Legal Analysis

Town of Highlands
Short Term Rentals
Legal Analysis

1

The Town of Highlands Uniform Development Ordinance (UDO or Code) in Sections 6.1, 6.2 and 6.3 intentionally and clearly classifies “Overnight Accommodations” as a “Commercial Use.”

2

All Commercial Uses are specifically prohibited in R-1 Single Family Neighborhoods. This is sufficient for the town to enforce the Code by not allowing overnight accommodations (short-term rentals) in R-1 Single Family neighborhoods.

3

Tourist Homes are not allowed in R-1 Single Family Neighborhoods. Renting a home as a short-term rental is a Tourist Home, which is defined in the UDO as:

Tourist Home: A building or any part thereof, other than a motel or hotel, where sleeping accommodations of not more than four rooms are provided for occasional transient paying guests with daily charge, tourist homes shall include bed and breakfast homes or inns.”
(Note that it does not say that Tourist Homes are defined only as bed and breakfast homes or inns, but that it shall include them.)

Once a building meets the definition of tourist home, Section 6.5.10 lists out all the regulatory requirements that must be fulfilled. It is not correct to conclude that because someone doesn’t follow the regulatory checklist they therefore aren’t defined as such and can avoid the mandatory requirements.

It strains any rational reading of the UDO to conclude that because a person is offering a home in a Residential zoning district for overnight accommodations via an online platform that they somehow escape the existing restrictions on commercial uses in a residential area because it is offered in such a manner. There are fundamentally sound reasons that zoning regulation in the Town of Highlands has historically and consistently kept the renting of overnight accommodations out of residential neighborhoods.

As a result, offering overnight accommodations is prohibited because they are a specifically defined as a “commercial use” which is not allowed in R1 Single Family neighborhoods. Additionally, turning a home into sleeping accommodations for transient guests is the very definition of a tourist home, which is also prohibited in R1 Single Family neighborhoods.

4

Tourist Homes are permitted in R-2 Single Family Neighborhoods, but only if a Special Use Permit is obtained and the requirements of Section 6.5.10 of the UDO are met.

Among the requirements that must be met for operation of a Tourist Home in the R-2 zoning district is that the Tourist Home shall serve as the residence of the owner or operator, and only one (1) tourist home may be operated by any one (1) person – thus, whole house short term rentals are also prohibited in the R-2 zoning district.

Memorandum

To:

Honorable Patrick Taylor – Mayor
Josh Ward – Town Manager
Michael Mathis – Assistant Planning Director

From:

Dog Mountain Property Owners Association (DMPOA)

Date:

July 26, 2021

Re:

Analysis of Legality of Short-Term Rentals in the Town of Highlands

Many municipalities over the last few years have begun to realize the problems associated with the explosion of short-term rentals in their neighborhoods. Highlands is no exception, and our neighborhood on Dog Mountain Road is a very good example of the disruption and destruction that results from these nightly rentals. We have had property damage directly attributable to this use including the vandalism of road mirrors, split rail fences, and landscaping. Additionally, we have had a dramatic increase in noise, garbage, traffic, and speeders. All of this diminishes the long-term residents’ quiet enjoyment of their homes, and the long-term stability of our neighborhood. This situation is likely to worsen—out of a total of 26 homes on Dog Mountain we currently have three properties offered for short term rental, with two to three more very likely to come onto the market in the near term.

The DMPOA Board and the overwhelming majority of our members are opposed to short-term rentals in R-1 Single Family Neighborhoods

Short-term rentals lead to a significant deterioration of the social fabric of our neighborhoods:

  1. Short-term rentals make our single-family neighborhood less desirable.
  2. Long term residents therefore are more likely to give up on their neighborhood and community. The very atmosphere and character of our neighborhoods that the Highlands Community Plan refers to, and strongly encourages the preservation of, can’t continue to exist when it becomes just a road with multiple small hotels/motels on it.
  3. In the near term, short-term rentals artificially inflate the purchase price of homes as investors are willing and able to pay higher prices, particularly in the more affordable neighborhoods, reducing availability, and pushing out local, and long-term residents that are important to neighborhood stability.
  4. Short-term rentals artificially inflate the rental costs of residents by removing these homes and apartments from the longer-term rental market. This harms the employment base for our local businesses by making it difficult and more expensive for their employees to live in the Town.
  5. Nightly out of town renters have no stake in the peaceful enjoyment of our neighborhoods or sense of belonging to our community. They have no reason to care how the neighborhood around them suffers from the disruption they cause.
  6. Additionally, single-family homes in R-1 neighborhoods, are being converted into multi-family homes by the addition of separately locked apartments or converting garages into apartments, in violation of the R-1 single family requirements. These are additional violations of the Code, and are being done so that the house can be offered as a nightly accommodation.
  7. There are fundamentally sound reasons that zoning regulations have historically and consistently kept hotels, motels, boarding houses, and Bed and Breakfasts out of residential neighborhoods. Short-term rentals ignore current zoning restrictions allowing any residence to be used as hotel/motel/party house. Overnight guests that would never consider taking their noise and disruption into the halls or terraces outside of their hotel rooms, have no problem partying on the decks and other open spaces outside of their nightly rental houses.

Summary of why short-term rentals are currently illegal in the Town’s R-1 Single Family Neighborhoods

Rentals of overnight accommodations to transients, whether they were called a Hotel, Motel, Bed and Breakfast, Inn or Boarding House have always been designated as a commercial activity and prohibited in R-1 Single Family Neighborhoods. Renting a whole or partial house by the night in these neighborhoods does not, and should not, change the current restriction in the Town’s UDO.

Under the UDO, the principal use in an R-1 Single Family Neighborhood is restricted to “Household Living,” which is further defined as “the exclusive use of a single family maintaining a household” within a dwelling unit. In a whole house short-term rental, where no owner is present, there is no single family maintaining a household.

In a situation where the owner of the property is in residence and is offering short term rentals on part of the property, this clearly and squarely falls within the definition of a “Tourist Home,” and is also prohibited in R-1 and subject to special use restrictions in R-2.

Throughout the UDO, any transient use of property has always been defined as a commercial use.

A look at how this is reflected in the Town’s UDO:

  • Section 6.1 sets forth the principal Use Categories available for land within the Town:
    • Residential
    • Public and Civic
    • Commercial
  • Section 6.2 of the UDO sets forth the Use Table where the Town intentionally and clearly categorizes Overnight Accommodations as a Commercial Use. Specifically, Sec. 6.5 of the UDO Provides as follows:
    • Commercial Uses shall include Indoor Recreation and Entertainment, Overnight Accommodations, Retail or Wholesale Business and Restaurants, Professional Office or Studio and Industrial Businesses.
  • Additionally, The UDO provides that:
    • The R-1 Residential District is exclusively a low-density residential district for single-family dwellings with customary accessory outbuildings, together with such other related uses which are of a residential character or contribute to the residential character of the district. (UDO Section 5.2.1)
    • The R-2 Residential District is a medium-density residential district for single-family dwellings, with customary accessory outbuildings, including manufactured homes and home occupations, together with such other related uses which are of a residential character or contribute to the residential character of the district. Tourist homes and private schools are permitted as Special Uses. (UDO Section 5.2.2)
  • The only commercial uses permitted in any Residential district under the UDO are:
    • Customary Home Occupations as an Accessory Use (Prohibited in R-1, Allowed subject to limitations in R-2 and R-3).
    • Tourist Homes (Prohibited in R-1 and R-3, Permitted under a Special Use Permit and in compliance with the requirements of UDO Section 6.5.10 in R-2)
  • The UDO defines Tourist home as:
    • A building or part thereof, other than a motel or hotel, where sleeping accommodations of not more than four (4) rooms are provided for occasional transient paying guests with daily charge; tourist homes shall include bed and breakfast homes or inns. (Note that this language of the code doesn’t say that it is limited to b&b or inns, but “shall include.”)
  • The Highlands Town Manager has stated that STR’s are not Tourist Homes, based upon:
    • reliance on a 2018 blog post by a UNC School of Government Instructor citing a Pennsylvania case, and
    • that to be a Tourist Home a building must “check all the boxes in Section 6.5.10 of the UDO”
    • Respectfully, it is our view that the Town is incorrect –
  • The Highlands Town Manager has stated that STR’s are not Tourist Homes, based upon:
    • reliance on a 2018 blog post by a UNC School of Government Instructor citing a Pennsylvania case, and
    • that to be a Tourist Home a building must “check all the boxes in Section 6.5.10 of the UDO”
    • Respectfully, it is our view that the Town is incorrect –
      • The blog post and therefore the Town’s reasoning for not categorizing STRs as Tourist homes cites to a Pennsylvania case with no controlling precedential value in North Carolina, interpreting a zoning ordinance that is different from the Highlands UDO in how it defines single family dwelling; andSection 6.5.10 sets forth the regulatory requirements that a person must meet to obtain a Certificate of Compliance, which is a prerequisite to operating a Tourist home in Highlands.A property does not escape being categorized and the following the required regulation as a Tourist home merely because the owner fails to follow the registration and other requirements of UDO Section 6.5.10 – rather operation of such a property would be prohibited, even in the zoning districts where it was allowed, until such time as the owner complied with all the requirements of UDO Section 6.5.10.
  • Under the Town’s current interpretation of Tourist home, the owner of a 4-bedroom home in an R-1 zoned neighborhood would be prohibited from renting out 3 of their bedrooms for overnight accommodations, because it would be a prohibited Commercial Use in the R-1 zoning district. However, the Town takes the position that such an illegal use can magically be cured by the mere act of the owner vacating the property and renting out the entirety of the house. This strains logic.
  • Nevertheless, even without reliance on the Tourist home prohibition, the UDO already makes clear, STRs are prohibited in the residential zones because overnight accommodations are a commercial use and are not a permitted Primary Use or a Permitted Accessory Use in the Residential zones of the Town.
  • Investors with no physical presence, local investment or heart in the community have purchased multiple properties to be used exclusively as short-term rentals. They advertise and run this as a business. How is this not a commercial use?
  • Section 6.1.1 (C) of the UDO provides that when a principal use is not specifically listed, it is expressly prohibited. Here, neither Overnight Accommodations nor STRs are specifically listed in the UDOs residential use categories, thus such activities are prohibited.

Summary

  1. The current UDO already authorizes the Town to immediately address the STR problem by enforcing the existing prohibition on Commercial Uses (Overnight Accommodations) in Residential Zones.
  2. Taking action now to address a problem identified by more than 62% of the respondents to the town Community Plan survey will stop the size of the problem and the damage it is causing to the fabric of Highlands’ residential neighborhoods from increasing. (Recall that this survey was open to business respondents as well, likely skewing that percentage downward.)
  3. Acting now to enforce the current UDO does not prevent the Town from considering further modifications to its UDO to, as requested by the business community focus the growth of STRs in the Town’s downtown business district.

Fundamental Questions for Town of Highlands

  1. What are you going to do to protect the interests of those that purchased, and relied upon, the protections afforded an R-1 neighborhood?
  2. Why is the town choosing to side with transient hotel guests renting for two nights over those owning for twenty years? (Based upon the wait and see approach the Town is taking as communicated by the Highlands Community Plan, June 2021.)
  3. When the Town’s UDO (Sections 6.1, 6.2 and 6.3) intentionally and clearly designates “overnight accommodations” to be in the Commercial District, not in Single Family neighborhoods where a commercial use is not allowed, why won’t you enforce this?

Legality of Short-term Rentals in R-2 Zones in Highlands

Under the Highlands Uniform Development Ordinance (UDO), overnight accommodations are clearly designated as commercial uses. (Sec. 6.5, and Sec. 6.2) The UDO defines “accommodation” as “Any part of a building used as or constituting a unit used as temporary lodging for an individual or a single family.” (Sec. 2.3, “Definitions”) By the “use table” in the UDO (Sec. 6.2), overnight accommodations are prohibited in R-1 and R-3 zones. Overnight accommodations are also prohibited in R-2, with the sole exception of individually specially permitted tourist homes.

The UDO defines “tourist home” as “A building or part thereof, other than a motel or hotel, where sleeping accommodations of not more than four (4) rooms are provided for occasional transient paying guests with daily charge; tourist homes shall include bed and breakfast homes or inns.” (Sec. 2.3)

In order to be legal in R-2, a tourist home must receive a Special Use Permit from the Town (Sec. 6.5.10). The UDO states in pertinent part (Sec. 6.5.10, “Commercial Uses”): “No private home shall be converted to a tourist home until a Certificate of Compliance has been issued by the Planning and Development Director. The following conditions must be met before such a Certificate may be issued:

  • The tourist home shall serve as the residence of the owner or operator, and only one tourist home may be operated by any one person.
  • No more than four (4) bedrooms may be provided for accommodations…..
  • All parking areas shall conform to Article 9 of this Ordinance.” [Which provides, in Sec. 9.1.7, that a tourist home must provide 1 off-street parking space for each accommodation, plus 2 spaces for the owner or operator]

Note that these conditions are not the definition of a tourist home, which as noted above is contained in Sec. 2.3. This is the set of requirements to receive a permit to operate a tourist home in a zone where it is allowed by special permit, i.e., R-2. Under no other circumstances are tourist homes legal in R-2, and they are not legal at all in R-1 and R-3.

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