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The recent Victorian Supreme Court case of Owners Corporation PS 501391P v Balcombe [2016] has many implications for property owners who wish to profit through Airbnb listings. Although Airbnb is not mentioned once in the judgment, the issue at hand was whether an owners corporation could prohibit owners from the short-term letting of apartments (i.e. less than one month at a time). We discuss this in more detail below by explaining what an owners corporation is, the facts of the case, and the court’s ruling.

Australian Property Law Fundamentals

In the context of Australian property law, owners are entitled to deal with their property as they wish. This right can only be limited or taken away by an express intention of Parliament (subject to the Constitution). In particular, the regulation of what people can do on private property is for the most part governed by planning laws.

What is an Owners Corporation?

Apartment buildings or blocks of units are the product of the subdivision of land. A subdivision is a process of dividing land into parts (known as ‘lots’), which are intended to be separately owned/occupied.

In any apartment building or block of units in which parts of the building or complex don’t belong to any single owner – those parts are regarded by the law as ‘common property’. Examples of common property include stairwells, driveways and external walls.

Any proposed subdivision of land which contains common property must provide for the creation of an owners corporation. Otherwise, they risk having their registration rejected by planning authorities and the land titles office.

The lot owners own common property together. These lot owners are each a member of the owners corporation. The primary role of an owners corporation is to manage the common property in the interests of the lot owners. As such, owners corporations are empowered to make rules governing lot owners.

The Facts

In this case, the owners corporation tried to impose a rule on the lot owners which prohibited them from letting their properties for less than a month at a time.

The question to be determined was whether the owners corporation had the power to make the rule cited above.

What Types of Rules Can an Owners Corporation Make?

Under the Owners Corporation Act 2006 (Vic) (‘the Act’), owners corporations have the power to make rules regarding the control, management, administration, use or enjoyment of common property or lots.

Owners corporations have limited powers to make rules relating to the use of lots and behaviour of persons within them (namely to prevent excessive noise and nuisance).

However, they do not have an overall power to regulate a lot owner’s dealings in respect of his/her unit or apartment. Accordingly, this was what Justice Riordan concluded.

He held there was no clear intention of Parliament to interfere with the property rights of lot owners. Rather, he noted that Victoria already has comprehensive planning and building laws. These laws already take into account factors such as location and amenity in determining the manner in which commercial activities are permitted on private property.

The Bottom Line

The decision of Justice Riordan represents a statement of principle as to the rights of apartment and unit owners to deal with their properties as they see fit. It is reasonable to assume that other owners corporations which had previously sought to outlaw short-term letting (namely Airbnb) will now be required to amend their rules.

For further information on leasing or commercial disputes, get in touch on 1300 544 755.

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