J. Justin Wilson
J. Justin Wilson · August 26, 2020

When Peg and David Schroeder decided to retire to the Western Carolina mountains, they knew they didn’t want to leave Wilmington forever, so they made a plan: They’d buy a smaller, more manageable property in Wilmington to serve as a gathering place for friends and family—and when they were not using it, they would offer it as a vacation rental property.

With a plan in hand, the Schroeders found a property, bought it, and began an extensive renovation. They knew that vacation rentals were governed by certain zoning laws, so they consulted an attorney to make sure their home was eligible. Just as they were wrapping up $75,000 in renovations, though, their plan went off the rails. The city passed a highly restrictive cap on the number of vacation rentals permitted to operate in the city.

Under the new ordinance, vacation rentals were limited to no more than two percent of properties and every vacation rental property had to be more than 400 feet from the next closest vacation rental. To decide who got to keep their right to rent and who did not, the city conducted a lottery. The Schroeders applied, but because a neighbor drew a lower number, they lost.

Using a highly controversial land-use tool called “amortization,” the city gave the Schroeders one year to supposedly recoup their entire investment in their property, including the cost of the renovation. After that, they would have to cease renting it.

Living on a fixed income, the Schroeders couldn’t afford to take their property off of the rental market, so they sued the city. The Schroeders’ case caught the attention of attorneys at the Institute for Justice (IJ)—a nonprofit public interest law firm with extensive experience litigating property rights cases across the country—and now, today, IJ is taking over the case.

“Before we bought the property, we did everything right,” said Peg Schroeder. “We had a realtor show us only listings that could be offered as vacation rentals, and before we purchased, we even had an attorney look into the applicable zoning and housing restrictions. It took us eight months and about $75,000 to renovate the home, and just as we put it on the market to rent, the city pulled the rug out from under us.”

The city’s ordinance strips the Schroeders of a property right—the right to rent—without providing them any compensation. And it punishes the Schroeders for doing what a responsible property owner should do, which is research the law and make sure their plan conforms to what was required of them.

“By capping the number of vacation rentals, Wilmington is effectively changing the rules in the middle of the game,” said Institute for Justice Senior Attorney Robert Frommer. “The city’s decision to regulate vacation rentals violates state law, and its use of a controversial tool called amortization to put a ticking time bomb on Peg and David’s rights violates the North Carolina constitution.”

Virtually every state in the country requires that a city compensate property owners if it takes their property or infringes on their property rights—including the right to rent property. But Wilmington argues that its “amortization” scheme means it doesn’t owe the Schroeders anything for taking away their rights. Instead, the city says that by letting them rent for an extra year, the Schroeders can compensate themselves. But anyone who understands the economics of vacation rentals or home renovations knows that a year is nowhere near enough time for Peg and David to recoup their investment.

Thankfully for the Schroeders, the North Carolina Constitution prohibits the government from taking away property rights that owners have acquired by making substantial—and legal—investments in their property. And that is exactly what the city is doing to the Schroeders. Even worse, the city stripped the Schroeders of their right to rent through a lottery system, an inherently arbitrary way to decide who may exercise their rights and who may not.

“Property rights cannot be simply raffled off for the benefit of one small class of people at the expense of everyone else,” said IJ constitutional fellow Adam Griffin. “By establishing a two-percent cap and squeezing out all other property owners via a lottery, that is precisely what the city of Wilmington has done here. That violates the North Carolina Constitution.”

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