The N.C. Court of Appeals has affirmed a lower-court ruling blocking Wilmington from using a registration scheme to limit ownership of short-term rental properties. But the unanimous three-judge panel has restored part of the ordinance struck down in the original court order.

Despite a mixed ruling for short-term rental property owners and the city, an attorney for plaintiffs Peg and David Schroeder praised the result.

“Today’s ruling validates the Schroeders’ years-long fight to enjoy the protections plainly afforded to them under North Carolina law,” attorney Ari Bargil of the Institute for Justice told Carolina Journal. “The Court’s decision eliminates the registration, the lottery, and the cap-and-separation limitation. It also eliminates the ordinance provision that required property owners who lost the lottery, like the Schroeders, to cease offering their properties for short-term rental within one year.”

The original trial court decision in September 2020 had thrown out the entire disputed ordinance.

“After careful review, we affirm the trial court’s judgment that the registration and lottery provisions of Wilmington’s ordinance are invalid under … our General Statutes,” wrote Judge Lucy Inman for the Appeals Court. “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.”

In 2020 Judge Richard Harrell had determined that the Wilmington ordinance violated a state law “prohibiting municipalities from requiring rental permits,” according to an IJ news release.

“The decision is a win for Peg and David Schroeder, who filed the lawsuit challenging Wilmington’s ordinance imposing a 2% overall cap on vacation-rental properties and requiring a 400-foot separation between vacation rentals,” the 2020 IJ news release said. “To decide who could rent their properties under these restrictions, the city forced property owners to enter into a lottery that raffled off the owners’ lifetime right to rent.”

“The winners were able to rent their properties, while the losers — including the Schroeders — were stripped of their right to do so — even if they had been renting their properties without incident for years.”

The original trial court decision marked “an important victory for property owners and property rights,” Bargil said in 2020. “The decision makes it crystal clear that North Carolina cities cannot impose unnecessary permitting or registration requirements on vacation rentals.”

The Schroeders had spent their entire adult lives in Wilmington before retiring to the mountains. Their retirement plans included renting out a vacation property in their home city. Wilmington’s vacation rental restrictions would have destroyed their plans.

“What a relief,” said David Schroeder in the 2020 IJ release. “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.”

Inman and fellow Appeals Court Judges Valerie Zachary and Jeff Carpenter agreed with the trial court’s decision to strike down Wilmington’s registration requirement.

“We agree with the trial court’s interpretation of Section 160D-1207(c) as prohibiting local governments from requiring a short-term rental owner to obtain a permit to rent under Articles 11 or 12, a permission to rent under the same Articles, or to register the property as a rental with the government,” Inman wrote. “The provisions of Wilmington’s Ordinance requiring such a registration — as well as any provisions that are inseverable from that initial registration requirement — are preempted.”

Other parts of the disputed ordinance are “so intertwined with the invalid registration requirement” that they must go, Inman added. Those parts include the cap on short-term rentals, distance requirements between rental properties, and submission of “shared parking agreements” to the city attorney for prior approval.

Some pieces of the ordinance can survive the current legal dispute. “The remainder of the Ordinance does not require registration to be enforceable and gives effect to Wilmington’s intent in enacting the Ordinance,” Inman wrote. “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.”

“Similarly, the prohibition against cooking in bedrooms or the requirement that operators conspicuously post the non-emergency telephone number for the Wilmington Police Department are not grounded in any registry,” Inman added.

Because the Appeals Court issued a unanimous decision, the state Supreme Court faces no obligation to take the case.