Hundreds of central coast holiday home-rentals in the Gosford local government area have been exposed as unlawful by a recent Land and Environment Court judgment, which has the potential to have broader implications throughout other parts of the State.

In a case brought by one home owner against a neighbour in the popular tourist destination Terrigal (Dobrohotoff v Bennic [2013] NSWLEC 61), the Court found that renting out a home in the 2(a) Residential Zone for short term holiday letting is prohibited, and in breach of the Environmental Planning and Assessment Act (Act). Many owners who rent homes out to holiday makers are now open to potential civil or criminal proceedings for their actions.

The decision hinges on the interpretation of what uses are permissible in the residential 2(a) zone of the Gosford Planning Scheme Ordinance (PSO).  In short, the Court found that short term ‘holiday letting’ of a house is not a “residential dwelling” use. Instead it is a separate, different type of use, contrary to the zone objectives and, in this case, prohibited in the zone.

The decision will equally apply in other local government areas if their local environmental plan (LEP) provisions are similar.

The holiday house next to a family home

The case involved the not unusual set of circumstances where a house in a residential zone within a popular seaside tourist suburb was let out for short-term stays, typically over weekends and generally for no longer than one week at a time. As a consequence, the property was often host to loud, late parties and events such as ‘hens parties’ and ‘buck’s nights’, and was the site of large congregations, sometimes attended by “strippers or worse”. The situation became unbearable for the neighbours, who had undoubtedly suffered stress and anxiety, and who had complained to Gosford Council over the years but had received no support or action from the Council.

The legal arguments

The legal basis of the neighbours’ complaints was that the land was not being ‘used for the purposes of a dwelling house’, because the short term nature of its occupation by transient guests / tenants was not compatible with the concept of a ‘dwelling’.  Further, there was no other applicable landuse permissible in the Residential zone that could conceivably authorise tourist accommodation (for example, ‘holiday letting’ and ‘short term accommodation’ were not permissible landuses in the zone). Of course, the real issue was the amenity impacts that were being caused by the occupants, but that of itself was not grounds for a private landowner to initiate Land and Environment Court proceedings.

The landlord freely admitted to renting the property out for short term rentals via the popular website ‘Stayz’, but argued that to do so was lawful, as there is no legal requirement that a ‘dwelling house’ be resided in by a particular family or occupant for any minimum period of time – rather the house was being used for accommodation and sleep, in precisely the manner that would be expected in any popular suburban tourist destination.

In addition, the landlord cited the not-unusual circumstance that she had purchased the property as an investment property based upon its demand for short-term holiday letting, in circumstances where it had been used in that manner by the previous owner for at least 5 years prior to the sale of the property, and where the real estate agents who managed the sale did not indicate that there was any prohibition on short term holiday lettings – a widespread occurrence throughout the local government area.

The decision

The Court considered whether the use of the property for short term holiday rental accommodation was a permissible use within the 2(a) Residential Zone as set out in the Gosford Planning Scheme Ordinance (GPSO).  In that regard, a "dwelling”  is a permissible use in the zone and is defined in the GPSO to mean "a room or number of rooms occupied or used, or so constructed or adapted as to be capable of being occupied or used, as a separate domicile"

The term "domicile" is not defined in the GPSO, but has been the subject of numerous decisions of the Land and Environment Court and other courts, and is discussed in more detail below.

The neighbours submitted, and the Court accepted, that the ordinary meaning of the term "dwelling-house" involves the occupation of the property in the same way that a family group in the ordinary way of life would occupy it (albeit the Courts no longer maintain that there is any requirement that the premises actually be occupied by any traditional single family).   The critical element of this reasoning is that some level of permanence is required – a dwelling requires “at the very least, a significant degree of permanence of habitation or occupation”.

Sensibly, the Court noted that some short term stays may nevertheless satisfy the definition of a ‘dwelling house’, giving the examples of holiday houses that are used exclusively by a family for a limited amount of time each year, or even time shared between several families; and houses that are owned by a company and rented out to executives and their families for short durations.

In this instance, the Court had no trouble concluding that a tenancy granted to persons residing in a group situation for periods of up to a maximum of one week for the purpose of “bucks and hens nights, parties or for the use of escorts or strippers is not consistent with a use or occupation by a family or household group in the ordinary way of life and therefore not consistent with the use of the property as that of a ‘dwelling-house’”. 

The Court’s reasoning on the proper construction of the meaning of ‘dwelling’ also took its cues from the zone objectives as stated in the GPSO. The Court held that while the property may be "a low density housing form" that is "essentially domestic in scale", the use of the property as short term holiday rental accommodation is incompatible with "a low density residential environment" that "affords services to residents at a local level". The services the property affords are, on the contrary, to residents from outside Terrigal. 

Given the Court’s finding that the use of the property as short term holiday rental accommodation is prohibited, it is not surprising that the declaration of unlawfulness was made, and that an injunction was granted preventing  the landlord from using or marketing the property unlawfully (ie as holiday lettings).  The injunction was suspended for a period of two months to alleviate the financial hardship to the landlord.

Implications in the Gosford Local Government Area

The letting of houses and apartments for short term holiday lettings within the Residential 2(a) Zone in Terrigal, and in many similar zones throughout the broader LGA, is now plainly prohibited and unlawful. No doubt this will have implications for at least hundreds of property investors, and potentially for the tourism industry on the NSW central coast generally.

In finding that the holiday rental use of the home was prohibited, the Court was highly critical of the Council, making it very clear that the matter had previously been raised with Council through numerous complaints, and that Council has had ample time to fix the problem by seeking to amend its GPSO, but had not done so. The Court described this conduct by Council as “unsatisfactory” and amounting to “an abrogation by the Council of its fundamental duties and responsibilities”.

At its meeting on 7 May 2013 Gosford Council responded to the criticism by resolving to prepare a planning proposal to amend the current LEP.

The amendment would deal with short-term holiday letting of residential dwellings in identified zones as follows:

  • letting dwellings up to and including four (4) bedrooms - would be exempt development
  • letting dwellings of five (5) and six (6) bedrooms – would require development consent
  • letting dwellings with more than six (6) bedrooms  - would be prohibited.

The Draft LEP amendments will need to be publicly exhibited prior to the amendment to the LEP being formalised. This process may take some months.

Council has not resolved any specific approach to how it will deal with current holiday letting in the mean time, however the report to council on the issue acknowledged that “the legal standing of the holiday letting of dwellings for vacation purposes has largely remained unquestioned due to the historic status of the use”.

Implications beyond the Gosford Local government area

Although the Court’s conclusions are specific to the provisions of the GPSO, other Councils have similar clauses in their LEPs and will be equally affected by the decision.  Many landlords and purchasers across the State will need to have a careful look into whether they are or will be affected by this decision.

This judgment will apply to holiday rentals in residential areas, where the applicable planning instrument does not define the use ‘holiday rentals’ or a similar term, and where undefined or unidentified uses are prohibited.

In some council planning instruments, holiday accommodation, temporary short term accommodation or similar uses are specifically defined terms. If that is the case the uses will be expressly identified as permissible or prohibited.

Shoalhaven City and Byron Shire Councils had already taken steps to clarify this ambiguity by amending their LEPs.  The Byron LEP prohibits tourist facilities (which includes holiday accommodation) in residential areas. Kiama Municipal Council in adopting the standard LEP has specifically addressed this issue by allowing for short term accommodation (up to 60 days) in any zone for tourist and visitor accommodation without requiring development consent, provided that the use is only short-term and does not interfere with the amenity of the neighbourhood in any way, including by noise or traffic generation. 

If you have a question regarding a holiday letting use in a specific zone please feel free to contact us to discuss it. Property investors in particular should seek specific advice prior to purchasing, if their intention is to let a property out on any short term basis.