In recent years, there has been a vast increase in the use of online letting services, such as Airbnb and Stayz, which allow property owners to rent out their property for short term letting through websites that can be accessed worldwide.

The legislative framework has been slow to catch up to the changing nature of temporary accommodation and the “sharing economy” and bodies corporate have limited options to regulate behaviour within their schemes.  An options paper released by the Commercial and Property Law Research Centre of the Queensland University of Technology (QUT) and recommendations made by The Grattan Institute offer some hope of  changes being made to body corporate laws that will grant bodies corporate wider powers to control transient tenants in short term rentals. 

In this Alert, Partner Don Battams, Special Counsel Anthony Pitt and Associate Hayley Schindler consider the benefits and pitfalls of online letting services such as Airbnb and Stayz for bodies corporate.

The increase in short term letting

Online letting services have rapidly obtained a huge following in recent years.  According to its website, Airbnb currently has over 2,000,000 listings in more than 34,000 cities and in 190 countries around the world, which it has accumulated since its inception in about August 2008.  Airbnb began operating in Australia in 2009 and Inside Airbnb data shows that it now has more than 66,000 listings (including rooms and entire properties).  The Stayz website confirms that Stayz has more than 40,000 entire-property listings in Australia.

The appeal of such online services is that property owners can rent out their property without the need for agents, forms or licences.  However, the problems associated with the influx of such services are that there is no regulation and no precedents for dealing with issues caused by these short term letting arrangements. 

In some ways, the rating service, by which the property owner and the tenant each rate one another, is designed to ensure that each party behaves appropriately, thereby placing the onus on the property owner to ensure their property is up to standard and on the tenant to ensure that they do not offend.  However, the rating process is not always a successful way of regulating behaviour. 

Short term letting in a body corporate

Specifically, where the property is a lot in a community titles scheme, there is currently no requirement to obtain the body corporate’s consent to let the property on a short term basis, and there are currently no specific regulations for short term online rental services.

Accordingly, short term online letting services can have various impacts on schemes, including:

  • in large scale complexes, which may be zoned for short term accommodation and which are likely to have financial provisions in place designed for the purposes of short term letting:
    • such online rental services may be less concerning as it is likely that the body corporate sinking and administration funds have been set up to deal with certain  expenditure caused by or attributed to short term letting;
    • however, lot owners may decide to not let their lot through the on-site manager and proceed with an online letting service instead, in which case management rights may lose their value;
  • in smaller complexes, which may be zoned residential and not for short term accommodation:
    • the body corporate sinking and administration funds will most likely not be designed to deal with short term letting and/or the increased expenditure which may be caused by or attributed to such short term letting;
    • short term letting may impact permanent owner/occupants and tenants due to the constant changes in guests, who may cause nuisance as they may not have the same sense of responsibility as a permanent resident, and are more likely to use on-site facilities such as pools and gyms; and
    • subject to any local council laws which apply to the scheme, a lot owner may be in breach of specific planning controls for the area or the scheme.

An example of the issue outlined at paragraph 2(c) above occurred in the Land and Environment Court of New South Wales matter of Dobrohotoff v Bennic [2013] NSWLEC 61 (2 May 2013).  The respondent advertised and rented her house for short term holiday rental accommodation on websites such as Stayz which attracted some tenants who often engaged in antisocial behaviour that significantly and adversely impacted neighbours who were permanent residents.  In Dobrohotoff, the Court held that the respondent had carried out development that was prohibited, namely, the use of land for short term holiday rental accommodation in breach of s 76B of the Environmental Planning and Assessment Act1979 (NSW).

Additionally, the use of lots within a scheme for short term and holiday accommodation may, in some circumstances, change the classification of the building under the Building Code of Australia.   This issue was considered in Genco & Anor v Salter & Anor [2013] VSCA 365, where the Victorian Court of Appeal considered whether a ‘Class 2’ building (like most apartment buildings) can be used for short term and holiday accommodation or whether they are required to change their classification under the Building Act1993 (Vic) and the Building Code of Australia from ‘Class 2’ to ‘Class 3’[1]

The Court of Appeal held that:

  • the way that a building is used may change its original classification under the Building Code;
  • a number of factors will be considered in determining whether the use of an apartment building for short-term accommodation will result in a change of the building’s classification from ‘Class 2’ to ‘Class 3’ including whether the short-term stay apartments are of such a number and so physically disposed in relation to each other as to resemble the residential part of a hotel as to properly be classified as ‘Class 3’;
  • the term “dwelling” encompasses short term holiday accommodation and there is no rational basis for limiting the word “dwelling” to just long term residential usage.
  • Accordingly, the Building Code may not assist bodies corporate in restricting short term accommodation in ‘Class 2’ buildings.

There may also be some safety concerns associated with short term letting services as safety standards may not be upheld as short term letting guests will not be familiar with the property and as there is no regulation applicable to such arrangements, those guests may not be made familiar with fire safety and evacuation plans for the property.  This could result in claims being made against the body corporate for personal injury or property damage.

What can a body corporate do to regulate short term letting?

As noted above, the position for bodies corporate or other lot owners with respect to any dispute arising from a lot owner offering their property as short term accommodation through an online service is unchartered and unregulated in Australia.  Perhaps due to their rapid rise in popularity, the current legislative and regulatory schemes have not been updated to deal with the issues caused by short term online renting services. 

Notably, with respect to the extent to which the by-laws for a scheme can address the issue, there are limitations in the Body Corporate and Community Management Act1997 (BCCMA) as follows:

  • Section 169 provides that a by-law may only provide for the administration, management and control of common property and body corporate assets and the regulation of, including conditions applying to, the use and enjoyment of lots, common property and body corporate assets, services and amenities.  Consequently, the BCCMA may not authorise a by-law prohibiting the use and enjoyment of lots for a particular activity (e.g. short term letting);
  • Section 180(3) provides that, if a lot in the scheme can lawfully be used for residential purposes, then the by-laws for the scheme cannot restrict the type of residential use and Section 180(5) provides that a by-law must not discriminate between types of occupiers. Accordingly, by-laws cannot be made or amended to restrict the use of lots or common property facilities by short term occupiers;
  • Section 180(6) provides that a by-law (other than an exclusive use by-law) must not impose a monetary liability on the owner or occupier of a lot included in a community titles scheme.  Accordingly, the body corporate cannot impose a fee structure via the by-laws to make owners who let their property on a short term basis pay the extra expenses incurred for common property maintenance; and
  • Section 180(7) provides that a by-law cannot be oppressive or unreasonable, having regard to the interests of all lot owners and occupiers.  Where a by-law seeks to restrict owners or occupiers from doing something it may be found to be oppressive or unreasonable where the restriction is not proportionate to the risk to the rights and interests of other owners and occupiers.

However, despite the above, bodies corporate may introduce by-laws that restrict behaviour, noise, parking and the use of the common facilities.  The imposition of such by-laws may provide some comfort.  However, given the BCCMA notice requirements and dispute resolution provisions involved with dealing with a contravention of any by-law, such by-laws may be futile where the person causing the nuisance will generally only be occupying the property for a few days.

Party house regulations

In 2014, the Queensland Government amended the Sustainable Planning Act2009 (SPA) to allow a local government to regulate residential premises that are used as a commercial venue for accommodation or facilities that are regularly used by guests for parties, known as a “party house”.   This legislation, however, does little to assist bodies corporate to regulate behaviour within their scheme. It is not mandatory for local governments to regulate party houses in its planning scheme and at this stage, few Councils have done so. It remains to be seen whether there will be a greater uptake of the regulatory instruments in the future.

Options Paper

The Commercial and Property Law Research Centre of the Queensland University of Technology (QUT) is undertaking a review of Queensland’s property laws for the Queensland Government, including an examination of issues arising under the BCCMA.  In the 2014 Options Paper entitled “Body corporate governance issues: By-laws, debt recovery and scheme termination”, QUT specifically considered the issue of by-law enforcement and, relevantly, with respect to overcrowding of schemes.  Some of the relevant options considered in the Paper, regarding by-law enforcement and overcrowding, include amending the BCCMA to:

  • provide that if the body corporate has a reasonable suspicion of overcrowding in a lot, the body corporate has a right to authorise a particular person to enter the lot to conduct an inspection;
  • allow a body corporate, via a committee decision, to give consent on behalf of the lot occupier (including owner occupiers) to allow the fire service or the local government to enter a lot to investigate overcrowding (with safeguards to ensure the rights of tenants are not unfairly diminished or removed);
  • give the body corporate an ability to issue a monetary fine to owners or occupiers who disregard a contravention notice; and
  • allow the body corporate to delegate (for example, to the managing agent) the ability to issue contravention notices.

Grattan Institute review

The Grattan Institute has last month released a review entitled “Peer-to-peer pressure Policy for the sharing economy” in which it states that the laws concerning short-stay accommodation need to do more to help people limit noise and loss of amenity and that State governments should give owners’ corporations more powers to control short-stay rentals, possibly even the power to ban continuous, whole-premise short-stay rentals if agreed to by members.  It also states that local governments should focus on controlling disruptions and protecting amenity, not primarily on limiting short stay rentals.

The Institute ultimately recommends that States “should give owners’ corporations more power to limit disruptions caused by short-stay letting and streamline dispute resolution.”

Conclusion

While bodies corporate can introduce by-laws that restrict behaviour, noise, parking and the use of the common facilities, the BCCMA notice requirements and dispute resolution provisions involved in dealing with a contravention of a by-law result, in practice, in such by-laws doing little to regulate the behaviour of temporary guests who may only be occupying the property for a few days.   In light of the options in QUT’s Options Paper and the recommendations in the Grattan Institute’s report, it is hopeful that we will see a change in the body corporate laws that will grant bodies corporate with wider powers to control transient tenants in short term rentals.