Thursday, September 20, 2018

Airbnb, ghost hosts, and riding the wave

Airbnb is never far from the headlines, and many industry segments are clamouring for regulation.

In June 2018 the NSW government announced severe restrictions on short stay accommodation. It remains to be seen how that will work in practice, and how Queensland will implement our own version.

Hopefully the legislative response will be informed by the lessons learned from the regulation of ride sharing services such as Uber.

Industry concerns

Body corporates, owners, and on-site managers are justifiably concerned about the rising popularity of home sharing services, and other online accommodation booking platforms, for properties within community title schemes.

Naturally, I can’t condone self-help remedies I have heard about, such as supergluing locks, or building managers disconnecting the electricity. All situations are different, so seek legal advice before taking action. This article isn’t a substitute for that advice.

Top Ten current legal issues related to home sharing services that you need to know about

  1. ‘Ghost hosting’ is an emerging issue. This occurs when someone claiming to be a legitimate long-term tenant subleases the property to a third party – e.g. over Airbnb. In Victoria, the Supreme Court recently found that Airbnb-ing a property by the tenant allowed termination of the lease by the landlord.

Individual results may differ depending on the exact circumstances.

I have had several reports from managers who are approached by prospective tenants offering to rent multiple units and pay more than the market rent.

Those people could be ‘ghost hosts’ – re-letting and managing the apartment/s on Airbnb.

Any lease should be very clear about the approved occupants of the property, and that any kind of sublease or licence of the property is prohibited. Absent owners, who are not in the letting pool, can easily be targets of ‘ghost hosts’.

Owners can be responsible for the consequences of Airbnb-ing, even if this is done without the direct knowledge of the owner. Owners who suspect something should consider if they need to take action to minimise this risk.

  1. By-laws: In Queensland, current laws provide that the body corporate cannot discriminate against different types of residential occupiers in its by-laws. This means the body corporate does not have power to make by-laws preventing short-term letting in a residential building. There have been a few cases about this, and the issue is now fully resolved in Queensland based on current legislation.

Changes in NSW announced in June 2018 will allow NSW body corporates to change their by-laws to restrict short-term accommodation in some ways. It remains to be seen if Queensland will follow the lead.

  1. Noise: There is room to deal with the consequences of Airbnb-ing indirectly, via the more mundane by-laws. In at least one case, a lot owner was compelled to take steps to replace tiles to prevent disturbance to other owners by that lot owner’s Airbnb guests.
  2. Insurance costs: There has been a recent adjudicator’s decision where a lot owner was ordered to pay the body corporate’s additional insurance costs, incurred as a result of that lot being used for short-term occupation. I do wonder if this was the correct decision.
  3. Liability of lot owner? Many by-laws contain rules which, at least on the surface, appear to make lot owners responsible for by-law breaches by any occupants of their property. This could include breaches of ‘amenity’ by-laws, such as noise or damage to the common property. Some body corporates are using security cameras to help track responsibility for that damage to occupiers of particular lots. There are many rules about by-laws, and they can’t always be taken at face value. Even with proof of damage, there can be major legal problems with trying to make specific lot owners financially responsible for the behaviour of their occupiers.
  4. Party houses: In 2014, Queensland planning laws were amended to allow local councils to take action targeting party houses. Enquire with your local council.
  5. Town planning conditions: It’s possible that a change in use of the building over time could breach town planning conditions. Individual development approval conditions need to be checked and specialist advice obtained in each case.
  6. Building classifications: The body corporate and lot owners are required to ensure that the use of a building complies with the certificate of classification issued under the Building Act 1974.

Most residential buildings are in Class 2. There is an argument that ANY short-term letting could breach the building owner’s obligations, on the basis that short-term use of the premises requires a Class 3 building, i.e. a classification as a hotel.

Several years ago, the Watergate case decided (at least in Victoria) that except in the most obvious case of a large-scale hotel, there is little, if any, restriction on a Class 2 building being let for short-term accommodation. It is unclear if this decision would be followed in Queensland. Although the laws are similar they are not identical, and the matter technically remains open.

Queensland lawyers would love a test case on town planning and Building Act issues if anyone is interested!

Beware; in the Watergate case, I understand the body corporate’s legal costs in unsuccessfully pursuing these issues were almost in the seven-figure range.

  1. Caretaking and letting agreements: Resident managers should check their agreements before conducting a short-term or Airbnb operation – in some rare cases, these agreements restrict the manager from conducting short-term letting operations as an agent for the lot owners.
  2. Reputational damage: Managers of holiday and corporate let buildings who are experiencing Airbnb-ing need to carefully consider their reaction to those guests. The guests do not necessarily understand that the on-site manager’s services (new towels, cleaning requests, etc) are not available to third-party guests. It is worth being polite and helpful to these people. They may, after all, re-book directly, or leave negative social media reviews.

The Future

There is some talk of the state government or particular councils taking steps to impose limits on short-term occupancy. There are many competing interests.

Of course, an attack on Airbnb could easily be used as an instrument of attack on traditional management rights.

If short-term accommodation in residential buildings can be limited, this could have a vast impact on the tourism industry. Such an outcome is unlikely to be beneficial, which may be why the issue hasn’t been tested in Queensland.

Riding the wave

There are a number of services (including Airsorted) which provide host management services such as cleaning, laundry and keys. Some of Australia’s most successful Airbnb ‘super hosts’ are letting agents who control multiple properties generating millions of dollars in revenue.

With disruption in almost every field, those who can adopt and adapt will prosper. Those who can manage, and take advantage of this opportunity, can build value and strengthen their businesses.

About Alan McKernan

Alan McKernan is Special Counsel for McKays Solicitors

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One comment

  1. You keep saying: “the NSW government announced severe restrictions on short stay accommodation.”

    The NSW Government is about to remove Residential Zoning by changing the State Environmental Planning Policy to make short-term rentals ‘exempt’ and ‘complying development’, or, as Airbnb’s Sam McDonagh says, the State Government has “green lit” (sic) short-term rentals.

    Please: stop repeating NSW Ministers’ media releases and look at the facts. Short-term rentals 365 nights per year in residential housing. Is this a severe restriction?

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