How Can We Be Lovers When We Can’t be Friends? – Michael Bolton

With the twin proliferation of Airbnb holiday lets and the steady increase of strata properties across Australia, there is growing tension between the two – particularly as many Airbnb holiday lets are also strata apartments. Further straining the relationship is the lack of uniform laws across Australia governing strata which is regulated by each state and territory. Airbnb is also at the mercy of various local council regulations and zoning requirements. So, can residents in strata properties sublet their apartment for Airbnb?

The Case of Watergate v Balcombe

In July 2016, the Supreme Court of Victoria considered whether short term holiday lets (i.e. tenancy agreements less than 30 days) were permitted in Owners Corporation PS 501391P v Balcombe [2016] VSC 384 (Watergate v Balcombe).

Background

The case arose from a dispute between the Owners Corporation of Watergate (Watergate) and Paul Salter and Belinda Balcombe (Balcombe).

Salter and Balcombe own several apartments in the Watergate complex which were regularly let out on Airbnb for short term holiday lets under the name, “Docklands Executive Apartments”.  

Watergate experienced some difficulties with these lets, with some dubbing Watergate “Partygate” and permanent residents complaining about some of the short-term occupants in the Balcombe apartments.

Accordingly, Watergate took Balcombe to the Victorian Civil and Administrative Tribunal (VCAT) and argued that Rule 34 of their by-laws did not permit short-term holiday lets. Balcombe claimed that the Watergate Owners Corporation did not have the power to adopt Rule 34 under the Victorian Strata Legislation. VCAT held that Watergate did not have the power to implement Rule 34.

Watergate appealed to the Supreme Court of Victoria where Justice Riordan upheld VCAT’s decision that the Owners Corporation did not have the authority to ban short-term holiday lets.

It’s important to note that Watergate v Balcombe applies in Victoria and the position varies from state to state. For example, the situation in New South Wales is in a state of flux following amendments to the Strata Management Act 2015 (NSW) on 30 November 2016.

Strata Schemes/Owners Corporation Issues

Airbnb has indeed had a positive effect on Australia’s economy, growing tourism and providing hosts with alternative revenue streams. However, if short-term holiday lets are not adequately regulated, Airbnb can be potentially disruptive to permanent residents of strata schemes. Resident advocacy groups, including ‘the Owners Corporation Network’ and ‘We Live Here’ have cited several issues set out below.

Additional wear and tear to common property

An increase in people traffic and turnover of short-term guests is causing damage and extra wear and tear on the building. This includes additional laundry and cleaning needs for apartments housing short stays, consequently reducing the life span of building facilities (for example, lifts, pools, car parks, gyms and paths).

Fire Safety Issues

Fire safety requirements may also differ for tourism based buildings as opposed to residential buildings. Renting out apartments in a residential based building on Airbnb may breach the National Construction Code as tourism based buildings fall under different classes.

Insurance

There are also issues relating to insurance, specifically whether the building’s public liability insurance covers Airbnb guests. This issue will depend on the following:

  • terms of the insurance policy held by the owners corporation;
  • by-laws of the building and whether they permit short stay tenants; and
  • whether leasing short stay rentals through sites like Airbnb and Stayz comply with council development approval or other council zoning requirements for the land. For example, a mixed commercial/residential area might allow Airbnb lets but a solely residential zone controlled by the same council may not.

If the owners corporation insurer won’t cover or denies a claim because the use of a property as a short-term rental will breach the policy, the owners of the strata lots in the building are liable to cover any damage, noting that liability is joint and several.

Although not strictly an example of an owners corporation insurance, Domain recently published an article about Susan Morgan who rented out her property to a long term tenant. That long term tenant, without the knowledge or consent of Ms Morgan, then sub-let the apartment on Airbnb, tripling the rent and making a profit. Ms Morgan’s insurance policy was void.

Choice also issued a warning in late 2015 indicating that typical landlord’s insurance did not cover Airbnb. Owners corporations should heed this warning and ensure their insurance policies cover short term lets and unauthorised Airbnb tenants. Failure to do so could leave the owners corporations and strata managers open to litigation from disgruntled residents for failing to take due care.

Can Strata Schemes Prevent Airbnb?

The Watergate v Balcombe decision shows that sometimes owners corporations in strata schemes cannot always stop short term holiday lets. There is, however, anecdotal evidence that strata schemes are taking matters into their own hands, employing tactics such as:

  • installing security systems where access keys/swipe cards cannot be duplicated (or fingerprint systems/ biometric systems); and
  • installing security systems that will only give permanent tenants access to common areas such as car parks, pools and gyms.

Can Strata and Airbnb Coexist Peacefully?

It’s early days in the strata/Airbnb relationship and there are already several decisions including Watergate v Balcombe seeking to clarify the law’s position on this issue. A way forward may be specific by-laws set by the owners corporation which permits and regulates Airbnb (subject to local council law). For example, an additional levy for short-term lets which cover additional wear and tear on the strata common property facilities and insurance costs, as well as other insurance requirements on owners of short term holiday lets. 

We will keep you updated as the law evolves to mediate the tensions between the sharing economy and strata schemes. If you have any questions, get in touch with our commercial leasing team on 1300 544 755.

Emma Heuston

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