Risks for property investors: Can your strata body corporate prevent you listing your apartment on Airbnb?

As the popularity of the “sharing economy” continues to grow unabated, issues can arise where regulations and commercial practices struggle to keep pace with technological change.  While Airbnb hasn’t yet attracted the storm of controversy that Uber has, this may be starting to change as cities around the world, including in Australia, crack down on the home-sharing site.

In Australia the use of property for Airbnb is subject to regulation at multiple levels.  For owners of units in apartment buildings however, there is an additional layer of regulation, the strata company by-laws.  Since strata units are in such close proximity to each other, conflicts between unit owners can easily arise.  Some unit owners may want to use Airbnb to let their units, because of the high returns, and indeed may have purchased an investment property on the basis of those returns.  Other unit owners may object to short stay holiday accommodation in their complex because of fears of noise, disruption, security, loss of amenity and insurance and repair costs.

This situation has seen an increasing number of by-laws which purport to restrict short term letting.  But are such by-laws valid?

The Position in NSW

The ability of strata by-laws to restrict short term letting varies between states.  In NSW, the largest market for Airbnb in Australia, the position has been summarised by NSW Fair Trading’s ‘Strata Living’ fact sheet as follows:

“Strata laws prevent an owners corporation restricting an owner from letting their lot, including short-term letting. The only way short-term letting can be restricted is by council planning regulations.”

This is because of s.139(2) of the Strata Schemes Management Act 2015 (NSW) (SSMA) which states:

“No by-law is capable of operating to prohibit or restrict the devolution of a lot or a transfer, lease, mortgage or other dealing relating to a lot”

NSW tribunal decisions such as Estens v Owners Corporation SP 11825 [2017] NSWCATCD 63 have followed the interpretation outlined by NSW Fair Trading and struck down by-laws restricting short term letting.   The position is similar in Victoria, where in Owners Corp PS 510391P v Balcombe [2016] VSC 384 the Supreme Court found that owners’ corporations did not have the power to restrict short term letting.

Recent WA and Privy Council Decisions

In contrast, the recent WA decision Byrne v The Owners of Ceresa River Apartments Strata Plan 55597 [2017] WASCA 104 saw the Court of Appeal uphold a by-law restricting short term letting to no more than 3 months in 12.  The Court of Appeal found that the by-law did not present a restriction on disposal of units in the strata scheme, but only a restriction on how the units could be used.

The Byrne decision has been well-received in a recent UK Privy Council decision, O’Connor (Senior) and others v The Proprietors, Strata Plan No. 51 [2017] UKPC 45, dealing with by-laws in the Turks and Caicos Islands.  It may seem odd that a Privy Council decision should be seen as relevant in Australia, given the Privy Council is no longer a part of the Australian legal system, however the relevant provisions in the legislation of the Turks and Caicos Island had been lifted directly from NSW legislation and was identical to s.139(2) of the SSMA.

The Privy Council found that:

“statutes prohibiting restrictions on dealing in strata lots do not prevent reasonable restrictions on the uses of the property, even though such restrictions may have the inevitable effect of restricting the potential market for the property.”

The Impact of these Decisions

Decisions of the Privy Council are no longer binding in Australia.  However, the expectation of many is that NSW courts and tribunals will now follow WA and Privy Council decisions and determine that s.139(2) of the SSMA does not prevent by-laws from restricting short term letting.

In fact, there is already a NSW Supreme Court decision, White v Betalli [2006] NSWSC 537, which sets out that principle.  In that case it was held that a restriction on the use of part of a strata complex for boat storage was not a restriction on dealing in granting an easement for boat storage.

Conclusions

There is now considerable doubt over whether the SSMA actually does prevent strata company by-laws from prohibiting short term letting in NSW.  The uncertainty resulting from recent case law provides an extra headache for strata unit owners wishing to let their apartment on Airbnb, in addition to complying with zoning and planning requirements.  It remains to be seen whether there will be legislative changes to clarify whether a body corporate can prevent short-term letting.

In the meantime, if you are purchasing a unit in a strata complex and you intend to use it for Airbnb, you need to pay close attention to the by-laws that exist in that complex, and be well aware that those can change over time.  It is important to be involved in your strata body corporate and to be active in figuring out how to best manage any downsides associated with short term letting

Written by Penelope Coffey and Alexander Patton. If you are considering purchasing property in the ACT and require expert advice, contact us.