NSW short-term rental laws – What do they really say?

This guest post is courtesy of Anthony J Cordato, a Property Lawyer in Sydney. For more, see www.propertyinvestmentlawyer.com.au

The Castle is a great movie because it captures the emotional attachment Australians have to their home and to living a friendly and peaceful neighbourhood.

Town Planning laws support this by strictly separating residential areas from business and commercial areas, with exceptions for home offices and occupations.

However, Airbnb style short-term rentals have disturbed the neighbours, especially in strata buildings, because the guests come and go frequently, some are noisy, some hold parties and some cause damage. They have disturbed the Local Councils because Airbnb rentals introduce a commercial activity into residential areas.

For the past three years, the NSW Government has been searching for a compromise between encouraging tourism and allowing people to make extra money on the one hand, and complaints by voters of increased levels of noise and disturbance in residential neighbourhoods on the other.

Now the NSW Government has introduced new laws to regulate short-term rentals.

In summary:

• Homestays are legal all year round if the owner-occupier is renting a spare room, a flat or a studio as a short-term rental in their home. No Council approval is needed.
• Whole house or apartment short-term rentals are legal up to 180 days per year, where the owner-investor is not present. This limit applies to Greater Sydney. Elsewhere in NSW, there is no upper limit on the number of days. No Council approval is needed.
• If the apartment is in a strata building, the Owners Corporation can totally ban owner/investors from using their apartment for short-term rentals, but not owner/occupiers from using the apartment for short-term rentals when they are away, such as on holidays (for up to 180 days per year). A special by-law is needed, passed by a 75% majority, to ban short-term rentals.
• All hosts will need to register their property. Airbnb hosts, guests, holiday letting agents, etc will need to comply with a code of conduct to keep the neighbourhood peaceful, and observe rules for parking and garbage disposal.

Of course, there are many fine details. Read on to find out more.

DETAILS

Be ready for the new Airbnb short-term letting laws in NSW

Short-term letting hosts using Airbnb style booking platforms are now officially welcome to provide accommodation in Sydney and elsewhere in New South Wales, following the passing of two new laws by the NSW Parliament. Together with a third new law, the laws will come into force and effect in early 2019.

This is an outline of the new laws:

New sections 52A to 54E of the Fair Trading Act 1987 (passed 14/08/2018)

What is a short-term rental?

Residential rentals are normally for periods 6 or 12 months. But the Residential Tenancy laws do not apply if it is a tenancy of up to 3 months, so long as it is a holiday rental.

New sections 52A to 54E of the Fair Trading Act 1987 fill the 3 month gap in which Airbnb style short-term rental has flourished, with a short-term rental accommodation arrangement, which is:

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

The new law only applies if the occupancy is a commercial arrangement – it does not apply to domestic arrangements such as a homestays by friends and relatives, where no money changes hands.

The new law only applies to residential premises – it does not apply to hotels, motels, resorts, serviced apartments, caravan parks, backpacker hostels and other tourist accommodation, because they are commercial premises.

Who does the new law apply to?

The new law applies not only to home owners and strata unit owners, but to everyone who participates in short-term rentals.

It defines a short-term rental accommodation industry participant – as a person who:

• provides an online booking service (i.e. booking platforms like Airbnb, HomeAway/Stayz), or
• carries on business as an agent (i.e. holiday letting agents and property managers), or
• gives another person the right to occupy as a short-term rental (i.e. hosts), or
• is given the right to occupy as a short-term rental (i.e. visitors), or
• facilitates short-term rental accommodation arrangements (i.e everyone else)

What is the code of conduct for short-term rental accommodation industry participants?

All participants must comply with a code of conduct, which will be published in the regulations, and which will set out the rights and obligations of short-term accommodation industry participants.

The code of conduct will prohibit anti-social and irresponsible behaviour. That is, behaviour which unreasonably interferes with a neighbour’s quiet and peaceful enjoyment of their home, and will address impacts from noise, parking and garbage. 

The code of conduct will contain administrative provisions, namely:

• A body to administer the code
• Registration of residential premises used and details of when they are used
• Warnings to be given for contravening the code
• A complaints system
• Procedures for assessing complaints and resolution of disputes
• An exclusion register of participants who commit two serious breaches of the code within two years, and who will be banned for five years

The “two strikes and you’re out” policy will result in a listing on the exclusion register.

But a serious contravention of the code will also be a criminal offence, punishable by a fine of up to $1.1 million for corporations and $220,000 for individuals. Or NSW Fair Trading may choose to pursue a civil penalty for the breach.

The code of conduct, its enforcement, the compliance system and the exclusion register will be funded by industry.

New section 137A of the Strata Schemes Management Act 2015 (passed 14/08/2018)

‘No Airbnb’ By-Laws

New section 137A resolves the confusion about whether a strata scheme can outlaw short-term rentals, by stating that they can be outlawed under a strata by-law if the owner is not using the home unit / villa as their principal place of residence. The by-law must be passed by special resolution (i.e. a 75% majority).

Specifically:

• An owners corporation can make a by-law to:

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.

• An owners corporation cannot make a by-law 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.

New Environmental Planning Laws (pending)

The new laws will also consist of amendments to the Environmental Planning and Assessment Act 1979. They are yet to be tabled.

For residences where the host is present, it is proposed to allow short-term rentals all year round in NSW.

For residences where the host is not present, it is proposed to allow a holiday use for up to 180 days per year in Greater Sydney. Elsewhere in NSW, 365 days will be allowed, but the Local Council will have power to decrease this to 180 days. The days are expected to be defined as ‘days occupied’ not ‘days available for occupation’. There is no minimum number of days for a stay so overnight will be acceptable.

Both of these uses will be allowed as exempt development in residential zones. That is, no development application will need to be made to the Local Council, and no approval will be necessary for that use. Additional conditions will apply to bushfire prone land to ensure visitor safety.

The new laws will provide a clear definition of use as short-term rental accommodation and interface with other types of tourist and visitor accommodation uses in planning instruments, such as backpacker’s, bed and breakfast, hotel, motel and serviced apartments.

Commentary – Strata Schemes

Will a “No Airbnb’ by-law be effective in mixed commercial & residential strata schemes?

As noted, Strata Schemes will have the power to pass a ‘No Airbnb’ by-law to ban short-term letting of strata apartments which are not a principal place of residence.

However, the planning laws are expected to be able to override a ‘No Airbnb’ by-law where the property is not residential premises or is in a non-residential zone or is in a mixed zone or tourist zone where commercial uses are allowed, and the Local Council approves a use as tourist and visitor accommodation, such as serviced apartments.

Will pre-existing ‘No Airbnb’ by-laws stand or will they need to be put to a fresh vote next year after the new laws come into force?

There is no guidance given under the new laws, but it is relevant to note that one of the amendments proposed to the new laws as they were being considered by parliament was to validate pre-existing ‘No Airbnb’ by-laws. That amendment was defeated. A pre-existing by-law will be invalid if, for example, it bans strata owners from using their principal place of residence for short-term rentals.

As a result, the best advice is that a new ‘No Airbnb’ by-law will need to be put to a general meeting of the owners corporation in the new year after the new laws come into force.  That by-law will need to be carefully drafted so as not to overreach in banning short-term rentals for principal places of residence, which are rented while the owner is away on holidays or on business.

Will an owner’s corporation have any control without a ‘No Airbnb’ by-law?

NSW Fair Trading will develop a short-term letting information kit (‘what you can and can’t do’) for owners corporations.

The kit will contain advice on how to use other existing strata laws to help deal with short-term letting, such as: requiring 21 days notice before commencing to use the lot for short-term rental accommodation; and restricting the occupancy of bedrooms in a lot to no more than two adults.

Summary for strata owner-occupiers and strata investors:

A strata owner-occupier can rent the apartment they live in as a principal place of residence for short-term rental accommodation for up to 180 days per year in Greater Sydney, and 365 days per year elsewhere in NSW.

• This is despite the fact that the owners corporation has passed a ‘No Airbnb’ by-law.
• What is more, no Local Council approval is necessary.
• All that is needed is to give 21 days notice to the owners corporation before the short term renting activity starts (not before each rental starts).

A strata investor can rent their investment apartment for short term rental accommodation for up to 180 days per year in Greater Sydney, and 365 days per year elsewhere in NSW unless the owners corporation passes a ‘No Airbnb’ by-law.

It is expected that the planning laws will allow a ‘No-Airbnb’ by-law to be overridden if the planning scheme allows tourist and visitor accommodation use. In that case the owner may be allowed to rent out their apartment with development approval.

Comment – the politics

The new laws are a compromise between competing interests. In reading the bill a second time before parliament, Mr Matt Kean (Minister for Innovation and Better Regulation) stated:

We have worked hard to strike the right balance between preserving the ability of homeowners to use their properties as they wish and maintaining the strong economic benefits of short-term holiday letting with the public concerns about adverse impacts of short-term rental accommodation such as increased levels of noise, disturbance and impacts on neighbourhood amenity.

The law will be reviewed one year after it commences, to see if the right balance has indeed been struck.

Author: Anthony J Cordato, Property Lawyer, Sydney