On 10 June 2016, Justice Croft of the Supreme Court of Victoria (“the Court”) handed down a decision which brings into question the rights of tenants to list their places of residence on Airbnb.

I should inform you from the outset that Justice Croft at the end of the judgment states that, “this is not a case on the merits of Airbnb arrangements. Neither is it a case on whether or not Airbnb arrangements might be said to be “Illegal” – either in some particular or some general, non-legal sense”.

In other words, Justice Croft is saying that the decision he made turns on the particular facts of the case and that he does not intend to set down any principles which may bind courts or tribunals dealing with Airbnb-related cases in the future.

However, as we will see below, some of the points raised (and disposed of) in the case of Swan v Uecker (which came before Justice Croft by way of an appeal against a VCAT decision) may impact future Airbnb-related cases.

The Facts of the Case

In late 2015, Ms Swan (“the Landlord”) discovered that Ms Uecker and Mr Greaves (“the Tenants”), to whom she had leased her two-bedroom St Kilda apartment, had listed the property on Airbnb.

The relevant listing details for the property were as follows:

“Guest Access

You will have use of the entire two bedroom apartment, its bathroom, kitchen, lounge room and balcony.

Interaction with Guests

I will be available by phone for any guidance I can give, and I won’t be far away if you need me to come with a key, etc.

House Rules

Since this is my home and I am leaving to allow you to have it all to yourself, I simply ask that you observe the normal courtesies such as being considerate about noise for the neighbours’ [sic] sake and being careful with my TV, stereo and kitchen amenities.”

VCAT found that the Tenants had allowed Airbnb “Guests” to stay in the property without the Landlord’s consent.

The Question Before the Victorian Supreme Court

In essence, the Court was required to determine whether what the Tenants granted to the Airbnb guests was a licence to occupy the apartment or a sub-lease. A licence to occupy premises is a personal right granted by whoever has the right to possession of the premises. A licence of this nature cannot be assigned to another person without permission (which is in effect the creation of a new licence) and may be exclusive or non-exclusive. In any event, a licensee does not have the right to exclude the owner or lessee from entry upon the premises. When you invite guests over to your home, you are granting them a licence to enter your premises. If they say something negative about your cooking, you may revoke that licence and tell them to leave before you instruct your solicitor to draw up a Statement of Claim seeking damages for trespass.

On the other hand, a sub-lease is the grant of a right of exclusive possession over premises for a period which must be shorter than the original (or ‘head’) lease. The right of exclusive possession means that a sub-lessee can exclude even the owner or lessee from the premises.

Under section 81 the Residential Tenancies Act 1997 (Vic) (‘the Act’), a tenant is not permitted to sub-lease rented premises without the landlord’s written consent. Pursuant to section 253 of the Act, a landlord may serve a notice to vacate on a tenant who sub-lets rented premises without consent (as occurred in our case).

So the question for the Court to decide was whether the Airbnb Guests had received exclusive possession of the apartment which would entitle the Landlord to remove the Tenants.

What Did The Evidence Show?

In addition to the listing details for the property quoted above, a primary source of evidence in the case was Airbnb’s Terms of Service which state that:

“Guests agree that a confirmed reservation is merely a licence granted by the Host to the Guest to enter and use the listing for the limited duration of the confirmed reservation and in accordance with the Guest’s agreement with the Host….”

The Tenants also gave evidence to the effect that they would only allow Guests to stay on the property when they would be away but that they retained a set of keys at all times and left many of their personal possessions in the apartment.

What Did The Court Decide?

The Court concluded that the AirBnB arrangement in question was a sub-lease (and not a licence) because the AirBnB Guests were given exclusive possession of the apartment.

But Didn’t The Airbnb Terms of Service Refer To A Reservation as a “Licence”?

They did, and that’s why we need to delve deeper into the Court’s reasoning. You see, the Court held that in determining whether the Tenants had granted a sub-lease or licence, it was the substance of the agreement rather than its form which was paramount.

So, in other words, the Court was not prepared to accept Airbnb’s Terms of Service at face value. This finding has its roots in a fundamental principle of the interpretation of contracts, under which Courts will give effect to the real meaning of an arrangement or transaction – rather than the label that the parties have assigned.

To quote Lord Templeman from the House of Lords, formerly the UK’s highest court:

“The manufacture of a five-pronged implement for manual digging results in a fork even if the manufacturer, unfamiliar with the English language, insists that he intended to make and has made a spade.”

The purpose of this exercise is to ensure that sham contracts or illusory terms do not get in the way of understanding and bringing to light what was actually agreed upon by the parties.

But the Court’s discretion must be exercised carefully to ensure that the rights of parties to contract freely on terms mutually agreeable to them are not eroded.

Former Victorian Judge of Appeal Tadgell best captures this conundrum in his decision in KJRR Pty Ltd v Commissioner of State Revenue:

“In many cases, the parties have stated in the contract that the occupant does not have exclusive possession and yet, in practice, the facts indicate that it would be a physical impossibility for anyone else to share the premises with the occupant. Which prevails? The contractually expressed intention of the parties or the fact of exclusive possession being enjoyed in practice?”

In this case, the fact that the Airbnb listing stated “You will have use of the entire two bedroom apartment” combined with the reality that the Tenants were away for the duration of the Airbnb Guests’ stay appears to have been persuasive.

Could a Tenant Draft an Airbnb Listing So As To Truly Grant A Licence?

As I was reading the Court’s reasons, I kept thinking about what would be required to ensure that an Airbnb reservation would be regarded as a licence.

The comparison that comes to mind is a hotel. Surely hotel guests are not considered to be tenants? And if so, why is this the case?

The fact is that the Act does not apply to hotel or motel stays for 60 days or less. As expressed by Judge of Appeal Nettle in Genco v Salter:

“Usually, the owner of a hotel retains dominion over a hotel room or suite with the right to enter for cleaning and other purposes and power to forbid the guest from allowing others to stay there.”

In our case, the Tenants argued that because they had left their personal possessions in the apartment, it could be inferred that they were still entitled to access the property in case they needed to retrieve important documents – which meant that they never granted exclusive possession. Justice Croft rejected this argument mainly due to a lack of relevant evidence.

It is reasonable to infer, however, that if the Airbnb listing had expressly reserved the Tenants’ right to access the apartment for specified purposes (e.g. to retrieve personal property), the Court might well have accepted that they had not granted exclusive possession.

Moreover, some Airbnb listings forbid Guests from inviting others to attend the property – a condition again seeming to contradict a grant of exclusive possession.

The combination of an express reservation of a right to access the property and a prohibition on allowing third parties to access the property would tend to indicate that a lessee/tenant made no grant of exclusive possession – as is the case with hotels and motels.

So we return to our starting point, that the decision of Justice Croft merely determined “the legal character of this particular Airbnb arrangement and any consequences this characterisation may have in the context of the terms of the lease of the apartment concerned.”

Other tenants may learn from this case and do things differently, but in all matters, it is important to be familiar with the provisions of the Act and of the specific tenancy agreement in question (which may contain other relevant clauses).

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