Think Nicholsons

Oct 07

Holiday letting & the digital economy - are your bags packed?

Private short-term letting in strata

Increasing numbers of strata unit investor owners are trading traditional letting arrangements for private holiday letting. The recent surge in popularity of websites such as Airbnb and Stayz enables owners to market their properties to millions of holidaymakers from all over the world. And it’s not just investor owners who are cashing in on the digital economy; residents are letting out spare rooms and even couches to supplement their income (and to meet interesting new people). Some utilise the system so effectively they enjoy close to rent-free accommodation or, in some cases, profit from the arrangement.

Potential impacts on permanent tenants

If allowed to continue, this paradigm shift will diminish the availability of permanent or long-term accommodation and drive up the rent of the remaining stock. Coupled with whispers of a federal government consideration to abolish negative gearing for some taxpayers, permanent tenants are likely to suffer significantly.

Potential impacts for bodies corporate

Private short-term letting doesn’t always have a significant negative impact on a body corporate. If the building is designed for short-term letting and has facilities you’d expect to find in a hotel, the impact of a handful of owners conducting their own short-term rentals is likely to be minimal in terms of effect on the body corporate. That’s not to say that there won’t be any impact, particularly from the perspective of the building manager who may have to spend additional time and resources dealing with the private short-term guests. However, the administrative and sinking fund budgets, for example, would have been prepared with knowledge that the primary use of the building was to accommodate short-term guests.

The greatest impact is evident in small schemes with permanent residents and no building manager. In those types of buildings, dealing with the potential unplanned impacts of short-term letting (including increased noise, illegal parking, overuse of shared facilities, nuisance, damage to common property and safety and security issues) can be very time consuming and frustrating for the volunteer committee members, and very expensive for the body corporate as a whole.

What powers do bodies corporate have to deal with problems associated with short term letting?

In Queensland, a body corporate doesn’t have much ammunition to regulate against the use of lots for private short-term letting. A body corporate can self-regulate, to a certain extent, by adopting by-laws that are enforceable against owners and occupiers of the building. However, legislation limits the extent of those by-laws.

For example, the legislation provides that, where a lot can lawfully be used for residential purposes, a by-law cannot restrict the type of residential use. In other words, a body corporate has no power to adopt a by-law preventing short-term letting in residential lots.

Okay. So we can’t stop short-term letting per se. What about if we impose additional costs on owners who make their lots available for short-term letting in circumstances where the body corporate has evidence that short-term tenants significantly increase body corporate expenditure? Surely it’s not fair to make all owners pay for that increase in expenditure when there are only one or two culprits who are clearly responsible? Sounds fair in principle, but again the legislation prevents the body corporate from adopting a by-law (other than an exclusive use by-law) that imposes a monetary obligation on an owner or occupier. So, irrespective of what’s going on in a particular lot, the contributions payable by the owners are fixed in stone.

Right, so our options are diminishing. I know… why don’t we impose a by-law that restricts short-term tenants from using common facilities? Well, again, the legislation has that covered. The body corporate cannot adopt a by-law that discriminates between types of occupiers. In other words, you can’t have one set of rules for owners or permanent residents and another set of rules for tenants.

How can bodies corporate better regulate the potential problems arising from short term tenants?

The body corporate could review its by-laws to ensure they effectively regulate the behaviour of tenants in lots and on common property, including noise, nuisance, parking and the use of common facilities. However, even if the body corporate adopts what appear to be effective by-laws to combat the difficulties often associated with transient tenants, enforcement of those by-laws is likely to be problematic.

The legislation imposes a number of crucial steps in the dispute resolution process, including self-resolution, conciliation and adjudication. In practical terms, where an offending tenant is residing in the building for only a few days, it will often be impossible to even identify the offender let alone effectively enforce by-laws or statutory provisions against that person. The dispute resolution provisions are hopelessly deficient in facilitating the effective enforcement of by-laws.

The only real win we’ve seen in relation to this issue is where bodies corporate have implemented security systems which enable them to restrict access to services and facilities by unauthorised users. Whether or not that is a legitimate means to regulate those users is yet to be tested, but for now its implementation appears to be creating some positive results.

Other applicable laws

The development approval and zoning for the building may limit the extent to which short-term letting can be conducted from a lot. Other local laws, such as the “party house” provisions recently adopted by the Gold Coast City Council following amendments to the Sustainable Planning Act 2009 in 2014, may also assist to better regulate the negative impacts of short-term letting.

The Work Health and Safety Act 2011 may also have some applicability to owners who decide to embrace the allure of the digital economy and become a person conducting a business or undertaking for the purposes of that Act. Failure to comply with that Act has potentially very grave consequences, including imprisonment and significant fines.

And let’s not forget the fate of Al Capone, seemingly untouchable during his reign as crime boss. It was tax evasion that put him behind bars. Owners shouldn’t let the unregulated nature of online short-term rentals lull them into a false sense of security – any rent received for those bookings must be declared as income.   

What we can learn from the United States

California has a very different regulatory regime to ours. In a recent decision, Watts v Oak Shores, the Court found in favour of a home owners’ association who decided to prohibit short-term letting altogether, impose higher levies on owners who rented out their lots (based on anecdotal evidence that tenants exposed the community to  greater expenses than owner-occupiers) and impose additional fees on tenants who wished to utilise the common facilities. So, all those things mentioned above that we’re not allowed to do here; they’re allowed to do there.

Consequently, as the digital economy rapidly evolves, we require significant and urgent statutory reform to enable bodies corporate to control their own fate.

 

Our Andrew Suttie is a director of SCA (Qld) and the chairperson of the legislation committee which has been actively collaborating with the Attorney General and the legislative review panel in relation to proposed changes to the Body Corporate and Community Management Act in Queensland.

 

Andrew Suttie

Partner
Andrew practices predominantly in strata law. He has extensive experience in advising bodies corporate and other stakeholders of their rights and obligations under the Body Corporate and Community Management Act 1997 and related legislation.