zoning and land use.
But North Carolina Superior Court Judge Richard Kent Harrell disagreed, writing “the language used [in state law] is clear and unambiguous even with the amendments made in 2019 S.L. 111. No local government may adopt or enforce any ordinance that would require any owner or manager of rental property to register rental property with the local government.”
While Harrell’s order focuses on the registration aspect of Wilmington’s ordinance, his judgment rules the entire ordinance is void, including the prohibition of whole-house STRs in the city’s historic district — although the City of Wilmington could contest that in the Court of Appeals. (You can find City Ordinance 18-331 here).
According to Ari Bargil, an attorney with the Insitute for Justice (IJ), “Judge Harrell’s order addresses [the ordinance] in its entirety. Nearly all of the regulations in the ordinance pertain to the registration requirement (and compliance with it), so those would necessarily fall along with the registration itself … the prohibition on vacation rentals within the MHP is included in the decision finding that the ordinance is preempted. If the City believes that specific provision was improperly included in the ruling, then it would have to appeal the decision or ask Judge Harrell to reconsider his ruling as it relates to that subsection.”
The Schroeder case
Judge Harrell’s order stems from an appeal from the Wilmington Board of Adjustment, where the Schroeder family, owners of a Wilmington property, contested the city’s short-term rental ordinance.
As WECT journalist Michael Praats first reported last month, the Institute for Justice, a self-styled Libertarian law firm, agreed on Wednesday to take up the Schroeders’ case. When the couple purchased the property in 2018, short-term rentals (STRs) were being debated by the city but were still unregulated. The couple then put $75,000 in renovations into the house to make it rentable — only to be eventually denied an STR permit.
Property owners David and Peg Schroeder took their case to the Board of Adjustment, the only city board that can overturn a council decision, but were denied — that left a civil suit in Superior Court as the only recourse.
Harrell’s ruling is a victory for the Schroeders, who said that had they not prevailed they would have had to sell their property. The family noted that, while many opponents of STRs suggested that widespread rentals would lead to parties, parking shortages, and even criminal activity, they had always been selective about the people they rented to.
“We were very conscientious about how we rented and who we rented to,” David Schroeder said in a release from the IJ. “We only rented to mature adults, we didn’t allow more than four people at a time, and we had the consent of our neighbors. As a result, we never had a complaint. There was no reason for the city to take away our right to rent out our very own property.”
As the IJ noted, there are some cases where state law does allow regulations of rentals when there are issues, but the Schroeders’ case did not meet those criteria.
“In recent years, cities nationwide have tried to confront the issue of how to regulate vacation-rentals. In response, the North Carolina General Assembly passed a law providing that cities could require permits or registrations from owners whose properties proved problematic in some way. Everyone else, the General Assembly instructed, should be left alone,” the IJ wrote in a release.
The Schroeder case was not a class action, but Judge Harrell’s ruling does strike down Wilmington’s STR ordinance, so what does that mean for other property owners?
Asked about what the direct impact of the ruling would be, Bargil said, “the registration requirement has been ruled preempted by state law and as a result, it is, in Judge Harrell’s words, ‘void and unenforceable.’ So the city is barred by a court order from enforcing it. But as you know, the city does have the right to appeal that decision. If it does, that means that the legal questions surrounding the registration will not be conclusively resolved for a little while longer.”
If Wilmington appeals, getting a final answer to Wilmington’s STR rentals could take months, or years, to finally settle. During that process, the city could ask for a stay, which would effectively put Harrell’s order on hold until the Court of Appeals of North Carolina Supreme Court could hear the issue. And, of course, if the city wins on appeal, Harrell’s order would be overturned.
But for now, unless the city successfully requests and receives a stay, “people who want to rent their properties will be able to do so unless and until the city wins on appeal,” Bargil said.
Bargil added that the IJ believed “Judge Harrell’s decision was correct and accurately captures the General Assembly’s stance with respect to registration requirements for vacation rentals” and that the IJ is “confident in our chances on appeal should the city decide to pursue one.”
Bargil called Harrell’s ruling “an important victory for property owners and property rights in North Carolina,” adding that “the decision makes it crystal clear that North Carolina cities cannot impose unnecessary permitting or registration requirements on vacation rentals.”
The IJ further called the ruling an important check on government power.
“This ruling affirms that there is a check on local governments that stops them from imposing onerous regulations on law-abiding property owners like the Schroeders,” Constitutional Law Fellow Adam Griffin said in a release from IJ.