Note to developers: The A’s and B’s of Airbnb August 27, 2019

The increasing popularity of Airbnb and the short-stay accommodation industry has caused increasing conflict in apartment developments.

Developers consider unregulated short-stay accommodation to be challenging as it can negatively affect a development.  Some of the concerns raised by developers in the past include short-stay occupants (guests) being inconsiderate to other residents during their stay or showing a lack of responsibility for damage caused on common property.

The Owners Corporations Amendment (Short-stay Accommodation) Act 2018 (Vic) (the Act) which received royal assent on 1 February 2019 has been introduced to regulate short-stay arrangements under a lease or licence (such as Airbnb).  The Act operates for occupancies up to a maximum period of seven days in buildings affected by an Owners Corporation (OC).

Will the new Act alleviate developers concerns and effectively regulate, limit or prohibit short-stay accommodation?

Provisions of the new Act

Apartment owners and short-stay providers can now be liable for any noise, damage or loss of amenity caused by their guests.

Complaints can be made to the OC by an owner or occupier of a lot if guests:

• interfere with the owner or occupier’s peaceful enjoyment due to the guest’s unreasonable noise or behaviour;
• cause a substantial hazard to the health, safety and security of any person on a lot or common property;
• damage the property or common property; or
• obstruct the owner or occupier from using their property.

What can the OC do?

If a complaint is made, the OC can decide whether or not to take action based on its belief on reasonable grounds the breach has been committed. If the OC decides to take action, a written notice must be given to the owner requiring rectification of the breach.

What can VCAT do?

Any of the above conduct is considered a breach under the Act. If this breach is not rectified, the OC can apply to the Victorian Civil and Administrative Tribunal (VCAT) to resolve the dispute. In determining a short-stay accommodation dispute, VCAT may make one or more of the following orders:

1. If a guest is in breach, VCAT can order the guest to pay each affected occupier up to $2,000 as loss of amenity compensation;
2. If a guest is in breach, VCAT can order the guest to pay a civil penalty of up to $1,100;
3. If an OC has issued notices of breach of the Act on 3 or more separate occasions within 24 months, VCAT has the power to grant an order prohibiting short-stay accommodation use; and/or
4. Any other order VCAT may make.

While a prohibition order is the most significant aspect of the Act that will keep Airbnb operators in check, we are yet to see how OC’s will manage the cost and associated burdens of enforcing the provisions under the  Act.

Steps that a developer should take

If a developer wishes to rely solely on the Act to regulate, limit or prohibit short-stay accommodation it should think twice. Until case law provides clarity on key provisions and areas of dispute, it is unclear how effective this Act will be in regulating behaviour in short-stay accommodation. Accordingly, developers should have a back-up mechanism to regulate, limit or prohibit short-stay accommodation if all else fails.

Examples of other mechanisms that a developer could implement to regulate short stay accommodation include:

• a restrictive covenant on title or on a plan of subdivision; or
• restrictive provisions contained in the Contract of Sale and/or the OC Rules.

This can either completely prohibit short-stay use or allow short-stay use in certain circumstances.

However, the Supreme Court in Owners Corporation PS 501391P v Balcombe [2016] VSC 384, held that Parliament did not intend to confer an OC with the power to make a rule prohibiting short-term letting of apartments, which raises the question of enforceability of any restriction on short stay accommodation in the OC Rules. Accordingly, such restrictions on short stay accommodation will need to be carefully drafted in the OC Rules in order to ensure their enforceability.

While some of the above strategies have their limitations, they will nevertheless provide an extra layer of protection in addition to the Act.

This article was written by Principal, Josh Kaplan and Legal Clerk, Evelyn Zeglinas.

DISCLAIMER: We accept no responsibility for any action taken after reading this article. It is intended as a guide only and is not a substitute for the expert legal advice you can get from marshalls+dent+wilmoth and other relevant experts.