This article discusses the legal framework in NSW for short-term rental accommodation in strata properties, including how tenancy agreements and strata by-laws can restrict it, with a focus on the Strata Schemes Management Act and the mandatory Code of Conduct.
Did you know that simply owning a strata property gives you the opportunity to create a profitable business and earn a passive income? Short-term rental accommodation, also known as short-term letting, is defined under Section 54A of the Fair Trading Act 1987 (FTA), as:
“A commercial arrangement for giving a person the right to occupy residential premises for a period of not more than 3 months at any one time, and includes any arrangement prescribed by the regulations to be a short-term rental accommodation arrangement.”
Short-term letting has been used as a way to gain monetary benefit from an under-utilised asset. The easiest way to short-term let your strata property is through sites such as Airbnb, StayZ or Booking.com, however, you must consider the relevant sections of the Strata Schemes Management Act 2015 (NSW) (SSMA) before listing your property on one of these sites.
This article explores the laws surrounding short-term letting, focusing on whether the SSMA, tenancy agreements, or strata by-laws can restrict tenants and landlords from offering their property for short-term rentals.
Can tenants short-term let?
The case of Abdel-Messih v Azzi [2017] NSWCATAP 86 considered whether a landlord was entitled to terminate a tenant’s lease because they had sub-let the whole of the premises to short-term guests without permission.
In 2016, a landlord leased his Sydney CBD apartment to a tenant pursuant to a residential tenancy agreement for a term of one year. Clause 32 of the agreement stated:
“the landlord and tenant agree that … the tenant may, with the landlord’s written permission … sublet the residential premises, and … the landlord may refuse permission (whether or not it is reasonable to do so) to the … subletting the whole of the residential premises”.
Eight days after the commencement of the agreement the tenant began entering into sub-leases for the apartment for a period of three months, with various persons. In mid-2016 the landlord believed the tenant had sub-let the whole of the premises, without consent, breaching clause 32 of the agreement. The landlord then issued two termination notices. The terms of the sub-leases were also problematic, listing the tenant as the ‘landlord’ and sub-tenants as the ‘tenants’.
The New South Wales Civil and Administrative Tribunal (NCAT) found that the tenant had breached the agreement by sub-letting the premises without the landlord’s permission and that the serious nature of the breach, which exposed the landlord to risks beyond what he voluntarily accepted, justified the termination of the agreement and made an order to that effect.
Consequently, if you are renting a strata property, it is your principal place of residence and you wish to sub-let or list it on a site for short-term rental accommodation, it is vital you consult your lease, otherwise you may be in breach of its terms.
Case spotlight: Estens v Owners Corporation SP 11825 [2017] – Validity of by-laws prohibiting short-term letting
The case of Estens v Owners Corporation SP 11825 [2017] NSWCATCD 63 considered whether a special by-law passed by the owners corporation prohibiting short-term letting was valid.
In 2016, a landlord rented out her unit through Airbnb. She received multiple complaints related to the Airbnb guests misuse of common property and because of this, in 2017, the owners corporation passed a special by-law prohibiting short-term letting, meaning listing units on Airbnb for short term rental was now illegal.
The landlord then sought an order from the New South Wales Civil and Administrative Tribunal (NCAT), relying on a notation from the New South Wales Fair Trading published November 2016 that indicated “no by-law is capable of restricting a dealing in a lot including restricting short-term letting”. The owners corporation argued that nowhere in the SSMA permitted the use of sights such as Airbnb, for short-term letting.
The Tribunal ultimately found that the Airbnb tenancy was sufficient to constitute a tenancy or lease, as there was a specific commencement date, end date and during the time the guest was living there they have exclusive use of the property. Hence, the Tribunal held that the by-law was invalid as the owners corporation had no power to pass such a by-law by reason of the operation of Section 139(2) SSMA.
As a result of the case law, the Strata Schemes Management Act was amended to include:
Section 137A Short-term rental accommodation
- A by-law made by a special resolution of an owners corporation may prohibit a lot being used for the purposes of a short-term rental accommodation arrangement if the lot is not the principal place of residence of the person who, pursuant to the arrangement, is giving another person the right to occupy the lot.
- A by-law has no force or effect to the extent to which it purports to prevent a lot being used for the purposes of a short-term rental accommodation arrangement if the lot is the principal place of residence of the person who, pursuant to the arrangement, is giving another person the right to occupy the lot.
Commencing on 10 April 2020, section 137A allowed the owners corporation to create by-laws, via special resolution, to prohibit a lot from being used for the purposes of a short-term rental accommodation arrangement, if the lot was not the principal place of residence of the host. Therefore, if you are the owner of a strata lot and it is your principal place of residence, you are permitted to short-term let that property on sites such as Airbnb, StayZ or Booking.com.
If you live in a strata property with by-laws that prohibit short-term rental accommodation or letting, it is important to seek legal advice on their validity.
NSW Government introduces a mandatory Code of Conduct for short-term letting
In December 2020 the NSW government introduced a mandatory Code of Conduct for the short-term rental accommodation industry. The Code contains obligations for booking platforms, guests, hosts, letting agents and sets out requirements and standards of behaviour for participants. If a participant is in breach of the Code there are disciplinary actions that NSW Fair Trading can take, which include listing any non-compliant participants on an Exclusion Register.
Please find a link to the Code of Conduct here: Code of conduct for the short-termrental accommodation industry
Conclusion
Short-term rental accommodation presents an appealing opportunity for property owners to transform their assets into profitable ventures and generate passive income. However, success in this field requires compliance with local laws, strata by-laws and regulatory measures, including registration and adherence to fire safety standards, otherwise your venture may turn into a financial liability. By staying informed property owners can maximise their returns while minimising risks. With proper preparation, short-term rentals can be a smart and rewarding business move for property owners.
Anna Hahm and Catia Pieriboni
Grace Lawyers
E: [email protected]
This post appears in Strata News #745.
Have a question or something to add to the article? Leave a comment below.
Read next:
- NSW: Councils call for Strict Caps on Short Term Letting
- NSW: Q&A Short Term Letting and Airbnb in Strata Apartments
- VIC: The Short-Stay Levy Act and its impact on Owners Corporations
This article has been republished with permission from the author and first appeared in the BCCM Common Ground newsletter.
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