Regulation Of The ‘Short-Term Rental Revolution’

By Nasiya Goldberg, Lawyer, MST Lawyers

The market is booming for online booking service providers connecting hosts and travellers globally.  The short-term rental accommodation industry’s growth has been exponential, both globally and nationally.  In the last decade, major service provider Airbnb has advertised in excess of 3 million properties worldwide, which is more than the total number of hotel rooms offered globally by the Marriott and Hilton hotel chains combined.  The short-term rental accommodation industry now accounts for a multi-billion dollar contribution to the Australian economy.   States across Australia are progressively rolling our regulations of the new industry.

NSW

Researchers from the University of Sydney released a report this year called “Planning responses to online short-term holiday rental platforms”, which was commissioned by the Australian Coastal Councils Association Inc. and twelve local councils in coastal regions across Australia.  The report assesses the increased tourism opportunities and infrastructure offered by the growing short-term rental industry, as against the broader community concerns about noise and anti-social behaviour from the transient visitor population. 

The report echoed demand across Australian communities for greater regulation of the short-term rental industry.  Between2016 to 2017, the NSW Government undertook a parliamentary enquiry into the industry, together with an extensive community engagement process.   As a result of the push for legislative change, the Government announced a broad package of reforms which seek to strike an appropriate balance between the industry’s stakeholders and the broader community. 

The significant first step in the reforms involved the passing of the Fair Trading Amendment (Short Term Rental Accommodation) Act 2018 (the ‘Act’) which is likely to come into effect in 2019.  The Act takes a two-pronged approach to regulating the growing short-stay rental industry, by way of:

  1. Significant amendments to the Fair Trading Act 1987, including a new Part 4 Division 4A which mandates the creation of a code of conduct for all industry stakeholders.  It is noteworthy that a broad range of industry stakeholders are captured by the legislative definition of industry“Participants”, meaning that the code will apply not only to hosts and travellers, but also real estate agents and online service providers such as Stayz and Airbnb.  It remains to be seen what specific requirements will be included in the code; however new Part 4 Division 4A requires the code to be drafted to provide clarity as to the:
    1. Rights and obligations of industry participants
    2. Creation of State-wide registers for short-term rental premises and excluded participants
    3. A warnings system for contraventions of the code
    4. A complaints system    

Neighbourhood communities will be pleased to learn that the code will include a two-strike policy, where industry participants will face5-year bans and hefty financial penalties after committing two serious contraventions of the code.

2.  In a win for owners of strata premises, significant amendments will be made to the Strata Schemes Management Act 2015,enabling owners’ corporations to prohibit the operation of short-term rental accommodation services within strata schemes, in lots which are not the principal place of residence of the lot owner or occupier.  The amendments to the Strata Schemes Management Act 2015 are in stark contrast with the recent case law in this area, which found that owners corporations were not entitled to prohibit a devolution of property (such as a lease) or licence relating to a lot in a strata scheme.

It is expected that the broader package of reforms will include new planning laws whereby residential premises could only be used as short-term rental accommodation for a maximum of 180 days per year, both in prescribed areas (such as Greater Sydney, Newcastle, and Wollongong) and other areas across NSW on an ‘opt-in’ basis.  The proposed 180-day cap is notably longer than comparative planning laws internationally, such as Amsterdam which has a 30-day cap and London which has a 90-day cap.

Victoria

It is noteworthy that the Supreme Court of Victoria decided recently in Swan v Uecker [2016] VSC 313 that a short-term rental arrangement is properly characterised as a ‘lease’ rather than a ‘licence’.  Based on this characterisation, prohibitions against subletting without landlord’s consent will extend to a tenant entering into a short-term letting agreement on the Airbnb platform.  This means that residential landlords in Victoria currently have a strong position. However this alone does not address community demand for systematic regulation of the short-term rental industry.  Historically, courts have also upheld the rights of owners within a strata scheme to enter into short-term rental arrangements.  On the whole, this means that applications to owners corporations to regulate the use of premises within a strata scheme as short-term rental accommodation have largely been unsuccessful.

The Victorian government has not followed NSW’s rollout of broad legislative change and instead has taken a measured approach to balance the need for regulation of the short-stay industry as against the proprietary rights of owners within strata schemes. The Owners Corporation Amendment (Short-Stay Accommodation) Bill 2016(Vic) was recently passed and will come into operation on or before February 2019.  The new legislation will regulate the short-term rental industry insofar as it operates within lots affected by an owners corporation, for tenancies of a maximum of 6nights (7 days). The existing complaints process available to owners corporations will be extended to include serving a Notice to Rectify Breach on the lot owner and short-stay provider and short-stay occupants in relation to proscribed conduct of short-term occupants, such as:

  1. Unreasonably creating noise that substantially interferes with the peaceful enjoyment of others.
  2. Behaving in a manner likely to unreasonably and substantially interfere with the peaceful enjoyment of others.
  3. Using a lot or the common property to cause a substantial hazard to the health,safety and security of others.
  4. Unreasonably and substantially obstructing the use of the common property by others.
  5. Substantially damaging the common property.

After the service of a Notice to Rectify Breach and upon an application to VCAT under the new legislation, VCAT will have powers to make any order it considers fair,including:

  1. If a Notice has been served on three separate occasions within a 2-year period, VCAT can issue a Prohibition Order which restricting a lot owner from using a specific lot within a strata scheme as short-term accommodation.  The Order is location-specific, in that the Order will not prevent a lot owner from using other lots within the property as short-term accommodation.  The new legislation does not define the Prohibition period, meaning that VCAT has discretion as to the length for which an Order will apply.
  2. Issuing a Loss of Amenity Order which awards compensation of up to $2,000.00 for loss of amenity to other residents.  An application for this Order must be made within 60 days of the subject behaviour of the complaint. 
  3. Issuing a fine of up to $1,100.00.

The short-stay provider and short-stay occupant will be jointly and severally liable for the order and fine.

Other States and Territories

By way of contrast, the Tasmanian and South Australian Governments have indicated opposition to adopting either the NSW model of legislative reform (or any capped period) or the Victorian measured approach and instead, rely on traditional planning regimes to manage the new industry. 

It is likely that future reforms across Australian jurisdictions will need to address broader issues in the growing industry such as:

  1. Ensuring all short-term rental accommodation’s compliance with building codes and fire safety regulations (especially bushfire and evacuation procedures for high-risk areas).
  2. Broadening the application of traditional tourism special levies, fees and rates to hosts and online providers.
  3. Addressing local issues with neighbourhood amenities such as noise, parking and traffic.
  4. Addressing privacy and data security concerns in respect of the methods used by online providers when collecting, storing and sharing travellers’ personal details.

International Responses

It is noteworthy to consider Airbnb’s responses to the growing regulation of the industry in the international arena:

  1. In an approach similar to the legislative reforms adopted in NSW, four major suburbs in Paris have instituted a 120-day cap on short-term rentals.  As a direct response, Airbnb has announced a new partnership with real estate company Century 21 France, whereby  Parisian landlords can offer tenants an ‘Airbnb-friendly lease’ which specifically authorises tenants to sublet to Airbnb travellers, in exchange for a cut of the profits (23% to the landlord and 7% to Century 21 France).  
  2. In Florida, Airbnb partnered with a development company to launch an Airbnb-branded hotel within an existing apartment community, which encouraged owners to sublet units on Airbnb to travellers visiting nearby Disney World, in exchange for a 25% commission.  However, the rollout of the development plans was not a success, as the development company didn’t inform existing residents in the complex or neighbours of the plans to sanction Airbnb agreements throughout the complex – leading to significant community outrage.  The partnership has announced a second Airbnb-branded development in Nashville, to be followed by up to 14 further complexes by 2020.

 In light of the short-term rental industry’s unique opportunities and risks, it is likely that the new NSW and Victorian legislative reforms will be followed shortly by successive waves of change across Australian jurisdictions. 

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