The news from London is that the Privy Council has decided to uphold a strata by-law which bans holiday lettings of less than one (1) month.

The decision is O’Connor (Senior) and others v The Proprietors, Strata Plan No. 51 [2017] UKPC 45 (21 December 2017). Lord Carnwath gave the judgment on behalf of the Judicial Committee of the Privy Council, Parliament Square, London.

Why is the O’Connor decision relevant to Australian Strata Law?

The case was on appeal from the Court of Appeal of the Turks and Caicos Islands. But it is highly relevant to Australian Strata Law for two reasons:

1. The law which governs strata title in the Turks and Caicos Islands is an Ordinance modelled on the New South Wales Conveyancing (Strata Titles) Act 1961. It contains this ban on making a strata by-law which affects an owner’s right to lease their apartment:

“No by-law shall operate to prohibit or restrict the devolution of strata lots or any transfer, lease, mortgage or other dealing therewith or to destroy or modify any easement implied or created by this Ordinance.” 

The reason why this ban exists was quoted in the judgment:

“Most states [in Australia] ban by-laws that restrict transfer, leasing or mortgaging of [strata] lots, to prevent the problems that existed in relation to company title, namely banks not wanting to lend on the security of an apartment if they cannot exercise a power of sale quickly and easily.” [note: owners with company title need permission to sell, mortgage or lease their apartment, owners with strata title do not because of the ban]

2. The Privy Council relied extensively on Australian decisions to find that it was possible for strata by-laws to impose reasonable restrictions on the use of an apartment:

“It is clear that statutes prohibiting restrictions on dealing in strata lots do not prevent reasonable restrictions on the uses of the property, even though such restrictions may have the inevitable effect of restricting the potential market for the property.”

Why did the Privy Council uphold the strata by-law banning holiday lettings?

The strata apartment was unit 102, in the “The Pinnacle”, which is a condominium development of 34 residential apartments and associated facilities on Grace Bay Beach, at Providenciales, Turks and Caicos Islands.

The by-laws for “The Pinnacle” were created at the time of initial registration in 2005. All purchasers acquired their strata lots subject to the by-laws and with knowledge of their terms.

The strata by-laws were specific that the apartment was be used: as a private residence of the Proprietor or for accommodation of the Proprietor’s guests and visitors, with the proviso that the Proprietor may rent out his Residential Strata Lot provided that in no event shall any individual rental be for a period of less than one (1) month.

The owners, the O’Connors, had rented out unit 102 to holidaymakers since 2007. They ignored the minimum stay requirement in the by-laws. According to traveller reviews, rentals for one week were popular and highly recommended: Pinnacle Beachfront Turks and Caicos Beauty.

The body corporate took legal proceedings to enforce the by-laws.

The Privy Council considered that the one (1) month minimum stay requirement was designed for the purpose of defining: ‘use as a private residence’:

“The character of the use is clearly affected by the length of occupation. Short-term use by holiday-makers is different in kind from longer-term residential use, even if it may be difficult to draw a clear dividing line.”

Was the requirement reasonable? This is how the Privy Council concluded the judgment:

“By requiring rentals, and therefore occupation periods, to extend for at least one month, the by-law is seeking to ensure the degree of stability which is necessary to maintain the character of the residential use. In the Board’s view this is properly regarded as part of a legitimate restriction on the use of the strata lot, to ensure that the residential purpose of the development is protected. It does not involve an impermissible restriction on leasing contrary to [the strata law].”

The Privy Council quoted with approval the Western Australian Court of Appeal decision of Byrne v The Owners of Ceresa River Apartments Strata Plan 55597 [2017] WASCA 104.

In that case, the strata by-law provided that: a proprietor of a residential lot may only use his lot as a residence. Leases were permitted, but restricted: no letting agreement, leasing agreement or any agreement conferring a right to occupy those lots, for a term of less than 3 months in any 12 month period was allowed.

The Court of Appeal held that the strata by-law was valid. The strata law ban on restricting leases did not make the strata by-law invalid because the apartment could be leased for its approved use as a “serviced apartment” (for short-stay accommodation) for 3 months in any 12 month period, and be used as a “settled or usual abode” for the rest of the year.

The Privy Council also quoted with approval the English Court of Appeal decision in Caradon District Council v Paton (2001) 33 HLR 34, in which Latham LJ distinguished a holiday use from a residential use:

“Both in the ordinary use of the word and in its context it seems to me that a person who is in a holiday property for a week or two would not describe that as his or her home. It seems to me that what is required in order to amount to use of a property as a home is a degree of permanence, together with the intention that that should be a home, albeit for a relatively short period, but not for the purposes of a holiday.” (para 36)

Can the O’Connor decision be used to restrict Airbnb style holiday lettings in strata schemes in Australia?

Although the O’Connor decision is not binding upon the Courts and Tribunals in Australia as a precedent, it will be able to be referenced to validate strata by-laws which ban short-term rentals of less than one (1) month in strata schemes in residential zones for these reasons:

The Privy Council decision in O’Connor was made by a Board of 5 Law Lords, who are the most senior judges in the UK. They decided on the equivalent of the Australian Strata Law and applied the common law. Their judgment must be given considerable weight.

The WA Court of Appeal decision in Byrne must also be given considerable weight. It upheld a strata by-law restricting short-stay rentals to no more than 3 months in any 12 month period.

The NCAT Tribunal decision in Estens v Owners Corporation SP 11825 [2017] NSWCATCD 63 must be given very little weight, being a decision made by an Administrative Tribunal, not by a Court. The Tribunal struck down a strata by-law which banned the lot being used by its occupants on a short-term basis for less than thirty (30) days in a residential strata scheme.

The O’Connor decision means that the Estens decision is now bad law.

It also means that this advisory in the NSW Fair Trading Booklet Strata Living is wrong:

“Strata laws prevent an owners corporation restricting an owner from letting their lot, including short-term letting. The only way short- term letting can be restricted is by council planning regulations.” (at p. 28)

In the future, Australian Courts and Tribunals will almost certainly apply the O’Connor decision to uphold strata by-laws which ban short-stay rentals of less than one (1) month in residential strata schemes. This is consistent with the Byrne decision which upheld a strata by-law restricting short-stay rentals to a total of 3 months in any period of 12 months.

Conclusion

The O’Connor decision is a game changer: With a properly drafted strata by-law, an owners corporation / body corporate can restrict Airbnb style holiday lettings of whole apartments in residential strata buildings by imposing a one (1) month minimum stay requirement.

For the record, the text of the strata by-law in the O’Connor decision was:

“Each Proprietor shall: …

  • Not use or permit his Residential Strata Lot to be used other than as a private residence of the Proprietor or for accommodation of the Proprietor’s guests and visitors. Notwithstanding the foregoing, the Proprietor may rent out his Residential Strata Lot from time to time provided that in no event shall any individual rental be for a period of less than one (1) month ...
  • Not use or permit to be used the Strata Lot or any part thereof for any illegal or immoral purpose, nor for the carrying on of any trade or business other than periodic renting or leasing of the Strata Lot in accordance with these by-laws unless such trade or business activity has been approved in advance by the Executive Committee in writing, which approval may be revoked for cause.”