Short-Term Rental Regulation in North Carolina
by: Michael B. Kent, Jr.
As one of the most visited states in America, North Carolina has seen a surge in short-term rentals (think Airbnb or Vrbo). This growing sector of the economy has brought both opportunities and challenges. Positive impacts have included increased revenue and financial stability for homeowners, a rise in property values, and the creation of new jobs and services. Challenges have included potential disruptions to neighborhoods, concerns about affordable housing, and the need to preserve community and quality of life.
It is not surprising, then, that both governments and property owners’ associations have considered whether and how to regulate short-term rentals. Our attorneys have advised and represented clients on such matters and resulting disputes. To help understand the legal landscape, some important topics relating to short-term rental regulation are highlighted below.
State Regulations
The primary mechanism for regulating short-term rentals at the state level is the North Carolina Vacation Rental Act. Aside from some listed exemptions, the Act generally applies to any person or entity (specifically including a real estate broker) that offers, rents, or manages a “vacation rental” in the state. The Act defines “vacation rental” to mean “the rental of residential property for vacation, leisure, or recreation purposes for fewer than 90 days” if the renter has (and plans to return to) another permanent residence.
The Act requires that vacation rentals be accomplished via a written agreement that contains both a statutorily prescribed notice and several specified provisions governing the rights and obligations of the parties. Other requirements govern the handling and accounting of rents, fees, and security deposits. The Act obligates the landlord to keep the premises in a fit and habitable condition, and it requires the tenant to use the premises in a clean and safe manner. Finally, the Act establishes the grounds and processes by which a tenant may be evicted from a vacation rental.
Local Regulations
Many city and county governments in North Carolina have enacted their own short-term rental regulations. Frequent provisions include occupancy limits, parking specifications, noise restrictions, and the prohibition of short-term rentals in certain zoning districts or within a certain distance from other specified land uses. These regulations vary by locality, however, so it’s important to consult each government’s specific requirements carefully.
Two important judicial decisions shape the way in which short-term rentals can be regulated at the local level. The first decision, Shroeder v. City of Wilmington (2022), struck down a local ordinance requiring short-term rental operators to register their properties. The Court of Appeals held that such requirements ran afoul of a state statute prohibiting rental registrations and, therefore, could not be mandated by governments at the local level.
The second decision, Frazier v. Town of Blowing Rock (2022), held that a short-term rental operation could qualify as a valid nonconforming use. A “nonconforming use” is one that existed before the adoption of a regulation and that is allowed to continue (under certain conditions) without adhering to the new regulation’s requirements. Accordingly, the use of a particular property for short-term rentals prior to the adoption of short-term rental regulations might create a “grandfathering” effect that renders the new regulations inapplicable to that property.
Neighborhood Restrictions
A number of property owners’ associations have also attempted to regulate short-term rentals within their neighborhoods through the adoption of restrictive covenants. These types of restrictions arise from private agreement between landowners, and they generally are enforceable so long as they comply with the various legal standards governing such devices.
As with the local regulations discussed above, some important judicial decisions address the validity of neighborhood restrictions in the short-term rental context. In Russell v. Donaldson (2012), the Court of Appeals rejected the argument that short-term rentals violated a covenant prohibiting any neighborhood lot from being “used for business or commercial purposes.” The court found the phrase “business or commercial purposes” to be ambiguous and noted that such uncertainties must “be resolved in favor of the unrestricted use of the land.” In the absence of language clearly prohibiting short-term rentals, that use did not contravene the covenants at issue.
More recently, in Mileview LLC v. The Reserve II at Sugar Mountain Condominium Owners’ Association (2024), the Court of Appeals addressed an amendment to neighborhood covenants that would have prohibited short-term rentals explicitly. Building on the concept articulated in Russell—that “covenants are strictly construed in favor of the free use of land”—the court explained that its primary task was to give effect to the original covenants agreed to by the property owners. To be enforceable, “an amendment should not exceed the purpose of the original declaration,” meaning later amendments had to be a reasonable extension of the initial agreement made by the neighbors. Because the original covenants expressly contemplated that rentals would occur, and the evidence showed that short-term rentals were commonplace prior to the amendment, the court held the amendment prohibiting such rentals to be unreasonable.
Finally, in Miesch v. Ocean Dunes Homeowners Association (1995), the Court of Appeals invalidated a special fee imposed by a condominium association on short-term renters. The court concluded that the fee selectively restricted the rights of owners who sought to rent their units on a short-term basis, while allowing other unit owners to rent long-term without being subject to the fee. Accordingly, the fee effectively created two classes of unit owners in contravention of the condominium’s governing documents.
Envisage attorneys assist property owners with issues relating to short-term rentals, as well as a variety of other real estate matters involving land use regulations, restrictive covenants, and leasing. If you have questions about this alert or think we might be of assistance to you, you may contact us at (919) 755-1317.