Judge strikes down city’s wildly restrictive vacation rental rules

David and Peg Schroeder (Institute for Justice)

A judge in Superior Court in North Carolina has struck down a city demand in Wilmington that required owners of rental properties to get a permit before they could offer their properties.

Officials for the Institute for Justice confirmed that the ruling is a victory for David and Peg Schroeder, who sued when the city imposed a 2% cap on vacation rental properties – and demanded that they be at least 400 feet apart.

The ruling comes from North Carolina Superior Court Judge Richard K. Harrell, who found the city was in violation of a state law prohibiting municipalities from requiring rental permits.

“Today’s decision marks an important victory for property owners and property rights in North Carolina,” said Ari Bargil, an attorney at the Institute for Justice, which represented the Schroeders. “The decision makes it crystal clear that North Carolina cities cannot impose unnecessary permitting or registration requirements on vacation rentals.”

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The conclusion means for the Schroeders that they will be able to keep the property they bought in part because they wanted to offer it as a vacation rental.

David Schroeder explained, “We bought our home with the intent of occasionally renting it. When we lost the lottery, our only remaining options were to sell our home or file a lawsuit. We sued because we knew that Wilmington’s law was clearly illegal.”

His reference to the lottery was a city procedure it forced rental property owners into if their home violated city rules, such as being within 400 feet of another rental. In such cases, the city would allow only one to operate, and the owners were forced into a lottery to decide the winner.

“We lived our entire adult lives in Wilmington before retiring to the mountains,” said Peg Schroeder. “We built businesses here, and raised our kids here, and we bought this house in Wilmington because we wanted to maintain roots here. But we could not afford a second home unless we would be able to rent it when we’re not using it. If not for this decision, we would have had to sell our house.”

“According to the trial court’s ruling, the city exceeded the scope of its authority by requiring registration with the city before anyone could offer their property as a vacation rental,” said IJ Constitutional Law Fellow Adam Griffin. “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.”

The family had wanted to keep a residence in Wilmington during retirement, but could only afford to do so by renting it out part of the time.

The Schroeders worked with a lawyer to make sure it would qualify as a vacation rental. They went ahead and invested another $75,000 in renovations.

Then the city changed the rules.

The case alleged the city’s ordinance stripped the Schroeders of a property right – the right to rent – without compensating them.