AirBnb Hosting - Is it worth the Risk? Blurred Lines between Retail and Residential Leases
- George Konidaris - Principal Lawyer
- Nov 11, 2016
- 7 min read
Updated: Nov 16, 2020
With increasing demand for student accommodation and short term residential stays, Landlords and Tenants are taking advantage of the demand and are leasing (or sub-leasing) out their couches, rooms and apartments to students, holiday makers and guests through the use of websites such as AirBnb.
The Victorian State Government has identified the important role short term stay operators provide to the State economy and seem keen to encourage short term stays whilst also seeking to balance the rights of other occupiers and in particular, owner occupiers of high rise apartments.
The short term stay space has been subject controversy and litigation. This article sets out some of the issues which Landlords and Tenants should consider.
Can a Short Term Stay Lease be a Retail Lease?
In certain circumstances, the Short Term Stay Lease may be subject to the Retail Leases Act 2003 and the obligations and restrictions of the Residential Tenancies Act 1997 may not apply.
The following cases are examples of where the Courts have considered whether a Short Term Stay Lease can be a Retail Lease.
In the VCAT decision of Wang v Orion Holdings Australia Pty Ltd 2014, VCAT determined that a lease of building containing rooms to a business that provided student accommodation was a Retail Lease under the Retail Leases Act 2003.
As a result, the landlord was unable to recover a fee based on the Tenant's turnover when the Tenant sold its business. The Retail Leases Act 2003 prohibits Landlords from charging what is known as "key money" to Tenants.
In the Supreme Court Decision of Stringer and Ors v Gilandos Pty Ltd, 2012, Justice Croft held that individual leases of strata apartments from the owners of apartments to a resort manager were in fact Retail Leases. In that case, the owners were unable to reserve the use of the apartments for themselves making the situation unique from others where owners have the right to reserve time to use their apartments.
The County Court of Victoria in the decision of Evans & Ors v Thurau Pty Ltd 2011, held that under an alpine resort site which required all sub-tenants to make their apartments available for short term holiday rentals if they were not using the apartment themselves, was not deemed a Retail Lease.
The County Court Judge in that case also cast doubt on the validity of a determination by the Minister under the Retail Leases Act 2003 with regards to the exemption that applies to premises situated above the 3rd floor of buildings.
There is no blanket rule as to whether the Retail Leases Act 2003 applies to serviced apartments or other forms of short term rental accommodation such as Airbnb.
All facts and circumstances need to be assessed carefully to determine whether the criteria of a Retail or Commercial Lease (as distinct from a Residential Tenancies Act 1997 Lease) are met and whether the Retail Leases Act 2003 applies.
Are there advantages of having a Retail Lease?
The application of the Retail Leases Act 2003 may be desirable for Landlords who seek to escape the confines and operation of the Residential Tenancies Act 1997.
For example, under the Retail Leases Act 2003 -
Landlords are permitted to recover most outgoings such as water rates, council rates, Landlord's insurance and Owners Corporation fees;
Landlords may impose greater obligations on their Retail Tenants to maintain the premises and can impose higher standards of reinstatement than would otherwise be the case if the Residential Tenancies Act 1997 applied;
Landlord's can also seek the appropriate indemnities to pass on fines and other costs that may be levied upon Landlords if their Tenant (or Airbnb guest) has breached a law or other regulation (such as building codes or Owners Corporation Rules);
Landlords can seek a higher security deposits and have easier access to the deposit in the event of a breach.
It is also generally easier and quicker to evict a defaulting Retail Tenant than a Tenant under the Residential Tenancies Act 1997 if a proper lease is in place.
Landlords who allow their apartments to be used as short term stays or as serviced apartments should ensure however, that their properties are properly insured and that the Building Code, Owners Corporation rules and other laws and regulations that may regulate the operation of a short term stay such as those highlighted above, are not breached especially if the Tenant intends to run the apartment as a rooming house which is subject to further regulation.
Landlords should also be aware of the potential application of the minimum 5 year lease requirement under the Retail Leases Act 2003.
For Landlords who desire to lease their apartments or homes to Airbnb or other short term stay operators, in most circumstances, it is desirable be to have an occupancy arrangement that is neither subject to the obligations and restraints imposed under the Retail Leases Act 2003 nor the Residential Tenancies Act 1997.
Do I need Owners Corporation Approval?
The Owners Corporation may have rules and regulations restricting the operation of short term stays such as Airbnb.
The Owners Corporation Rules should be checked to see if short term stays are expressly prohibited and whether approval is required despite the validity of such rules being recently called into question in the Supreme Court decision of Owners Corporation PS 501391P v Balcombe [2016].
Whilst the Supreme Court in the Balcombe decision ruled that an Owners Corporation had no power to prohibit Short Term Stays, going to "war", so to speak, with an Owners Corporation which has resolved in the past to restrict the operation of Airnbnb or other short term stays, may have other undesirable consequences.
The Owners Corporation Act 2006 may also be amended to allow Owners Corporations to have more control or there could be other grounds or means under which the Owners Corporation or other regulatory body, may seek to restrict the operation of short term stays.
The provisions under the Owners Corporation Act 2006 may impact on the operation of a short term stay especially if the proposed Owners Corporations Amendment (Short-stay Accommodation) Bill 2016 is enacted by Parliament. The Bill was presented again in parliament for a second reading on 31 August 2016 which can be read here. A speech on 16 August 2016 by the Honourable Russell Northe, Member for Morwell which can be found here.
The second reading of the Owners Corporations Amendment (Short-stay Accommodation) Bill 2016 provides an excellent summary of the issues relating to short term stays and the recent court decisions and how the proposed legislation will seek to balance the interests of Residents and Long Term Stay operators in apartment buildings.
The proposed changes seek to, among other things, redress the difficulties Owners Corporations currently have to hold those responsible for operating Airbnb's liable to claims for damages and loss of amenity by reason of the conduct of their unruly guests.
Lobby groups such as the "we live here" movement have been actively lobbying government at all levels to change the laws to restrict the use of short term stays in high rise buildings and to make operators more accountable. A link to the "we live here" movement website can be found here.
Owners who are interested in leasing out their apartments or operating them as Aribnb's or wish to allow their Tenants to do so or just don't care what their tenants are doing, should expect some resistance from other owners, especially those who owner occupy their apartments and are seeking to preserve the amenity of their buildings and lifestyle.
Is an Airbnb Stay a Lease or Licence?
The above examples deal mainly between the nature of the agreement between the Landlord and the Tenant who seeks to License or Sub-Lease the premises and act as Hosts to Short Term Stay guests.
But can the relationship between the Host and Short Term Stay guest be a Lease?
In the recent case of Swan v Uecker [2016], the Landlord sought to prevent her Tenants from Hosting guests via Airbnb after discovering her apartment was advertised on Airbnb.
Initially, VCAT ruled that the use of the apartment by the Tenants to Host guests via Airbnb was permitted under the Lease because the right granted to guests to occupy was a License (not a Sub-Lease) and the Lease (which was a Residential Tenancies Lease) did not expressly prohibit the Tenants from Licensing (as opposed to Sub-Leasing) the Apartment to guests.
The Supreme Court however, took a different view and overturned the VCAT decision. Justice Croft held that the operation or use of the premises as an Airbnb by the Tenants where the Tenants hosted guests, was in fact a Sub-Lease (and not a License) and therefore breached the terms of the Lease.
It is important to remember that Courts and Tribunals will look behind the label of an agreement to determine its substance. For example a document labeled as a "management agreement" or "license agreement", could well be a Retail Lease. The fact that the Airbnb website claims that the nature of the relationship is a "license", is not determinative. Each case needs to be examined on its merits and the Court made it clear that there is no blanket rule as to what the nature of the relationship will be.
It is not uncommon for Landlords to be unaware of their Tenant's intentions to use their apartments, homes or flats, as short term stay accommodation and would be wise to carry out regular inspections and checks on Airbnb and similar websites.
If Landlords wish to prohibit the use of their Apartments as Airbnb or other forms of short term stay accommodation, then their leases should be appropriately drafted to restrict the operation.
Hello Airbnb - Goodbye Insurance?
Landlords and Tenants should be aware that their insurance policies or the Owners Corporation Insurance policy may not cover them if they allow the premises to be used as an Airbnb or short term stay accommodation.
Other Considerations
For those considering providing residential services whether as a Landlord or as an Airbnb Host, the Government has prepared a brochure setting out minimum standards for all residential buildings which can be found here.
The brochure has identified what it calls the main pieces of legislation which apply to Residential premises -
Tenancy Provisions under the Residential Tenancies Act 1997 and Regulations
Building Provisions under the Building Act 1993 and Regulations
Fair Trading Provisions under the Fair Trading Act 1987
Equal Opportunity Provisions under the Equal Opportunity Act 1995.
Conclusion
The laws and regulations that may impact upon the operation of an Airbnb or short term stay are currently evolving and as can be seen above, can be quite complex and uncertain.
The line between a Retail Leases Act Lease 2003 or Commercial Lease as compared to a Residential Tenancies Act 1997 Lease can be blurred and it may be difficult to determine when that line is crossed. The line between a Sub-Lease and License may also be blurred.
It goes without saying that both Landlords and Tenants need to be aware of their obligations and the associated risks in operating an AirBnb or similar short term stay.
For more information concerning the above cases or if you require advice concerning your Short Term Stay or Airbnb Agreement or are considering operating an Airbnb please contact us.
