The Supreme Court of Victoria has held that an Airbnb arrangement is a lease. On that basis the activity of the tenants in letting out their apartment was found to be in breach of a prohibition in their lease against subletting. In another Victorian case, Airbnb hosts had a better result, successfully overturning a body corporate rule seeking to prevent Airbnb arrangements in their building.
This led us to ask the question – what legal issues do Airbnb hosts face in Canberra? Canberra, a jurisdiction with extensive planning laws and complicated Crown leasehold requirements that intrude upon private rights of land use more than in other jurisdictions? Does Airbnb comply with Canberra’s property laws?
In this Property Reporter, Partner Daniel Moulis examines how Airbnb matches up with land zoning and legal precedent in the Australian Capital Territory. We conclude that Canberra’s planning laws mean that the Airbnb option is technically illegal for most home and apartment owners who want to allow repeated short-term occupation of their premises.
New age ideas meet old school conventions
The sharing economy is well and truly here. The rise of Airbnb, Uber, Etsy and other “share” services respond to modern demand for more informal, flexible and therefore inherently cheaper services. But at the community level the people involved are not usually business people, and are not necessarily legally informed. Although the discovery of innovative and community sharing services is useful, remunerative and fun, their legal compliance is often suspect. Legal frameworks have not kept up with the pace of the internet, and do not always accept the new business models it has generated.
This clash of “new age” and “old school” has been prominent in ride-sharing and home-sharing. The modes of business that are run by these “apps” can be in conflict with existing laws, such as those relating to permitted uses and purposes, employment, workplace and health, statutory entitlements (such as licenses to trade) and consumer safety. Simply put, it can be a case of square pegs and round holes.
Is an Airbnb arrangement a lease or a licence?
The Supreme Court of Victoria was recently called upon to rule whether tenants who made their rented apartment available for occupation through Airbnb were in breach of their obligation not to sub-let the premises.1 A landlord of a two bedroom apartment in St Kilda, a popular suburb of inner Melbourne, leased his apartment to the tenants. A few months later he discovered that the tenants were making the apartment available to guests through Airbnb. The tenants had specified a “minimum stay” on the Airbnb website of three nights and a “maximum stay” of five nights.
The landlord sought an order for possession in the Victorian Civil and Administrative Tribunal on the basis that the tenants had sublet the apartment in breach of the provisions of their lease. The landlord argued that the tenants had been granting leases to Airbnb guests who stayed in the apartment. VCAT dismissed the application on the basis that the tenants had only given the Airbnb guests a licence to occupy the premises, but had not rented the premises in the sense of granting a lease to them. Consequently, VCAT found that they had not sublet the apartment.
The landlord successfully appealed VCAT’s decision. The Supreme Court found that the Airbnb agreement for occupation of the whole of the apartment was properly to be characterised as a lease. The tenants’ act of entering into those kinds of agreements, having regard to their own tenancy, was found to be a subletting and not merely a licensing of the apartment. Consequently, the tenants were in breach of the provisions of their lease of the apartment, which prohibited subletting without the consent of the landlord.
Canberra – a great place to visit, but where to stay?
Canberra not only has great “built” attractions, it also must cater for high occupancy demands at times of special events (Floriade, Summernats, “blockbuster” exhibitions) and the super-influx of staffers and their coterie when Parliament is sitting. This means that our hotels are often jam-packed with out-of-towners, opening up a great demand for additional and alternative accommodation options.
The temptation for tenants of apartments who might themselves be regularly away on work trips to get extra income through Airbnb is high. However, residential leases of homes and apartments routinely prevent subletting, either outright or without the informed consent of the landlord. There is nothing to suggest that the legal position in Victoria would not be the same here in Canberra.
The thinking underlying the recent ruling in Victoria is that it was not to be expected – nor was it contemplated – that the occupation of the Airbnb guests would be concurrent with the usual occupants, or that the usual occupants were free to wander into the premises while their guests were in the shower or otherwise going about their holiday activities. The Supreme Court of the ACT agrees that “the right to exclusive possession does distinguish a lease from a licence”2 and that “the granting of a lease gives an entitlement to exclusive possession and that carries with it the capacity to control who enters upon the land”.3
Commercial accommodation under Canberra’s planning laws
Whether a landlord “cares” enough to complain about subletting by a tenant is a matter for the landlord. But what if bigger players become concerned – owner-occupiers who dislike short-termers, hoteliers who dislike Airbnb, the government that dislikes revenue opportunities that go missing? And could that concern be translated into legal action?
Canberra’s town planning is regulated by the Territory Plan, which describes what might be done in specific areas (“zones”); by individual Crown leases which translate what might be done into what can be done on specific blocks; and by the detailed and overarching legislation which binds the system together.
The main “residential” zones under the Territory Plan are the RZ1 through to RZ5 zones. These are “suburban” and “urban” zones, allowing a range of residential uses of increasing density. Importantly, commercial accommodation is prohibited in all these zones. Thus, Crown leases for major multi-unit apartment blocks that replicate the Territory Plan land use definitions for RZ1 to RZ5 do not allow commercial accommodation. But what is commercial accommodation, and how is it different from the act of leasing, which is an everyday activity of many apartment owners?
Commercial accommodation use (typically, hotels, motels, serviced apartments, guesthouses) under the Territory Plan is defined as:
…a room or suite of rooms that is made available on a commercial basis for short-term accommodation. A commercial accommodation unit may comprise a dwelling but not a room or suite of rooms within a dwelling. It does not include any associated facility such as a restaurant, bar or functions room, which may be used by the occupants of the premises but, which is also available for use by non-occupant members of the public.
An Airbnb arrangement with respect to an apartment or house is (a) accommodation in (b) a suite of rooms that is (c) made available on a commercial basis for (d) short term accommodation. Should that need to be confirmed, the information that a host inputs into the Airbnb website, and the Airbnb terms of service, routinely and explicitly cover all these bases.
What are the implications? In the Australian Capital Territory, a homeowner or apartment owner’s title is entirely dependent on compliance with the terms of its Crown lease. Breach of a Crown lease can ultimately lead to termination of the owner’s estate, although this is extremely rare. More significantly, the local planning legislation allows members of the public (aggrieved neighbours, competing businesses) to “police” compliance by applying to the authorities for an investigation of any alleged breach of Crown lease. Remedial orders, known as controlled activity orders, can be made by the ACT Government.
Revenue and land tax leakage
Residential homes and apartments are subject to land tax in the ACT, if rented out. We wonder whether many Airbnb home and apartment owners report themselves to the authorities as being owners of rented properties. From the government’s perspective, Airbnb apartments – or, worse still, “hives” of Airbnb apartments – cause substantial revenue leakage. In this scenario, hoteliers and other commercial accommodation owners can rightly complain of an uneven playing field with their Airbnb competitors.
Also, the lease variation charge – a fee for the approval of new developments – may be considerably different for the construction of new apartments as compared to the construction of a new hotel. If new apartments are largely operated as an Airbnb facility, there would be every justification for questioning the accuracy of the lease variation charge that was assessed at the approvals stage.
Exploiting legitimate land rights – Airbnb gets one back
In an earlier case4 also heard by VCAT, the body corporate of an apartment building in Docklands tried to restrain apartment owners from subletting for a term less than 30 days, a practice which was, of course, facilitated by Airbnb. The body corporate based its argument on a rule which stopped owners from using their apartments for the purposes of any trade, profession or business. Allowing another person to stay there for more than 30 days was excluded from the definition of business. Airbnb arrangements of less than 30 days were the target of the legal action.
On this occasion VCAT ruled in favour of Airbnb, concluding that the powers of the body corporate did not extend to this prohibition of a lawful use of the apartments in the building. The importance of an owner’s property rights, and ensuring that a body corporate could not unreasonably limit those rights, were important background considerations.
Would Airbnb arrangements in Canberra be “saved” using the same considerations? We think not. Canberra’s planning laws would be an external and overriding obstacle, outside the “cocoon” of body corporate rights applying between individual apartment owners. Moreover, the default body corporate rules in the ACT clearly state that owners must not use their apartment in contravention of law. This would give an adjoining owner a direct right to injunct a neighbour if the neighbour is ordered by the ACT Government to comply with the planning laws applicable to the building and does not do so.
Airbnb recognises the risk
Airbnb recognises that its operations might not be compatible with existing legal/planning frameworks. The website places the onus on hosts to ensure that the share services they offer are legally compliant in their jurisdiction:
Hosts should understand how the laws work in their respective cities. Some cities have laws that restrict their ability to host paying guests for short periods… certain types of short-term bookings may be prohibited altogether. Local governments vary greatly in how they enforce these laws. Penalties may include fines or other enforcement. Hosts should review local laws before listing a space on Airbnb.
The highly planned nature of Canberra, its idiosyncratic land use system, and the ability of opposing landowners to use the controlled activity process to complain about non-compliance and seek enforcement orders could present unique challenges for Airbnb in this jurisdiction.
Moulis Legal’s property team has experience in Crown lease compliance issues, including compliance with building and development provisions and purposes clauses, Territory Plan zoning advice, lease variation charges, and the legal and government processes required to achieve the full range of Crown lease transactions. For more information, please contact Daniel Moulis on +61 2 6163 1000 or daniel.moulis@moulislegal.com.
This memo presents an overview and commentary of the subject matter. It is not provided in the context of a solicitor-client relationship and no duty of care is assumed or accepted. It does not constitute legal advice.
© Moulis Legal 2016
[1] Swan v Uecker [2016] VSC 313 (10 June 2016)
[2] Poole v Daley, Johnston & Hollands [2001] ACTSC 68 (6 July 2001)
[3] Concerned Citizens of Canberra v Chief Planning Executive (Planning and Land Authority) [2014] ACTSC 165 (4 July 2014)
[4] Owners Corporation PS501391P v Balcombe (Owners Corporations) [2015] VCAT 956 (29 June 2015)
