UPDATE: In response to ongoing lawsuit, Wilmington postpones discussion about short term rental rules

Updated: Dec. 2, 2020 at 10:03 PM EST
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WILMINGTON, N.C. (WECT) - Instead of making a decision in haste at a meeting Wednesday night, City of Wilmington leaders decided to postpone the expected discussion until their next meeting January 6.

“Being such a tourist area, anything we do that’s going to change the tourist economy is so important to get right,” said Planning Commission chair JC Lyle.

The City of Wilmington spent three years creating rules to regulate short term rentals in the city to both the praise and dismay of many residents. However, earlier this year a judge ruled against the city’s regulations calling them ‘void and unenforceable.’

The city has appealed that decision but it appears staff is looking for ways to adjust the rules to fit more in line with state law.

In response to the judge’s orders, city staff is working on several changes to the current regulations including one that would remove the 2% cap on whole-house rentals in most districts.

The City’s Planning Commission will hear from staff to ‘Amend City Code Chapter 18, Sections 18-329, 18-330, and 18-331, pertaining to short-term lodging regulations’ according to the commission’s upcoming agenda.

The purpose of the amendments are “to revise short-term lodging regulations to better align with statutory allowances governing the use and to modify separation requirements in multi-family developments.”

The city implemented its new regulations in March of 2019 and set an amortization period that allowed homeowners to rent their properties until April of 2020. It also hosted a lottery system to decide who could rent their homes, and who could not. Once that period expired, homeowners who did not win the lottery, were told they had to stop renting their homes.

City staff claims there were plans to rework the regulations, but the lawsuit has prompted the expedition of the review.

“As part of the rewrite of the Land Development Code, staff had already proposed many of the changes reflected in this amendment; however, the update has been expedited as a result of the ongoing litigation of the city’s short-term lodging requirements,” according to city staff.

The city sent letters notifying them of the changes, which prompted several appeals, and the court case brought forward by Dave and Peg Schroeder.

“As a result of that letter, the city received several appeals, including one to the lottery process relative to the properties at 1800 Eastwood Road. The city is appealing the order in that case but seeks to address some of the issues brought forward by the judge presiding over the appeal. One of those issues is the use of a registration program, which is prohibited by NCGS §160D-1207(c). The entirety of that statutory reference is included as an attachment, but generally that section limits local government authority on the registration and permitting of residential rental properties,” according to city staff’s background included in the Planning Commission agenda.

Despite the language included in the state law that prohibits cities from charging registration fees for rental properties, the city did just that.

“In no event may a local government do any of the following: (i) adopt or enforce any ordinance that would require any owner or manager of rental property to obtain any permit or permission under Article 11 or Article 12 of this Chapter from the local government to lease or rent residential real property or to register rental property with the local government,” according to state law.

Now, the city is hoping that a change in the wording will make their rules in line with state law.

“Annual permits are a necessary tool for zoning enforcement to effectively and efficiently administer the short-term lodging regulations; however, use of the term “permit” instead of “registration” better aligns with statutory language, other land use approvals, and current operating procedures,” according to the Planning Commission’s agenda.

This appears to be in direct response to a blog post from the UNC School of Government analyzing why the judge ruled against the city, and how it could have been avoided.

“...Because G.S. 160D-1207 does not limit the issuance of permits under zoning, it seems reasonable for a local government to require a basic zoning permit for the land use should it wish to do so. Importantly, local officials must remember to avoid adopting a property registration requirement—this is where the city of Wilmington ran into trouble. Had the city simply issued zoning permits to regulate this land use, the judge probably couldn’t have struck down the ordinance on the basis the city violated G.S. 160A-424(c) (i.e. G.S. 160D-1207(c)),” the blog reads.

That won’t be the only change the city has planned. City staff is also recommending the removal of the 2% cap for so-called ‘whole home’ rentals in all districts except multi-family districts.

The other proposed changes include:

  • Replace the word “registration” with “permit” to align with standard operating procedure for approving short-term lodging uses and to better differentiate zoning approval of the use from a general landlord tracking program.
  • Remove the two percent (2%) cap on whole-house lodging uses relative to the total number of dwelling units for all districts except multi-family.
  • Remove the minimum 400-foot separation between whole-house uses in multi-family districts but retain the two percent (2%) cap for multi-family developments.
  • Eliminate reference to penalties for violations of laws or regulations that are not part of the Land Development Code.

The legal battle the city is facing has the potential to set a precedence regarding short term rental registration across the state, but the Schroeder’s won’t be facing off against the city alone. In August, the Institute for Justice, a national law firm took over the case on behalf of the Schroeder’s.

After the ruling, the city took two months before filing an appeal, sending the case to the state appeals court, but the Schroeder’s are not giving up their fight.

“As you are aware the city as in fact appealed Judge Harrell’s ruling in our favor. Yes, we and IJ will continue on with this lawsuit until the end. We feel confident going forward that the appellate court judge will give the same ruling as superior court Judge Harrell gave. A victory for short term rental owners,” Dave Schroeder said.

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