In a week where the Victorian Government plugged a loophole in transport legislation to stifle Uber's quest for the sharing economy 'holy grail' (namely, legislative recognition and legality), the Victorian Supreme Court has put another dampener on the sharing economy by ruling that two tenants had breached their lease with their landlord by renting their leased apartment out using the popular home sharing website, Airbnb.

The Supreme Court decision

The Court reversed the Victorian Civil and Administrative Tribunal's initial decision, which considered the apartment's successful listing on Airbnb no more than a mere licence over the property (rather than a lease). This meant that the tenants hadn't fallen foul of the clause in their lease forbidding them from 'assigning or sub-letting' the property during the term. Unfortunately for the tenants, Croft J considered that the Tribunal had overstretched, and agreed with the landlord's view on the three key appeal questions, namely; 'What is you name?', 'What is your quest' and 'What is your favourite colour'…no wait...that's 'Monty Python' again…sorry. The questions before there Court on appeal were actually:

  • was there any evidence or other material before the Tribunal to support the finding that the tenants were able to access the rented premises during each Airbnb stay? (Question 1)
  • when determining whether a person has exclusive possession of a premises, is it relevant to consider whether that person can be made to leave the premises if they stay longer than the period that has been agreed for them to stay? (Question 2)
  • when determining whether a person has exclusive possession of a premises, is it relevant to consider whether the premises is a person’s principal place of residence? (Question 3)

Before we delve into the nitty gritty of the answers to the above questions, it might be best, like the Court, to revisit the test as to whether an arrangement in relation to the use of property is a lease or a licence.

The test to determine whether an arrangement is classified a lease or a licence is whether the occupier is granted 'exclusive possession' of the property. Whether the occupier is granted exclusive possession is informed by two sources: the nature of the rights granted under the arrangement and the intention of the parties in relation to that arrangement. Intention is determined objectively based on terms of the agreement under which the arrangement arises and the surrounding circumstances. Confused yet? This diagram may (or may not) help:

Click here to view the graph.

Question 1 - was there any evidence or other material before the Tribunal to support the Tribunal's finding that the tenants were able to access the rented premises during each Airbnb stay?

In first instance, the Tribunal concluded that the tenants were, at all times, able to access the apartment during an Airbnb stay. The landlord disagreed with the Tribunal on this point and appealed on the question of whether any evidence of such access was before the Tribunal to make such a finding. It is commonly accepted that where the Tribunal makes a finding of fact that is not open on the evidence and this is critical to its conclusion, an error of law is committed.

The Court broke the scenario down into two time periods – the time for the agreed period of the Airbnb stay, and the time after the expiration of this period. The Court felt that the ability to enter and reclaim property after the expiration of the agreed Airbnb period had no bearing on the question as to whether the tenant was able to access the property. What did, however, was the fact that during the period of the Airbnb stay, there was nothing in the Airbnb terms and conditions that allowed the tenants access during the stay. Croft J felt considered that quite the contrary position could be ascertained from the reading of the Airbnb terms and conditions, mainly, that the guests did enjoy exclusive possession during the term.

In the absence of any real evidence of the tenant's ability to access the property, the Court held that the Tribunal had overstepped its mark and committed a vitiating error of law in respect of deciding that the tenants had such access.

Question 2 - when determining whether a person has exclusive possession of a premises, is it relevant to consider whether that person can be made to leave the premises if they stay longer than the period that has been agreed for them to stay?

This question revolved around whether a particular term in the Airbnb terms and conditions which stated:

If a Guest stays past the agreed checkout time without the Host’s consent, they no longer have a license to stay in the Listing and the Host is entitled to make the Guest leave.

The tenants contended that this clause is unlike any clause that would be included in a lease, as the language does not relate to re-entry or recovery of possession. The Court accepted that the terms of the Airbnb agreement was an essential tool in determining the nature of the arrangement in place but was more concerned with substance over form. Given that, at common law, both a lessor and licensor have the right to evict the lessee or licensee, the Court struggled to follow the tenants' argument that the particular clause gave rise to any real conclusion that a licence was in place rather than a lease. In fact, the Court felt that the ability to evict after the term (of a lease or licence) was entirely irrelevant as to whether the guests had exclusive possession.

Question 3 - when determining whether a person has exclusive possession of a premises, is it relevant to consider whether the premises is a person’s principal place of residence?

In first instance, the Tribunal decided that the fact that the apartment remind the tenants' sole and principal residence at all times before, during and after the Airbnb stay was persuasive in determining whether the guest was really granted exclusive possession as it showed a general understanding that the tenants otherwise lived at the premises and the guest had only temporary use of the apartment. Again, the Court in this case decided that this point was irrelevant to the question of whether exclusive possession existed. The Court used the analogy of someone who goes overseas for a holiday and leases their house out compared to someone who simply licences it. In both cases the property remains the persons principal place of residence, but it does not provide any distinguishing feature between a lease and a licence.

A mere flesh wound?

No doubt, Airbnb will see the potential of evictions as 'just a flesh wound' in its quest. However, the overall legal environment in Victoria appears to be becoming increasingly toxic for the sharing economy. We all wait with bated breath to see the Victorian Government's next move on ride sharing, but at this stage, it appears that the sentiment in Victoria is ... "what has the sharing economy ever done for us?".