A legal framework is emerging for ‘local hosts’ and ‘bed and breakfast’ operators who offer short stay accommodation in private homes and residential buildings, and for online platforms such as Airbnb and Stayz which provide booking services for these people.

In this article we look at regulatory issues raised in the current NSW Parliamentary Inquiry on short-term holiday letting, a Victorian Court decision which finds that sub-letting for an Airbnb use was a breach of the lease, how strata title owners corporations can outlaw short-term rentals, and how the Australian consumer regulator is cracking down on misleading pricing.

The NSW Parliamentary Inquiry on:  Regulatory issues posed by short-term letting including customer safety, land use planning and neighbourhood amenity, and licensing and taxation

The NSW Parliamentary Committee on Environment and Planning established an inquiry upon the Adequacy of the Regulation of Short-term Holiday Letting in New South Wales on 9 September 2015. The inquiry is continuing and the Committee is due to report by the end of August 2016.

There were 212 submissions and three public hearings. These issues emerged:

  • Should planning approval be required?

Many people believe that Uber and Airbnb operate as digital industry disruptors. This is partly true. Both provide online platforms for bookings. But Uber is disrupting a highly regulated taxi industry, while Airbnb is disrupting a partly regulated sector of the accommodation industry.

The use of a property for short-term accommodation is a planning issue.

If the short stay letting is ancillary to the dominant use as a dwelling, then it is an ‘exempt development’ and does not currently require planning approval.

But if it is for example a bed and breakfast style business, in a residential zoning that allows it, then it is a ‘complying development’ for which planning consent is required but easily obtained.

Development standards for consent need to address the scale and nature of the business operation, such as the potential noise and amenity impacts, whether commercial kitchens should be fitted, fire safety, disabled access compliance, regular inspections and licensing.

The lack of clear guidelines as to when approval is required is a problem both for Local Councils and for ‘home hosts’. It appears that the Inquiry will recommend that planning approval be required if the use is for more than 90 days in a year or possibly, if more 4 bedrooms are used.

  • Should there be a Code of Conduct?

The Holiday Rental Industry Association (HRIA) has a Holiday and Short Term Rental Code of Conduct – which is a voluntary code agreed with the Department of Planning and Environment. The HRIA submitted that its Code should be applied to all short-term accommodation providers.  

  • What insurance issues need to be addressed?

Most Home Insurance Policies exclude liability for injuries to guests if they arise from a ‘business‘ use. Whether a particular short-stay use is a business use depends on the facts, but a listing on an Airbnb or similar online platform would indicate that it might be. The Insurance Council of Australia pointed to new insurance policies available to cater for the ‘sharing economy’ which provide cover for short-term accommodation, particularly public liability cover for injuries to guests. Cover is available on a per night basis.

  • Are the Airbnb and Stayz online platforms to be welcomed?

Airbnb provided these statistics: As of March 2016, Airbnb had 70,000 listings in Australia (27,000 in NSW), with two-thirds for entire homes, one third for private rooms. The average stay was 4 nights. 55% of the listings are rented out for less than 30 nights in a year and 82% for less than 90 days.

 Airbnb considers itself to be in the home sharing category, as opposed to the traditional holiday letting industry. It is self-regulating with its own code of conduct, called Responsible Host recommendations.

How does Airbnb deal with excessive noise / party houses / bad hosts / bad visitors / neighbours?

Airbnb provides a host guarantee, a host protection insurance product, a two-way review which means that host and guest rate each other (for cleanliness personal safety, security of belongings, décor), and a complaints procedure for others to use.

  • Should there be a database?

The Accommodation Association of Australia considered that the short-term accommodation industry had an unfair advantage in terms of bookings. It said that Airbnb is attractive to hosts because it charges the host 3 per cent, and the guest 6 to 12 per cent commission compared with 15 to 20 per cent commission charged to the host through a travel agent. It emphasised the cost of bricks and mortar investment of accommodation providers and fire safety. It said that a database was needed to keep a tab on the industry.

It asked rhetorically: Is the attraction of short-term stays having an effect on housing affordability by encouraging investment purchases for this use, and by pushing rental properties out of the long-term rental market into the short-term accommodation market?

  • Should strata unit blocks be able to prohibit short-term stays?

The Owners Corporation Network proposed that the strata law be amended to make clear that an owners corporation can regulate short-term lettings. It also supports a licensing system for hosts.

These issues were raised at the Committee’s hearing held on 14 March 2016 .

Tenancy Law – Are short-term stays sub-leasing?

In California, tenants who lease properties for their own purposes and then turn around and sub-lease those properties for short stay accommodation at a profit are called parasite entrepreneurs.

Therefore in the USA, most residential leases contain a clause which prohibits sub-leasing.

But in Australia, the Residential Tenancy Laws require that all Residential Tenancy Agreements contain a clause which allows tenants to sub-lease the property, such as this:

The landlord and tenant agree that:

  1. the tenant may, with the landlord’s written permission, assign / transfer or sub-let the residential premises; and
  2. the landlord may refuse permission (when it is reasonable to do so) to the assignment / transfer or sub-letting the whole or part of the residential premises.

In the Supreme Court of Victoria, the tenant argued that allowing Airbnb guests to stay was not a sub-lease (which required consent, which would have been refused), but a licence to occupy (which did not require consent). The Court decided in Swan v Uecker [2016] VSC 313 (Croft J) (10 June 2016) that the landlord was entitled to terminate the lease on the basis that the tenant was in breach of the sub-lease clause because they had allowed Airbnb guests to stay in the premises without the landlord’s written permission.

Justice Croft made these concluding remarks, having regard to the public interest in the proceedings:

First, this is not a case on the merits of AirBnB arrangements. Neither is it a case on whether or not AirBnB arrangements might be said to be “illegal”—either in some particular or some general, non-legal, sense. Rather it is a case, on appeal, which raises for determination—directly or indirectly—the legal character of this particular AirBnB arrangement and any consequences this characterisation may have in the context of the terms of the lease of the apartment concerned.

Secondly, the context provided by the terms of the particular apartment lease are important. Although this apartment lease is a residential lease, many commercial leases restrict the tenant from sub-leasing, assigning the lease, granting any licence to occupy all or part of the leased premises or otherwise parting with possession without the landlord’s prior consent. Broad terms such as this would prevent, for example, sub-letting or licensing without the landlord’s consent and would avoid the need—as in the present case—to characterise the nature of the same arrangement like the AirBnB arrangement for occupation of the whole of the leased premises as a sub-lease or a licence.

Justice Croft’s remarks make clear that AirBnB guests staying under the AirBnB Agreement in question were sub-tenants. The on-line booking and payment process do not affect this. Justice Croft also made clear that his remarks did not apply to commercial leases of hotels and serviced apartments. 

In the light of these comments, landlords should insert an additional clause into the standard Residential Tenancy Agreement that: The landlord may reasonably refuse permission to sub-let or transfer the premises lease if the premises are used or advertised for use for short-term letting.

Can Strata By-laws be used to prohibit short-term accommodation?

Strata schemes have by-laws which are rules which apply to owners and tenants. Most strata schemes have standard by-laws with changes made to deal with specific situations such as parking, air-conditioning and renovations.

A trend is emerging amongst new medium and high-density residential developments to have custom-made by-laws, which are more comprehensive than the standard by-laws.

These by-laws include a by-law which prohibits owners and occupiers / tenants from permitting their unit to be used for short-term accommodation, which includes tourist accommodation such as is arranged via Airbnb. An example of such a by-law is:

Owners and Occupiers must only permit Lots to be used in accordance with the following:

  1. Lots may be used as permanent residential accommodation including under leases subject to the Residential Tenancies Act.
  2. Short-term accommodation uses such as temporary rental of rooms, use as serviced apartments, tourist or backpacker use, or use by student or temporary  work visa holders is not permitted;
  3. Owners, Occupiers or the Owners Corporation must not advertise or promote or permit an agent or building manager to advertise or promote or permit a Lot to be used for short-term accommodation uses described in paragraph (b);
  4. Lots must not be used for any commercial purpose (unless approved by the owners corporation and the Local Council) or for short-term accommodation or for use by backpackers, tourists, students or people on temporary work visas for short-term accommodation uses described in paragraph (b).

To enforce the by-law, the Owners Corporation will issue a Notice of Breach. If the Notice is ignored, a restraining order can be obtained from the Tribunal.

Note: Section 49(1) of the Strata Schemes Management Act 1996 (NSW) provides that a by-law must not prohibit a lease of a lot. The by-law example is arguably valid because it contains a reasonable restriction, not a prohibition, on the right to lease a lot.

But it would be preferable if a rider as suggested by the Owners Corporation Network to the Inquiry were inserted into Section 49(1) by Parliament so that it reads (the rider is in italics):

 s 49 (1) No by-law is capable of operating to prohibit or restrict … a lease … relating to a lot provided that this section shall not apply to any by-law adopted to regulate the impact of short-term letting of a lot on common property or the amenity of the scheme.

The consumer regulator – the Australian Competition & Consumer Commission (ACCC)

On 12 October 2015, the ACCC accepted court enforceable undertakings from Airbnb Ireland (Airbnb) and Vacaciones eDreams, SL (eDreams) following concerns that the companies made online price representations to consumers in Australia that were in breach of the Australian Consumer Law (ACL).

In particular, Airbnb, since November 2012, and eDreams, from January to December 2014, engaged in misleading and deceptive conduct and made misleading representations by failing to adequately disclose to consumers in Australia mandatory Service Fees and Cleaning fees ‘up front’ on key pages of one or more of their online booking platforms and to include these fees in the total price.

For my commentary click There’ll be no more drip pricing by Airbnb and eDreams in Australia

Sooner or later, the ACCC will turn its attention to the problem of misleading and deceptive advertising of short-term accommodation, Examples are misleading descriptions of the neighborhood as ‘safe’, ‘close to transport’, and ‘near the beach’. The descriptions may be misleading because not all Airbnb users have the experience or skill to know how to filter the prospective places by looking at Google street view and maps, and to check the user recommendations / testimonials carefully to ensure they are independent.

Airbnb and the other online platforms will need to have procedures in place to remove misleading descriptions, photos and testimonials, once they are notified.