NSW Toughens Laws on Short-Term Holiday Letting | Legalwise Seminars

Hunt & Hunt Lawyers’ Penny Cable, Partner, and Daniel Murray, Associate, discuss the tough new Airbnb laws due to come into effect in NSW.

The short-term rental accommodation industry accounts for an estimated $31 billion contribution to the Australian economy. On 21 August 2018, the Fair Trading Amendment (Short Term Rental Accommodation) Bill was assented to. This legislative reform in NSW is intended to regulate how the industry operates and address community concerns as to the disruption to local amenity that may be associated with short-term rentals.

The provisions of the Fair Trading Amendment (Short Term Rental Accommodation) Act 2018 (“the Act“) will commence on a date to be appointed by proclamation, likely to be in 2019.

Summary of changes

The ambit of the Act is twofold, in that it:

1. amends the Fair Trading Act 1987 to provide for further regulation of the industry, particularly by way of establishing a code of conduct governing all industry participants; and

2. amends the Strata Schemes Management Act 2015 to allow owners corporations to pass by-laws to prohibit the use of lots within strata schemes for short-term rental accommodation, provided that the relevant lot is not used as the lot-owner’s or occupier’s principal place of residence.

These are not envisaged to be the sole steps taken to regulate the short-term accommodation industry, and it is anticipated that changes to planning laws will follow.

This will likely result in a new planning instrument establishing a cap for the use of residential premises for short-term rental accommodation for up to 180 days per year where the host is not present. The cap will apply to properties in prescribed areas such as Greater Sydney, Newcastle, and Wollongong. Other local councils will be able to opt in to the cap.

At this stage, the cap will not apply where the host is present and offers part of the residential premises for short-term accommodation.

There was some debate in parliament as to whether the cap is too high having regard to comparable provisions in overseas jurisdictions. For example, in London there is a 90 day cap, in France there is a 120 day cap, whilst in Amsterdam there is a 30 day cap.

Affected agreements

The Act defines “short-term rental accommodation arrangements” as “a commercial arrangement for giving a person the right to occupy residential premises for a period of not more than 3 months at any one time“. The regulations may prescribe particular types of agreement as being a “short-term rental accommodation arrangement”.

Amendments to the Fair Trading Act

The centrepiece of the reform is the new Part 4 Division 4A to the Fair Trading Act which will enable the establishment of a mandatory code of conduct, to apply to all “short-term rental accommodation industry participants” (“Participants“).

These Participants include: providers of online booking services such as Airbnb or HomeAway, real estate agents, owners or occupiers who host short-term guests, and the guests themselves.

The terms of the proposed code of conduct (“Code“) and associated regulations have not been circulated. The Act prescribes the types of matters the Code may deal with, including:

• crystallising express rights and obligations for all Participants;
• creating a register of residential premises which are used for short-term rental accommodation;
• providing for warnings to be given to Participants who contravene the Code; and
• establishing an “exclusion register” setting out details of Participants who have failed to comply with the Code and excluding such persons from entering into short-term rental accommodation arrangements.

The Code will ultimately include a “two strikes” policy, meaning that Participants who commit two serious breaches of the Code within two years will be banned from participating in the industry for five years.

The Code may prescribe certain behaviours as “offences”, involving maximum penalties of 1,000 penalty units ($110,000.00) for corporations and 200 penalty units ($22,000.00) for individuals.

Hefty civil monetary penalties may also be prescribed by the regulations, which are anticipated to be up to $1.1 million for corporations and $220,000.00 for individuals. Applications will have to be made within 2 years of the date on which the contravention is alleged to have occurred.

A complaints system will also be established, with independent adjudicators approved by NSW Fair Trading hearing complaints under the Code in the first instance.

The details as to how the Code will be enforced have not been outlined in full. However, the Minister has indicated that “resourcing, compliance, and enforcement will be divided between the short-term rental accommodation industry and NSW Fair Trading“, with the industry being responsible for funding the operation and administration of the Code whilst the Commissioner for Fair Trading will administer and enforce the parts of the Code applying to online platforms and agents. [1]

Changes affecting Strata Schemes

The Act inserts a new section 137A into the Strata Schemes Management Act which, put simply, allows owners corporations to pass a by-law prohibiting a lot in the strata scheme from being used for short-term rental accommodation arrangements, provided that the lot is not the lot-owners’ or occupier’s principal place of residence.

This change appears to override recent developments in case law. For instance, in Estens v Owners Corporation SP 11825 [2], the lot-owner rented her apartment on Airbnb whilst travelling interstate or overseas. On the facts, the NSW Civil & Administrative Tribunal Member found that a special by-law relating to “illegal uses”, which included the prevention of short-term letting of lots in the relevant strata scheme, was held to be invalid under s 139(2) of the Strata Schemes Management Act. That provision confirms that by-laws cannot prevent a dealing or devolution of property (such as a lease) relating to a lot.

In Estens, the Tribunal Member was satisfied that even if an Airbnb-type tenancy constitutes a licence, the agreement would still likely be properly treated as a “devolution” of property for the purposes of s 139(2) which cannot be infringed.

A by-law to be created under s 137A must be passed by special resolution, which is the usual mechanism for amending a strata scheme’s by-laws. For the special resolution to pass, a general meeting of the owners corporation will need to be properly convened, and the resolution must receive at least 75% of the votes cast in favour of it.

Implications

The raft of new provisions in New South Wales will be somewhat of a test case in Australia.  Whilst this Act affects both the Fair Trading Act and the Strata Schemes Management Act, when read alongside the proposed planning law amendments, the suite of statutory changes to regulate this industry is particularly broad.

In other Australian jurisdictions, various approaches have been adopted. The Tasmanian government previously backed away from a proposal for a 42-day cap, and local planning laws provide that up to 4 rooms can be rented out on a short-term basis with no planning permit, whilst larger properties can be rented out subject to a permit issuing from the relevant local council.

Similarly, the South Australian government has made it clear that it does not treat the use of residential premises for short-term accommodation to be a change in use under the Development Act 1993.

Meanwhile, the Victorian government is reviewing that state’s position in respect of short-term rental accommodation arrangements, and there is Victorian case law examining various issues such as whether these types of accommodation arrangements constitute leases or licences, and whether by-laws can be passed by owners corporations restricting the use of lots for short-term rental accommodation.[3] In the absence of concrete powers to regulate the industry, some developers are using restrictive covenants as part of their developments to prevent the subsequent use of lots for short-term rental accommodation.[4]

More detail will become apparent once the proposed Code and regulations are developed and circulated. The Code will need to provide clarity as to the rights and obligations of Participants, as well as the mechanisms by which the Code will be monitored and enforced. There will be a review of the measures 12 months after they are enacted.

The Act does not make any express provision to address privacy concerns as to how the personal data collected in respect of the proposed register of short-term rental accommodation and the exclusion register is stored and accessed, other than a general provision that the Code may regulate or restrict access to the exclusion register.

If owners corporations wish to amend their by-laws and rely upon the power conferred by the new section 137A to the Strata Schemes Management Act, any by-laws will need to be drafted in such a way as to ensure that the rights of those who occupy lots as their principal place of residence to enter into short-term rental accommodation arrangements is not infringed.

Landlords of residential premises and their advisors may need to consider whether their residential tenancy agreements should contain express provisions confirming whether the premises may be used for short-term accommodation arrangements, whilst having regard particularly to the existing subletting provisions of theResidential Tenancies Act 2010.

If you have any queries in relation to this article, please do not hesitate to contact the authors.

With over 26 years’ experience, property transactions are Penny Cable’s specialty. With thorough technical skills and a focus on reducing risk for her clients, Penny’s advice helps balance their legal, commercial, and financial needs.  Her sensible, practical and collaborative approach has seen her develop successful long-term relationships with many satisfied clients, including Australian and international corporations, state and federal government agencies, and high net worth individuals. Penny and her team specialise in the acquisition and disposal of commercial, industrial, residential, and strata real estate, complex sale and leaseback transactions with ancillary negotiations, secured lending transactions, drafting and negotiating commercial contracts for property developers, and drafting and negotiating real estate joint venture transactions. Contact Penny at pcable@huntnsw.com.au 

As a member of the property team, Daniel Murray has gained extensive experience working across a range of routine and complex transactions including real estate acquisitions and disposals, commercial and retail leasing and licensing, telecommunications tenure arrangements, acting for both lot-owners and owners corporations in respect of strata, community, and company title disputes, and providing bespoke advice to state government agencies on pertinent changes to the law. By encouraging collaborative relationships with his clients to develop an in-depth understanding of their specific objectives, Daniel is able to provide tailored, pragmatic, and commercially sound advice to reach satisfactory outcomes in each transaction. Contact Daniel at dmurray@huntnsw.com.au

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