Issue 8

Fall 1999

A PUBLICATION OR THE TITLE COMPANY OF NORTH CAROLINA

     

NORTH CAROLINA’S NEW VACATION RENTAL ACT

 

North Carolina’s new Vacation Rental Act has been codified at Chapter 42A of the General Statutes.  It becomes effective January 1, 2000 and applies to rental agreements on or after that date. 

 

G.S. 42A-3 deals with applicability.  The Act applies to any person or entity acting as a landlord or real estate broker engaged in the rental or management of “residential property” for “vacation rental” as defined in the Act.  “Residential property” is broadly defined in G.S. 42A-4(2).  “Vacation rental” is defined in G.S. 42A-4(3) as 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 intends to return.  (But see the 180-day period mentioned below.) 

 

G.S. 42A-3(b) contains exemptions to applicability: (1) hotels, motels, tourist camps and other places subject to regulation under Chapter 72; (2) rentals to persons temporarily renting a dwelling unit while traveling away from their primary residence for business or employment purposes; (3) rentals to persons having no other place of primary residence; and (4) rentals for which no more than nominal consideration is given.

 

When the Act applies, a “vacation rental agreement” is required.  It must be in writing and be executed by (1) a landlord or real estate broker representing the landlord and (2) the tenant.  G.S. 42A-4(4) and G.S. 42A-10(a).  G.S. 42A-10(a) goes on to state that no agreement shall be valid unless the tenant has accepted the agreement by one of the following: the tenant’s (1) signature on the agreement; (2) payment of money to the landlord or real estate broker after the tenant’s receipt of the agreement; or (3) taking of possession after the tenant’s receipt of the agreement. G.S. 42A-10(a) is somewhat puzzling in this regard.  The beginning of F.S. 42A-10(a) then establishes three alternative methods for the tenant to accept the agreement, including but not limited to the tenant’s signature on the agreement.  If a tenant must execute the lease, is an act of acceptance, which can be by one of three methods, an act in addition to execution?  Was the intent to allow the tenant to bind himself to the lease without the tenant executing it?  Or, is G.S. 42A-10(a) poorly written in this regard?  It seems as though the statute would have made more sense if the statute had merely said that, in order for there to be a valid and enforceable vacation rental agreement, the tenant must either execute the lease, pay any monies pursuant to the lease after the tenant’s receipt of the lease, or take possession after the tenant’s receipt of the lease.  This appears to be the intent of G.S. 42A-10(a), which is evidenced by the required disclosure in G.S. 42A-11(a).  G.S. 42A-10(a) should be rewritten and G.S. 42A-4(4) should be conformed to any revision.

G.S. 42A-11 is entitled “Vacation rental agreements.”  G.S. 42A-11(a) contains a bold print disclosure of the essence of the agreement, which must appear on its face.  G.S. 42A-11(b) requires the agreement to contain other specified matters pertaining to handling of funds, fees, obligations of parties and expedited eviction.

Article 3 of Chapter 42A is entitled “Handling and Accounting of Funds.”  G.S. 42A-15 provides for payments of all or any part of the rent, security deposit or other fees in advance of commencement of the tenancy if these payments are authorized by the agreement and for the deposit of these payments in a trust account.  G.S. 42A-16 provides for advance payments uses and G.S. 42A-17 provides for accounting for advance payments and security deposits for reimbursement if the leased premises cannot be provided in habitable condition or a reasonably comparable substitute property in such condition.   G.S. 42A-18 provides for the applicability of the Residential Tenant Security Deposit Act.

If the lease is for 30 days or less, expedited eviction is available if the tenant (1) holds over after expiration of the tenancy; (2) commits a material breach of the agreement resulting in tenancy termination; (3) fails to pay rent; or (4) obtains possession by fraud or misrepresentation.  G.S. 42A-23(a).  Before the proceeding may be commenced, the landlord or his broker shall give the tenant at least four hours notice, orally or in writing to quit the premises.  If such efforts fail, the notice can be posted on the property’s front door.  G.S. 42A-24(a).  The proceeding is outlined in G.S. 42A-24(b).  A hearing before a magistrate must be held not sooner than 12 hours and no later than  48 hours after service on the tenant.  G.S. 42A-23(d) provides that if the tenant loses, the court order to vacate the property, which time shall not be lass than 2 hours or more than 8 hours after service of the order to vacate on the tenant.  The tenant can appeal to district court for trial de novo.  G.S. 42A-25.

G.S. 42A-31 outlines the landlord’s duty to provide a fit premises and G.S. 42A-32 outlines the tenant’s duty to maintain the unit.

G.S. 42A-36 outlines a mandatory evacuation order’s effect on the tenancy.

G.S. 42A-19 is a lengthy section pertaining to transfer of property subject to a vacation rental agreement.

The grantee of residential property voluntarily transferred by a landlord who has entered into an agreement shall take his title subject to the agreement if the vacation rental is to end not later than 180 days after the grantee’s interest in the property is recorded in the office of the register of deeds.  G.S. 42A-19(a).

If the vacation rental is to end more than 180 days after recording of the grantee’s interest, the tenant shall have no right to enforce the terms of the agreement unless the grantee has agreed in writing to honor such terms, but the tenant shall be entitled to a refund of any payments made by him or her.  G.S. 42A-19(a).  (“Grantee” used in G.S. 42A-19(a) includes a grantee in a deed.  It might also include the grantee in a mortgage or deed of trust.)

G.S. 47-18(a) states that no lease of land for more than three years is valid against lien creditors or purchasers for value unless it is recorded.  

It seems arguable that the two rules G.S. 42A-19(a) control over the rules in G.S. 47-18(a) and case law as to when someone does or does not take subject to a lease.

Prior to entering into any contract of sale, the landlord shall disclose to the grantee the time periods that the property is subject to a vacation rental agreement.  G.S. 42A-19(a) also contains provisions regarding the owner-transferor’s obligations to disclose to a grantee under a contract of sale certain matters about the vacation rental agreement and to notify the tenant of the transfer and the tenants’ rights, under certain circumstances.

If, prior to the tenant’s occupancy, the landlord’s interest is involuntary transferred, the landlord shall refund the tenant within 60 days after the transfer any payments made by the tenant.  G.S. 42A-19(c).

Failure by the landlord to comply with G.S. 42A-19 constitutes an unfair trade practice.  Compliance with G.S. 42A-19 means that the landlord has no further obligations to the tenant.  G.S. 42A-19(d).

G.S. 47-36.1 AND CORRECTING ERRORS IN RECORDED INSTRUMENTS

We have been asked about use, and our reliance upon, the so-called “scrivener’s error statute.”

G.S. 47-36.1, in its current form, allows the statute’s procedure to be used for correction of “an obvious typographical or other minor error in a deed or other instrument recorded with the register of deed.”  The statute should be examined in its entirety for it requirements. However, it would seem that this statute cannot be used, for example, to add a tract of land left out of the original deed, at least when the deed contains a description of another tract.  If a legal description is left out altogether, this is not clearly “an obvious typographical error,” nor is the omission an “other minor error.”  The statute is helpful in correcting obviously omitted calls, but even then it is questionable whether a fatal omission invalidating the deed can be corrected by the statute. 

The statute should be amended to set forth a non-exclusive list of problems that can be cured by the statute.  For example, G.S. 47-36.1 should be amended to state in part that the statutory procedure can be used to correct “an obvious typographical error, any other minor error or any of the following errors: (1) any deficiency in the legal description of the land; (2) omission of any tract of all tracts of the legal description; (3) omission of any party or portion of any party’s name from the granting clause, if the party has executed the instrument; and (4) omission of an exhibit referenced in the body of the instrument.  This section does not change any rule of priority pursuant to any other applicable statutory or case law.”

The reference to priority in the suggestion is drafted with the following helpful case in mind, which the suggested amendments to G.S. 47-36.1 would not override.  In Noel Williams Masonry, Inc. V. Vision Contractors of Charlotte, inc., 103 N.C. App. 597, 406 S.E.2d 605 (1991), the following facts existed: Owner, O, gives M a deed of trust which M records without the legal description.  Then, various suppliers contracting with O first furnish labor or materials.  Last, M rerecords his deed of trust with the legal description.  In such a case, it was held that M’s re-recording related back to his initial recording.  Apparently, the reasoning for the holding was that (1) O held title as constructive trustee for M and M’s deed of trust; (2) constructive trusts are not governed by the recording act; and (3) the suppliers were not bona fide purchasers for value without notice (under constructive trust rules) because there was no evidence that the suppliers furnished in reliance upon O’s owning the property without a prior deed of trust.  The case indicates that this principle applies to deeds as well as deeds of trust.

In other words, G.S. 47-36.1 should be amended to give more guidance as to what can be corrected pursuant to the statute and thereby constitute a valid re-recorded document. But, rules of priority, whether set forth in a statute or a case, would not be affected.  Please let us know about your suggestions for this statute.  

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