Short-term rental accommodation (STRA) platforms like Airbnb and Stayz have transformed property management across New South Wales strata schemes. While owners corporations frequently seek to curb noise, security risks, and high visitor turnover, drafting overly broad by-laws can expose your scheme to significant legal risks.
Under Section 137A of the Strata Schemes Management Act 2015 (NSW), owners corporations have specific powers to restrict short-term letting. However, when a by-law overreaches, the NSW Civil and Administrative Tribunal (NCAT) can declare it invalid, harsh, and unconscionable.
What Section 137A Permits: Banning Commercial STRA
Under Section 137A of the Act, an owners corporation can pass a valid by-law banning short-term rental accommodation within the scheme provided the lot is not the host’s Principal Place of Residence (PPR).
Investor Lots vs. Owner-Occupied Homes
- Investor-Owned Lots: An owners corporation can lawfully prevent an investor or non-resident owner from operating a commercial, full-time holiday rental business out of their lot.
- Owner-Occupied Lots: If a lot is the host’s primary residence, Section 137A explicitly protects their right to let out the home or individual rooms while away on holiday or hosting temporary visitors.
Where Strata By-Laws Cross the Line
Attempts to stamp out “party houses” often lead committees to draft heavy-handed rules. A strata by-law crosses the legal line and risks being struck down by NCAT – if it attempts to restrict ordinary residential rights, including:
- Long-Term Residential Leases: Setting arbitrary restrictions on standard residential tenancy agreements or minimum stay periods exceeding statutory thresholds.
- Personal Guests and Visiting Family: Restricting the number of personal visitors or imposing time limits on how long family members can stay.
- House-Sitters and Pet Care: Banning house-sitters, home swaps, or carers looking after a property while an owner is traveling.
- Primary Residence Holidays: Restricting owner-occupiers from letting out their Principal Place of Residence while on holiday or away for work.
NCAT Rulings on Unenforceable and Oppressive By-Laws
Under Section 139(1) of the Act, a by-law must not be harsh, unconscionable, or oppressive. Furthermore, Section 139(2) explicitly dictates that no by-law can restrict the transfer, lease, or mortgage of a lot.
If an owners corporation enforces a blanket prohibition that encroaches on ordinary residential living, affected lot owners can apply to NCAT under Section 150 for an order invalidating the by-law. If NCAT finds the by-law exceeds statutory powers or illegally restricts leasing rights, it will declare the by-law invalid and order its removal from the strata register.
Protecting Your Scheme with Legally Sound By-Laws
Balancing resident peace and quiet with individual property rights requires precise legal drafting. Broad or template by-laws frequently fail under Tribunal scrutiny, exposing owners corporations to costly disputes and legal penalties.
This post appears in Strata News #813.
Adrian Mueller
JS Mueller & Co Lawyers
E: adrianmueller@muellers.com.au
P: 02 9562 1266
This article has been republished with permission from the author and first appeared on the JS Mueller & Co Lawyers website.
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