Airbnb/short-term rentals currently cannot be blocked by strata by-laws; but will that soon change?

Published 09 May 2018
Dominic Maley

In NSW, it is currently not possible for an Owners Corporation to enact a by-law which seeks to block owners from renting out their properties through an Airbnb-type short term rental.

Section 139 of the Strata Schemes Management Act 2015 provides a list of seven "restrictions on by-laws" which restrict the power of an Owners Corporation to enact certain types of by-laws.

The first restriction is that a by-law cannot be "unjust" (harsh, unconscionable or oppressive). The second restriction is the most crucial. The restriction is as follows:

"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."

The NSW Civil and Administrative Tribunal in the matter of Estens v Owners Corporation SP 11825 (2018) NSW ConvR ¶56-393 [handed down July 2017] has recently interpreted the reference to "leases" in this section as applying to short-term Airbnb-style 'leases'. According to the Tribunal, even if these matters were 'licences' rather than 'leases', a licence would likely be caught by the restriction on banning a lot owner from their "devolution" of their lot.

Accordingly, as the law is currently understood in NSW, it is not possible for a by-law to be enacted to ban such leases.

• Will that soon change?

There are two possible reasons the law may soon change.

The first is that there may be a change to the way the courts interpret this section of legislation, due to a recent foreign decision on a similar provision.

The second is that there may be a change to the legislation itself.

• Change to the case law?

The Privy Council of the United Kingdom (which heard appeals from the Australian High Court and state Supreme Courts until 1985 and 1986 legislation was respectively implemented) recently looked at a similar provision for a matter arising out of a similar provision in the Providenciales, Turks and Caicos Islands.

While the NSW legislation says an Owners Corporation "[cannot enact a by-law] capable of operating to prohibit or restrict the devolution of a lot or a transfer, lease, mortgage or other dealing relating to a lot", s 20(4) of the Turks and Caicos Ordinance provides the following exceptionally similar provision:

“No by-law shall operate to prohibit or restrict the devolution of strata lots or any transfer, lease, mortgage or other dealing therewith.”

Indeed, the Ordinace was actually based on an earlier version of the NSW legislation.

In the case in question - O’Connor (Senior) and others v The Proprietors, Strata Plan No 51 [2017] UKPC 45 (handed down in December 2017) – the Owners Corporation had sought to enact a by-law preventing leases less than one month in length. The Privy Council held that s 20(4) did not prohibit such a by-law.

How did the Privy Council come to the opposite conclusion to NCAT when examining the almost identical provision?

The Privy Council dealt with the matter by arguing that the lots in question were "residential strata lots". Accordingly, by-laws "designed to secure restriction to residential use is in principle unobjectionable". The judgment of Lord Carnwath, on behalf of the five Law Lords, was that such a by-law was reasonably in keeping with the 'residential' use objective of the strata scheme. "By requiring rentals, and therefore occupation periods, to extend for at least one month, the by-law is seeking to ensure the degree of stability which is necessary to maintain the character of the residential use."

Whilst the decision of the Privy Council is not binding on our court structure, it is one convened by five Law Lords. Moreover, the NSW decision of Estens is a tribunal matter only.

It remains to be seen whether the reasoning of the Privy Council will be adopted by courts in the future over that of the Tribunal.

• Change to the legislation?

Even if the case law does not change on its own, there may be a change to the legislation./p>

The NSW Government published a “Short-term Holiday Letting in NSW Options Paper” and asked to receive feedback up until 31 October 2017.

The matter is now under review.

The Privy Council decision of O'Conner, and the reasoning therein, may indeed play a role in which the NSW Government ultimately decides.

The Options Paper and the submissions are the next step in determining a policy framework to work out what level of regulation of the short-term letting industry is required. It will be interesting to see if this decision has any bearing on the government’s final policy.

The outcome of any such changes could have profound consequences.

For advice on residential, retail or commercial lease, or property law in general, contact Maclarens Lawyers on 9682 3777