On 5 October 2018 the NSW Department of Planning released an Explanation of Intended Effect describing changes proposed to the planning framework to create a state-wide consistent framework for the permissibility of short term rental accommodation (STRA) in NSW. Arising out of the NSW Legislative Assembly Committee on Environment and Planning’s 2015 inquiry into the adequacy of the regulation of short term holiday letting in NSW, the proposed changes attempt to strike a balance between the interests of hosts (the owners or occupiers of a dwelling), guests and neighbours effected by STRA arrangements.

The planning changes are one of three limbs to the proposed regulation of STRA, coupled with:

  1. a mandatory Code of Conduct for all participants in short-term rental accommodation arrangements (including online platforms, managing agents, hosts and guests); and
  2. amendments to the Strata Schemes Management Act 2015 (NSW) (SSM Act) to allow owners corporations to create by-laws to restrict STRA in particular circumstances.

This article provides a snapshot of these reforms.

The planning framework

A land use definition has been proposed that defines STRA as:

“the commercial use of an existing dwelling, either wholly or partially, for the purposes of short-term accommodation, but does not include tourist and visitor accommodation”

It is proposed that STRA as a land use will be permitted in all zones where dwellings are permissible. In addition, exempt and complying development pathways will be created under the State Environmental Planning Policy (Exempt and Complying Development Codes) 2008 (Codes SEPP). These proposed exempt and complying development pathways can be summarised in the following way:

If the proposed development does not meet the development standards for exempt or complying development, or the dwelling in which STRA is proposed to occur has a Bushfire Attack Level (BAL) risk rating greater than 29, a development application will need to be lodged under Part 4 of the Environmental Planning and Assessment Act 1979 (NSW) (EPA Act).

The proposal also includes safety requirements to be imposed on dwellings to be used for STRA including:

  1. Dwellings are to have a maximum capacity of occupants of no more than 2 persons per bedroom or 12 persons total (whichever is less);
  2. Dwellings must have smoke alarms installed in each bedroom and interconnected, as well as a lighting system in hallways that is activated by the smoke alarms; and
  3. A number of other fire safety requirements for dwellings in multi-unit buildings.

Compliance with the planning law framework is proposed through existing channels, namely Local Council powers under Divisions 9.2 (investigation) and 9.3 (development control orders) of the EPA Act.

The Code of Conduct

On 14 August 2018, the Fair Trading Amendment (Short-term Rental Accommodation) Bill 2018 was passed by the NSW Parliament. This amendment provides for the creation of a Code of Conduct (Code) which will be mandatory for all online platforms, managing agents, hosts and guests.

A definition of ‘short-term rental accommodation arrangement’ was included in the amendment which defines a short-term rental accommodation arrangement as:

  1. A commercial arrangement for giving a person the right to occupy residential premises; and
  2. For a period of not more than 3 months at any one time; and
  3. Other arrangement as provided for or excluded by the Fair Trading Regulation 2012 (NSW).

This definition differs from that proposed to be introduced for the land use of STRA, particularly in that the Fair Trading definition construes ‘short term’ as a maximum of 3 months at any one time.

The Code is yet to be released, however the Department of Finance, Services and Innovation has indicated that it will:

  1. Set out rights and obligations of STRA participants.
  2. Provide for the creation and use of a register of premises used for STRA.
  3. Establish a ‘two strike policy’ for serious breaches of the Code, whereby a host or guest who commits two serious breaches of the Code within 2 years will be banned for 5 years from engaging with STRA services.
  4. Provide for the creation and use of an exclusion register of participants who have not complied the Code. The exclusion register will need to be checked by online platforms and property agents before accepting new customers and the Code may set out prohibitions or restrictions on people on the exclusion register from participating in STRA arrangements.
  5. Allow for reporting to the secretary on the operation of the Code and STRA industry.

The Fair Trading Regulation 2012 (NSW) may also provide for appeal rights against the listing of a person on the exclusion register, for the Secretary to recover from STRA participants the costs of enforcement and administration of the Code and the power to exclude a participant or type of participant from the operation of the Code.

A breach of the Code may result in a penalty of up to $1.1million for corporations or $220,000 for individuals or civil proceedings for the payment of a civil penalty. NSW Fair Trading will oversee online platforms and letting agents to ensure compliance with the Code. In addition, the Department of Finance, Services and Innovation has indicated that a new complaints system for grievances of neighbours, strata committees and owners corporations will be established.

The precise impact that the Code will have on online platforms, managing agents, hosts and guests remains largely unknown until the proposed Code is released. It is anticipated that the Fair Trading Amendment (Short-term Rental Accommodation) Bill 2018 will come into effect in 2019.

STRA in Strata Schemes

The Fair Trading Amendment (Short-term Rental Accommodation) Bill 2018 also contains amendments to the SSM Act to allow for the creation, by special resolution of an owners committee, of by-laws that prohibit the use of a lot for STRA where:

  1. the lot is not the principal place of residence of the owner; or
  2. the lot is not the principal place of residence of the tenant (however, where a tenant is using the lot for STRA, they will be required to obtain owner’s consent).

This amendment to the SSM Act comes after the NSW Civil and Administrative Tribunal decision of Estens v Owners Corporation SP 11825 [2017] NSWCATCD 52 where it was held that an owner’s corporation did not have power under s 139(2) of the SSM Act to make a special by-law prohibiting short term letting as such a by-law prevented dealing in relation to a lot by prohibiting or restricting the lease (albeit short term) of a lot.

Conclusion

The proposed changes to the regulation of short term rental accommodation in NSW go a long way to create consistency in the way this relatively new use of land is managed. Many of the practical impacts on users and providers of short term rental accommodation will remain unknown until the Code is released. Like any land use, the efficacy of the planning framework will depend on how Councils monitor and enforce compliance with the requirements of this land use. As another statutory responsibility which local government authorities will need to handle, time will tell as to whether there will be adequate resourcing to make the planning regime operate effectively.