What can Owners Corporations do about Airbnb and short-term letting?
The Madison Marcus Strata team recently had a big win in NCAT against an owner who was conducting Airbnb contrary to by-laws. The offending owner was fined the maximum amount ($1,100), and had a costs order made against him. The costs order was of far greater value than the penalty handed down. This means owners corporations can obtain worthwhile orders, meaning breach of by-law proceedings are worth pursuing.
In the widely reported Estens decision from 2017, the Tribunal invalidated a short-term letting by-law, for breaching s139(2) of the Strata Schemes Management Act 2015 (SSMA), which says a by-law cannot prohibit or restrict the leasing of a lot. In the Estens decision, the actual by-law was not produced. Despite the win in our case, that issue from Estens remains.
The key questions for owners corporation are:
- Given the Estens decision, is there a way to draft a valid by-law to restrict short-term letting?
- What is the best strategy for an owners corporation to deal with short-term letting?
Can a valid by-law ban short-term letting?
MM’s case this week was a little different to the Estens decision, as there was a section 88B Instrument that had a specific restriction on title stating the lots can only be used for permanent residential accommodation – and not for short-term residential accommodation such as serviced apartments and tourist accommodation (and other uses such as Airbnb). Therefore a by-law consistent with this restriction logically cannot be considered harsh, unconscionable or oppressive. However, in our case, the relevant developer by-law was poorly written, as it banned leases of under 3 months, in direct conflict with s139(2). MM successfully argued that as these were proceedings for a fine (under s147), and not proceedings to invalidate a by-law (under s150), the Tribunal had no power to invalidate the by-law.
Since the proceedings started, MM has helped the scheme fix its by-laws by adding a by-law in similar terms to the s88B restriction.
When drafting a short-term letting by-law, it is better to concentrate on the use, or the approval process, rather than the length of the lease. Section 9.45 of the Environmental Planning & Assessment Act 1979 says any person can take action to restrain a breach of that Act, whether or not their rights have been infringed. Owners corporations can therefore take Land & Environment Court action to restrain illegal short-term letting, but this is more costly than NCAT proceedings and out of their comfort zone.
Standard by-law 18 in Schedule 3 of the Regulations says “The owner or occupier of a lot must ensure that the lot is not used for any purpose that is prohibited by law”. If a particular use requires approval (and Airbnb does in most planning zones), then using it for that purpose without that approval is prohibited by law. We recommend this type of by-law for schemes that do not have the helpful restriction on use in their s88B instrument.
Additionally, Parliament has passed an amendment to the 2015 SSMA, adding a section 137A which says owners corporations can pass a by-law to prohibit short-term accommodation by people who do not live in their lots. Those who live there will be able to rent out a spare room. Whilst this amendment has been passed by both houses of NSW Parliament, it is not yet in force. We will update you when it is in effect.
What is the best strategy for enforcing a ban on short-term letting?
Some schemes, including this one, have asked us to explore other practical solutions. One is decoding access cards for those guilty of breaching the short-term letting by-law. However, this can deny an owner the basic right to access their lot, and an owner could take Supreme Court action to enforce these rights. An outright decoding of a security card issued to an owner is not recommended.
A backup option is to restrict access to the pool or gym facilities if the scheme has them, but for different reasons. An owners corporation could bring in a policy or by-law to say no one can be given access to use the gym until they have completed an induction, and no one can use the pool without swimming certificate or test (both for safety reasons). Each might take up to a week to book in and complete. This would at least make the apartment less attractive as a short-term rental, but allow longer-term tenants to satisfy this requirement.
The most appropriate way to approach a by-law breach is in fact via breach of by-law proceedings, given this is the method put in place by the SSMA. However if breach of by-law proceedings are all you can do, what disincentive to short-term letting owners is a maximum $1,100 fine? That might be only 1 week’s rent, and the owner might see it as simply a cost of doing business.
In these proceedings, MM asked for multiple fines for multiple breaches, and a costs order, partly for these reasons. Whilst the Tribunal accepted it had the power to issue multiple fines (eg $300 for each different short-term let), it elected instead to order 1 maximum fine (payable to the owners corporation), and that that the owner pay the owners corporation’s costs, which were substantial. We won the costs order was partly because the owner was profiting from breaching the by-law, and also because the maximum fine alone was insufficient as a deterrent to that owner and others in the building.
These types of orders will act as a substantial financial disincentive to engaging in short-term letting.
If your owners corporation wants advice on short-term letting, or for all other Strata related matters, please contact our Strata team.