Websites such as eBay, Uber and Airbnb have revolutionised the way in which we use and sell goods and services. Rather than a straight transaction with a seller and a buyer and no intermediary, these sites do not sell anything at all. Rather, they introduce a person wanting to sell with a person wanting to buy. The parties then conduct the transaction between themselves. These disruptive matchmakers are currently testing the limits of Australia’s existing legal and regulatory framework. This article unpacks the different facets of the way our current laws are falling short of interfacing with the new breed of disruptors, using Airbnb as an example.
Council Zoning Laws
The law treats Airbnb differently depending upon which state the Airbnb rental is situated, but there is also an issue between different local government areas within states.
For example, local councils in New South Wales regulate short-term holiday rentals. The Zoning Laws or Local Environmental Plan of a particular council determines whether an individual can let a property as a holiday rental. A breach of these laws can result in action being taken under the planning laws or more generally under the Environmental Protection Act 1979 (NSW) (EPA).
Interestingly, third parties can bring an action under the EPA where individuals use property without the necessary planning approval. This law means that it is possible for an industry association (such as a hoteliers association), neighbours or a local council to prosecute a resident for renting their property on Airbnb.
For instance, the Sydney Morning Herald reported in 2015 that Randwick Council had issued a letter threatening property owners with a fine for renting their properties on Airbnb. This penalty was on the count of operating an unauthorised bed and breakfast establishment.
Lease or Licence?
Not only are Council Zoning Laws a minefield, but there is another layer of complexity in the situation where tenants are renting out a rental property by subletting it to subtenants for short-term Airbnb stays.
The recent Supreme Court of Victoria case of Swan v Uecker [2016] VSC 313 considered whether Airbnb was a sublease or licence. In this case, a landlord, Ms Swan (landlord), owned a two bedroom apartment in Melbourne (apartment) which she leased to the tenants Uecker & Greaves (tenants) in August 2015 for a 12-month lease (lease).
The tenants then listed the apartment on Airbnb to third party guests for short-term stays. The landlord upon discovery initiated proceedings because the tenants had sublet the apartment unlawfully to third parties without the landlord’s consent.
At first instance, in the Victorian Civil and Administrative Tribunal (VCAT), it was held that the tenants only granted licences rather than leases to the Airbnb guests. As such, the VCAT ruled that the tenants had not sublet the apartment.
However, the Supreme Court overturned the original VCAT decision, deciding that the tenants had let the whole apartment and that it was a sublease rather than a licence. This sublease was considered a breach of the tenant’s lease which prohibited subleasing.
This case considered the narrow issue of subleasing and that the landlord’s consent was required. It did not consider whether Airbnb itself was illegal. In fact, a test case may be difficult given the differing laws between Australian states and territories and within local government areas.
Tax Avoidance
Airbnb arrangements have also come under fire with the Australian Taxation Office (ATO). This heat was due to the fact the sharing economy lets people operate “commercial arrangements”, which can be used to evade tax, including Capital Gains Tax and GST.
Technically income earned from an Airbnb short-term holiday let must be declared to the tax office, but many avoid this obligation, which is easy to do without a firm regulation of the industry.
Other Regulatory Issues
There are also numerous other regulatory matters that round out the confusion. Mostly, they involve a lack of regulation in areas such as:
- Food, health and safety regulations;
- Fire or disability access regulations; and
- The requirement for public liability insurance.
Airbnb provides host protection insurance that protects hosts against third party claims of property damage or injury up to $1 million. This host protection coverage cover landlords and homeowners associations.
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