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Owning Vacation Rental Property

As an owner of real estate in a North Carolina resort location, have you ever thought of renting it to others for their vacation use? If so, you need to be aware of the North Carolina Vacation Rental Act. The Act applies to any person or entity (partnership, corporation, limited liability company, association, etc.) acting as a landlord or real estate broker in the rental or management of residential property for vacation rental purposes.

This brochure, published by the NC Real Estate Commission, focuses on basic information that you should have if you intend to put your property on the vacation rental market.

What constitutes “vacation rental property” covered by the Act?

It is residential property rented for vacation, leisure, or recreational purposes for fewer than ninety days to persons who have a permanent residence elsewhere to which they intend to return. It does not apply to rentals to persons renting a dwelling unit for business or employment purposes on a temporary basis.

If a tenant is interested in renting my property for a vacation rental, do I need to get an agreement in writing?

Yes. A written “vacation rental agreement” is required! The agreement must include a clear and conspicuous notice to the tenant that the rental is covered by the Vacation Rental Act, that you or your agent may disburse a portion of the rent before the tenant occupies the property, and that you may evict the tenant using an expedited procedure. The agreement must also describe (1) how the tenant’s funds will be handled, (2) any processing fees the tenant will be charged, (3) what the tenant can do if you or your agent cannot provide “fit and habitable premises” or a reasonable substitute, (4) information about the expedited eviction process, (5) your rights and the rights of the tenant if the vacation rental property is sold or there is a mandatory evacuation, and (6) any other obligations you and the tenant have. The North Carolina Association of REALTORS® has developed a form contract (No.411-T) that meets the requirements of the Act. But be aware that the agreement is only enforceable after the tenant signs it, or pays money to you (or your agent), or takes possession of the property.

I have recently purchased a vacation rental property. Must I honor any existing vacation rental agreements for it?

Maybe. It depends upon when the rental is to occur. You must honor any vacation rental agreements which will end within 180 days from when you record your interest in the property with the register of deeds.

How will I know if there are vacation rental agreements in place?

Before you enter into a contract to purchase the property, the seller must inform you of any rental agreements affecting the property. In addition, no later than ten days after the seller transfers the property to you, the seller must give you a copy of the vacation rental agreement for each tenant, including the tenant’s name and address. Note: One copy of the vacation rental agreement is sufficient if all agreements are the same, and the seller gives you the names, addresses, rental amounts and dates of the tenancies for the tenants who executed the agreement.

As the recent purchaser of a vacation rental property, must I notify the tenants of the change in ownership?

Yes. No later than twenty days after the property has been transferred to you, you must advise each tenant (1) that you are the new owner and provide your name, address, and date your interest in the property was recorded, (2) whether the tenant has the right to occupy the property subject to the terms of the vacation rental agreement, and (3) whether the tenant has the right to receive a refund of any payment made by him or her. However, you are not required to give this notice if you continue to use the seller’s vacation rental manager and you agree to honor the tenant’s rights under his or her vacation rental agreement.

What must I do to maintain the condition of my vacation rental property?

You must maintain the property in a “fit and habitable” condition. This means you must (1) comply with applicable building and housing codes; (2) make all repairs and do whatever is reasonably necessary to put and keep the property in a fit and habitable condition; (3) keep all common areas of the property in safe condition; (4) maintain all electrical, plumbing, sanitary, heating, ventilating, and other facilities and major appliances supplied by you in good and safe working order, and reasonably and promptly repair them when tenants notify you (or your agent) that repairs are needed; and (5) provide operable smoke detectors and CO2 detectors.

What happens if my property is not “fit and habitable” when the tenant is to occupy it?

Unless you substitute a reasonably comparable property in a “fit and habitable” condition, you must refund all payments made by the tenant.