NSW Government gives power to owners corporations to ban Airbnb lettings in their buildings

After months of speculation, the NSW Government has released the Fair Trading Amendment (Short-term Rental Accommodation) Bill 2018 (Airbnb Reform Package), in an attempt to regulate short-term letting through online platforms such as Airbnb. 

Clarity for owners corporations

One of the key elements of the Airbnb Reform Package is to clarify whether an owners corporation can impose a by-law which prevents short-term letting. 

Current position

Section 139 of the Strata Scheme Management Act NSW 2015 (SSMA) restricts the type of by-laws that can be adopted by an Owners Corporation. As a result of section 139, a by-law cannot:

• be unjust, harsh, unconscionable and oppressive
• prohibit or restrict the devolution of a lot within a strata scheme or the transfer, lease or mortgage of a lot within the strata scheme
• restrict children occupying the strata scheme (exceptions apply to retirement villages)
• prevent people keeping assistance animals. 

While a number of owners corporations have adopted by-laws that prohibit or restrict short term letting, legal commentators, including the NSW Civil and Administrative Tribunal, have disputed their enforceability on the basis that they may be seen to contravene section 139 as:

• the by-law prohibits/restricts an owners ability to lease their lot
• the by-law is arguably unjust, harsh and oppressive. 

This position became less clear in recent months given the decisions of Byrne v The Owners of Ceresa River Apartments Strata Plan 55597 [2017] WASCA 104 by the Court of Appeal in Western Australia and O’Connor (Senior) and others v The Proprietors, Strata Plan No 51 [2017] UKPC 45 by the Privy Council in the UK. These cases, which considered legislation very similar to section 139 of the SSMA, determined that an owners corporation could create a by-law which prohibited short term lettings of less than one month.

Proposed amendments

In an attempt to clarify the legal position, the Government has introduced, as part of the Airbnb Reform Package, amendments to the SSMA which:

• will allow an owners corporation to pass a by-law which prohibits an owner of a lot in a strata scheme using their lot for ‘short-term rental accommodation’ if the lot is not the owner’s principal place of residence 
• clarify that a by-law is unenforceable to the extent that it seeks to prevent an owner using their lot for ‘short-term rental accommodation’ if the lot is the owner’s principal place of residence. 

The Airbnb Reform Package defines ‘short term rental accommodation’ as a commercial arrangement which gives a person the right to occupy part or all of a residential premises for a period of less than three months. 

The usual process for adopting by-laws by special resolution will still apply. That means a 75 per cent vote in support of the by-law at a general meeting of the owners corporation will be required.

Given that the proposed amendments do not amend section 139 of the SSMA, but simply provide an owners corporation the right to pass a by-law restricting short-term letting in certain circumstances, it is unclear whether a developer will have the ability to include restrictions in relation to short-term letting in its developer by-laws.

It is also unclear where owners corporations, who have already adopted by-laws restricting short term letting where those by-laws do not strictly comply with the terms of the new amendments to the SSMA, will stand. Arguably, these by-laws should be read down to the extent they are inconsistent with the new regime, however the NSW Government is yet to address this point. 

Importantly, the Airbnb Reform Package will not stop owners corporations from introducing other measures that will govern how short-term rentals will work within their strata schemes. For example, by-laws can still be adopted requiring lot owners to notify the owners corporation at least 21 days before the change of use of a lot. By‑laws can also be adopted restricting the occupancy of bedrooms in a lot to no more than two adults. These types of by-laws may assist owners corporation in controlling overcrowding related to short-term letting and managing the process generally.[1] 

Mandatory code of conduct and complaints system

The Airbnb Reform Package will also introduce:

• a mandatory code of conduct which will apply to online booking platforms (such as Airbnb) as well as letting agents, property managers, hosts and guests
• a “two strikes and you’re out” policy, whereby hosts or guests who commit two serious breaches of the new mandatory code within a two year period will be banned from short-term holiday letting for five years. Significant penalties for non-compliance with the terms of the code will apply, with online booking platforms and property agents facing civil penalties of up to $1.1m for corporations and $220,000 for individuals
• a complaints system which will be available to neighbours of short-term rental accommodation, strata committees and Owners Corporations. Complaints will be assessed by independent adjudicators approved by NSW Fair Trading. If the investigation of a complaint regarding a host or guest finds that they have committed a serious breach of the code more than once over a two-year period, the guest or host will be listed on an exclusion register. 

New state-wide planning rules 

The NSW Government has also announced proposals for a new statewide planning instrument which will:

• allow short-term letting as exempt development 365 days per year when the host is present
• where the property is in greater Sydney, limit the ability of hosts to rent out their properties to 180 days where the host is not present
• permit councils outside Greater Sydney to allow short-term letting all year round (whether or not the host is present).[2]

At this stage, no planning instruments have been released for consultation. 

[1] https://www.parliament.nsw.gov.au/Hansard/Pages/HansardResult.aspx#/docid/'HANSARD-1323879322-102475'

[2] https://www.planning.nsw.gov.au/News/2018/Short-term-holiday-letting-plan-a-win-win 

Author: Elly Ashley

Contacts

Sydney

Vanya Lozzi, Partner
T: +61 2 8083 0462
E: vanya.lozzi@holdingredlich.com

Breellen Warry, Partner
T: +61 2 8083 0420
E: breellen.warry@holdingredlich.com

Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Elly Ashley

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