Effective Jan 3, ‘22 no more STRs in R1 in Highlands

There are two sides to every story and Short-term Rentals are no exception.

Here and across the country people are vehemently for or against them for a myriad of reasons.

Though on the agenda as a closed session issue Thursday night, more than an hour of public comment was dedicated to mostly homeowners who are against STRs particularly in the R1 district of Highlands. It was that prolonged outcry that ran the town’s ZOOM allocation to the limit and thus initiated a continuation of the Aug. 19 Town Board meeting to Tuesday, Aug. 24 to solely discuss STRs.

Homeowners who want the town to specifically prohibit STRs in R1 districts got their wish; whether it will stand forever is up for debate.

Town Attorney Jay Coward has interpreted the town’s UDO concerning allowed uses in R1 to mean no commercial activity in R1. He considers STRs commercial activity.

Commissioners voted via consensus 4-1 to instruct town staff to enforce the R1 ordinance as written beginning Jan. 3, 2022. R1 homeowners who rent them out as STRs have until then to stop.

Commissioners made it clear that the enforcement is based on how the code is written now. 

“All our ordinances need to be enforced as they are written now, and if we don’t like them, we can change them at any time, but at this point we need to enforce what’s on the books,” said Commissioner Amy Patterson.

Commissioner Donnie Calloway voted against the notion on the grounds that there are too many conflicting opinions across the state and country as to what constitutes commercial. 

“There is no clear answer to that,” he said.

However, Commissioners Brian Stiehler, John Dotson and Amy Patterson disagreed.

“The state of North Carolina levies a sales tax on commercial activity – accommodations, retail sales – and the fact that STRs have to pay a sales tax means the state considers them a commercial activity and that isn’t allowed in our R1 districts,” said Patterson.

Commissioners agreed that since there is no ambiguity as to allowed uses in R1, staff should enforce the ordinance disallowing STRs.

But R2 and R3 uses aren’t as clear and Attorney Coward agreed. “R1, however, is very clear,” he said.

Commissioner Stiehler said he wants clarification concerning the other residential zones, particularly the Tourist Home verbiage, which is allowed in R2 and he doesn’t understand what the problem is with allowing STRs in R2 and R3 zones.

The fight about STRs is far from over. Both sides – those against them in the R1 district and those for them – both have lawyers lined up and ready to fight.

And it comes down to money.

Accommodations for visitors is an economic engine that has seen Highlands’ businesses across the board and its Chamber of Commerce make more money than ever before.

The town and the county stand to lose sales tax proceeds and the Chamber stands to lose a huge amount of the occupancy proceeds it has been receiving if STRs aren’t allowed in residential zones.

“Old Edwards Inn is getting slammed for helping make this decision allegedly because we are being selfish and want everyone to stay with us,” said Richard Delany, OEI President and Managing Director. “We are totally booked and do not need any more reservations and are totally supportive of STRs and in fact we need them. There are not enough hotel rooms in town as it currently stands, and STRs play a key role in our economy in ways people just simply do not understand.”

Commissioners said for now this will be the stance they take but what happens in the future regarding the residential ordinances is up for grabs.

Amending ordinances happens all the time but like Commissioner Patterson said it takes time. Amending an ordinance involves verbiage being sent to the Planning Board, an advertised public hearing and a final vote from the Town Board for the amendment to be enacted. But it can be done.

Commissioners feel they have heard pros and cons concerning the issue, most recently via the public comment period of the Aug. 19 meeting where representatives from various neighborhoods — Dog Mountain, Satulah, Webbmont, Little Bear Pen, and Sagee – implored the town to uphold its R1 ordinance.

“The ordinance clearly states that no commercial activity is allowed in R-1.  These short-term renters pay occupancy tax and sales tax just as they would if they stayed at the Old Edwards Inn and that makes them the epitome of a commercial enterprise,” said Carol Gable who lives on Dog Mountain Road and whose neighbors have spoken against STRs at a recent Planning Board and Town Board meeting. 

However, according to Joseph William Singer Bussey Professor of Law, Harvard Law School in readthebusinessnews.com, not everyone considers short-term rentals commercial activity and that’s the ambiguity Commissioner Calloway was referring to.

“The courts continue to be split on this question with the majority holding use of property for short-term rental (such as vacation rental or Airbnb use) as a residential rather than a commercial use,” he said. “Restrictions contained in deeds and in zoning ordinances must be strictly construed to favor unencumbered and free use of property. Consequently, in order to be enforceable, deed restrictions that limit the free use of property must be expressed in clear, unambiguous, and peremptory terms.”

Many against STRs, are OK with renting houses in the residential districts for more than 90 days because those renters don’t pay occupancy tax or sales tax. They do, however, have to report the income derived from 90+ days on their income taxes.

Bill Clarkson, of the Webbmont neighborhood – one of the neighborhoods in the coalition against STRs explains it this way. 

“With the exception of occasional trash mishaps (unsecured and available to bears), we’ve had no problems with wild parties or excessive noise. My primary objective in this whole matter is to foster a closer community within our neighborhood.”

He said rentals longer than two or three nights would enable neighbors to get to know each other and thereby fit into the community.

Side effects of some STRs – noise, trash in the street, overflowing septic systems and traffic – are issues of most concern for those against STRs, as is what they call the “hollowing” out of neighborhoods where houses are purchased primarily by investors who want to rent, not be a part of a neighborhood.

Bryan Baldwin’s name was given as the contact for the Satulah neighborhood. He has owned his home for 32 years and like others, his views are mixed.

“I am not officially representing anyone but myself and my family. However, I was authorized to express opposition to the STRs by eight other neighbors (four homes) near me on Satulah Mountain. If I did a survey, I am sure that number would increase dramatically. Our neighborhood is in the process of attempting to organize and form a Homeowners Association. This should take another six months. I think many of the homeowners up here are summer residents and may not be aware of the issue or are as sensitive to the issue as the people of Dog Mountain. Satulah doesn’t have the number of STRs as Dog Mountain. Nevertheless, this issue needs to be resolved, and I hope the town government continues to work toward a solution.”

The use of Homeowners Associations (HOAs) has been named as one way to police STRs in residential areas. But Charles Nalbone who lives on Dog Mountain, and whose legal expertise is being used by the Dog Mountain neighborhood says HOAs won’t help.

“Not every neighborhood that is within the town limits has an HOA, and even among those neighborhoods that do have HOAs, not all of the HOAs have the power under their HOA documents to regulate things like STRs,” he said. “In addition, some HOAs are voluntary, so not all homeowners in a given subdivision choose to join.”

Nalbone also said many of the older neighborhoods within the town limits fall into that category, and thus have always relied on the town’s zoning ordinance to protect them from illegal uses in residential zones.

“And even if there is an HOA within the town limits that currently prohibits STRs, that fact does not eliminate or waive the town’s obligation to enforce its law,” he said. “Our position is not based on our definition of commercial, nor as it is used in the zoning ordinance which is very broad. Highlands UDO classifies overnight accommodations as a commercial use. Commercial uses of any kind (including overnight accommodations) are totally banned in R-1 zones.”

But the HOA issue is even up for debate.

According to Mike Stonestreet, co-owner/president of Community Association Management Services, in North Carolina, HOA provisions can address STRs, the neighborhood just has to address it.

“The advent of services like Airbnb and VRBO have brought into question rental regulations in communities as there has been an uptick in short-term rentals. Many members may not like unknown persons coming and going each week and seek to limit the number of rentals or put a rental cap in place. This is an issue that it is appropriate to address, but it must be addressed in a clear manner to be effective. Vague provisions such as ‘no lot shall be used for commercial purposes’ probably isn’t going to successfully reduce the number of short-term rentals in the community. However, enacting a provision such as ‘all rental leases must be at least 6 months long’ would be appropriate in this scenario. Overall, it is important to keep in mind that any amendments or rules that seek to limit an owner’s use of their property must be explicitly stated, enforceable, backed up by good reasons, and properly explained. Amending covenants most often requires a 67% affirmative vote of the membership,” he said.

And of course, there is the Vacation Rental Act that was adopted in 1999 that outlines rental agreements and the handling and accounting of funds for Vacation Rentals, which legitimizes STRs.

  • 42A-2.  Purpose and scope of act. The General Assembly finds that the growth of the tourism industry in North Carolina has led to a greatly expanded market of privately owned residences that are rented to tourists for vacation, leisure, and recreational purposes. Rental transactions conducted by the owners of these residences or licensed real estate brokers acting on their behalf present unique situations not normally found in the rental of primary residences for long terms, and therefore make it necessary for the General Assembly to enact laws regulating the competing interests of landlords, real estate brokers, and tenants. (1999-420, s. 1.)

Definitions: Residential property. – An apartment, condominium, single-family home, townhouse, cottage, or other property that is devoted to residential use or occupancy by one or more persons for a definite or indefinite period.

Vacation rental. – The rental of residential property for vacation, leisure, or recreation purposes for fewer than 90 days by a person who has a place of permanent residence to which he or she intends to return.

At the meeting, however, commissioners focused solely on the current R1 ordinance and nothing else – no other legal opinions or legislation regarding the issue was considered.

Pictured at the top of the article is an aerial view of Highlands from the Rec Park
By Kim Lewicki, Highlands Newspaper

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