Appeals court rules Wilmington’s short-term rental ordinance partially invalid

WILMINGTON, N.C. (WECT) - The North Carolina Court of Appeals ruled against the City of Wilmington’s restrictions on short-term rentals in a battle that has been ongoing for several years, potentially opening the door for rentals across the city.

In 2019, after crafting an ordinance that drew both praise and criticism from neighbors, Wilmington’s City Council approved restrictions on rentals in the city. These restrictions included a cap on rentals in certain areas and the requirement that the owners of homes register their properties with the city.

There was just one problem with their actions: state law prohibited it.

“In 2011, the General Assembly enacted a statute prohibiting cities from penalizing or restraining the rental of residential real property absent “reasonable cause,” according to the decision from the Appeals Court. “That statute, Section 160A-424(c),2 prohibited cities from ‘requiring any owner or manager of rental property to obtain any permit or permission from the city to lease or rent.’”

That clear language of the law was a major factor for the Appeals Court’s decision.

“The statutory language is in no way ambiguous, so it must be afforded its plain effect without reference to canons of statutory interpretation … ” according to the court, “The Ordinance is prohibited by the statute’s straightforward language to the extent it requires Plaintiffs “to register rental property with the city.”

Despite the seemingly clear law, Wilmington’s legal team declared it did not apply to the city since its restrictions were placed in zoning ordinances, not building inspections which is where the statute can be found.

The lawsuit

In response to the city’s restrictions, homeowners Dave and Peg Schroder filed a lawsuit appealing the rules. A New Hanover County Superior Court Judge heard the case in 2020 and declared the ordinance ‘void and unenforceable.’

“We are overjoyed,” said Peg Schroeder. “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.”

The City appealed the decision of the Superior Court judge to the State Court of Appeals where oral arguments were heard in November of 2021, now, five months later, the three-judge panel has upheld the lower court’s decision, at least, in part.

“After careful review, we affirm the trial court’s judgment that the registration and lottery provisions of Wilmington’s ordinance are invalid under Section 160D1207(c) of our General Statutes. But we reverse the portion of the judgment striking provisions of the Wilmington ordinance that are not prohibited by statute and are severable from the invalid provisions,” according to the opinion.

The Schroder’s case was picked up by the national law firm, the Institute for Justice, a non-profit organization that fights for individual’s rights.

Attorney Ari Bargil said this decision voids the city’s separation cap, the lottery and amortization process, and registration requirements.

Bargil said the fact the City of Wilmington passed its ordinance despite knowing about the law was frustrating and left homeowners with the difficult decision to sue, or simply abide by the rules.

“I think it’s pretty fair to say that the City of Wilmington knew that what it was doing was at a minimum, highly controversial and legally questionable, and I think that’s giving them the benefit of the doubt. But nevertheless, they decided to do it, and they effectively dared citizens to sue them,” he said.

Peg Schroder said she feels that the government overstepped its bounds, and has frustrations of her own.

“The people who work for the government work for us, we are the government, they’re our representatives,” she said.

For Dave Schroder, the actions of the city and the tedious process of the litigation has had a negative impact on his thoughts on the city.

“I was in love with Wilmington. We lived there for all those years, and this has put a damper on how I feel about Wilmington, and their city government,” he said.

Some restrictions can stand

While the court ruled in favor of the Schroders for the main part of the ordinance, the appellate court also said part of the ordinance can remain.

“The remainder of the Ordinance does not require registration to be enforceable and gives effect to Wilmington’s intent in enacting the Ordinance. For example, the requirement that each short-term rental operator provide one off-street parking space per bedroom does not require registration to be effective or enforceable; a customer may rent a short-term rental assuming compliance with this provision and inform Wilmington of a violation should parking prove inadequate,” according to the decision.

The court has not released a mandate yet, and the lower court must enter an order upholding the Appeals Court decision. Once that happens, the city has the opportunity to appeal the decision.

It is not clear if the city will appeal the decision to the State Supreme Court, and even if it does, the decision from the Appeals Court is unanimous and it will be up to the higher court to decide if it wants to take the case.

Bargil said if the city does decide to appeal, the Institute for Justice will stand behind the Schroders.

“We’re happy to take this to the North Carolina Supreme Court if that’s what the — if that’s what the city wants. We’re happy to fight all the way up as far as it needs to go to defend our victory,” he said.

The City of Wilmington issued a brief statement on the decision.

“The city’s attorneys are currently reviewing the court’s decision and intend to brief City Council and discuss possible next steps soon. At that point, Council can provide staff direction on how to proceed,” according to City spokeswoman Jennifer Dandron.

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