How to Start a Hostel: Legal Considerations

Tens of thousands of visa-holders are returning to our shores as Australia awakens from its COVID-19-induced slumber. As such, the international backpacker industry is roaring back to life. Before the pandemic, the back-packer and WHM (working holidaymakers) arrivals numbered 250,000. They contributed approximately $3.2 billion to the Australian economy. Typically, these arrivals will seek more affordable accommodation close to some of Australia’s most iconic beaches, bars and diverse landscapes. 

From backpacker accommodation to short-term rentals, there are numerous options for affordable accommodation. For many backpackers and those travelling on a lower budget, hostels can be a favourable accommodation option. However, if you are looking to start a hostel, consider several important factors before stocking your bar and planning the weekly social calendar. This article sets out the regulations and policies hostel owners must follow to ensure their guests’ safety.

Your Land and Building

Before you sign any lease or property agreement, ensure you can fit out the premises to operate as a hostel. You should contact your Local Government Authority (municipal Council) to determine whether zoning regulations affect how you can set up as an accommodation provider. 

A Planning Permit from your local council will establish that you have permission to develop your property or undertake any development to change the purpose of the property. A Building Permit is required in most states to carry out the changes permitted under your property’s zoning regulations. 

Additionally, councils make decisions on a property’s zoning based on its:

• proximity to jobs;
• shared border with neighbours;
• contribution to local tourism; and
• future plan for the suburb, amongst others.

These factors will affect your hostel’s permitted density (number of occupants). 

Notably, regulations vary from local and state building and planning to occupational health and safety standards. Hostels are known for higher guest density due to bunk beds and shared living arrangements. Consequently, fire regulations tend to be more stringent for hostel providers to ensure guest safety. These regulations include fire and evacuation plans clearly displayed and clear means of escape from every room.

Licences and Permits

There are also ancillary licences and permits needed to operate your hostel without breaking the law. The Australian Business Licence and Informations Service (ABLIS) is a useful tool to make you aware of some of the core requirements in your State or Territory. The licences and permits you may need include:

• preparing or selling food;
• selling or consumption of alcohol;
• erecting/displaying signage;
• restricted trading days;
• outdoor dining;
• playing video/sound recordings; and
• disposal of waste.

Food and Drink Considerations

In addition, hostels that provide food must obtain a licence from their local council that permits food to be sold or distributed onsite. Each state or territory has an equivalent Environmental Health Officer. This Officer will inspect your property and ensure that you comply with local, state and federal obligations. 

Some hostels offer more than a shared kitchen, such as a restaurant or cafe. Operating a restaurant or cafe requires additional licences and should be registered accordingly with the regulatory body. Also, if you are selling alcohol on premises, liquor licensing laws will apply.

Register Your Business

You must register your business before commencing operations. Registration includes applying for an Australian Business Number (ABN) and Tax File Number (TFN). You may also need to register as an employer if you intend to hire employees. If so you must register for a pay-as-you-go (PAYG) withholding account. 

Further, if you plan to trade your hostel under a name other than your own, you must register your business name. A business structuring lawyer can also assist with setting up your hostel’s business structure, whether it be a partnership or a private company. Each business structure offers its owners different levels of protection and tax obligations.

Key Takeaways

Although opening a hostel appears lucrative at first glance due to the low start-up costs, business owners must comply with strict licensing and accommodation regulations. In addition to obtaining accommodation permits, a hostel should also have the correct business structure in place. There are also essential licences you must obtain.

If you need help understanding the legal considerations of opening a hostel, our experienced business lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.

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