Is Airbnb Destroying Strata Living? 2

Thursday, August 4th, 2016
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For one (anonymous) Docklands apartment owner quoted on The 7:30 Report earlier this year, having people knock on their door looking for a ‘massage’ might not have been what they expected might be their lot at the time of purchasing their apartment.

Nevertheless, headlines about hired out apartments being used for all-night parties and pop-up brothels mask a larger battle which is gathering pace between some apartment owners on one hand and the growing prevalence of short-stay accommodation within residential complexes on the other.

In Victoria, the Supreme Court handed down a decision on July 22 declaring that neither subdivision law nor strata legislation enabled owners corporations in that state to make rules which prevent owners of individual apartments from leasing out their apartments on a short-term basis. A bylaw implemented in 2004 by the owners corporation at the Watergate apartment complex in Melbourne’s Docklands apartment precinct which attempted to ban stays of less than 30 days in duration was thus invalid, Riordan ruled.

Both throughout the world and in Australia, the growth of the shared economy and the increasing popularity of booking service Airbnb has precipitated a phenomenon within the apartments sector whereby a growing number of owners are seeking to cash in by renting their apartment out on a short-term basis to either businesspeople or tourists. Many cases involve individual owners merely wishing to hire out a room within a dwelling in which they themselves live (hosted accommodation) or to hire the whole unit out during a period of their own temporary absence (shared accommodation).

At the other end of the spectrum, however, is a phenomenon which the Tourism Accommodation Association refers to as commercial residential accommodation. Indeed, a host of companies have sprung up based around a model of leasing apartments out from owners and then on-leasing that out to short-stay clients, sometimes charging several hundred dollars per night. In the Watergate complex for example, Paul Salter and Belinda Balcombe rent out up to fourteen apartments through their business ‘Docklands Executive Apartments’ – one which they themselves own, nine which the company leases from owners and subsequently rents out to short stay residents under the company’s own name and four which are made available to the company to lease on a commission basis.  On a larger scale, Corporate keys, for example, rents apartments from owners and leases them out to short term corporate tenants across 27 cities/towns suburbs which it offers on a minimum one-night stay basis. Such operations, critics charge, are effectively being run as quasi hotels.

Not surprisingly, owners are pushing back. In Melbourne, a We Live Here advocacy group formed specifically last December to push back against the short-stay industry within residential apartments claims membership from owners of more than 100 high-rise buildings in Melbourne CBD, Docklands and inner suburbs. In Sydney, the Owners Corporation Network has also been active in advocating on behalf of apartment owners in Sydney in this space.

At the outset, it must be acknowledged that opposition to the existence of short stay arrangements does not so much centre upon owners who rent their apartments out under shared accommodation or hosted accommodation arrangements but more so upon the growth of these highly commercial operators.

What are the problems? According to We Live Here director Barbara Francis and OCN executive officer Karen Styles, there are plenty – and unruly guests are merely the tip of the iceberg.

First, with short stay apartments sometimes being rented to up to six people and people coming and going up and down the lift with heavy suitcases on a consistent basis, there is the issue of wear and tear on the building.

Prior to short-stay being prohibited within the complex, one Sydney building was home to no fewer than 205 apartments. An independent report commissioned by the owners corporation found that over the three years following the withdrawal of short-stay, owners collectively saved $450,000 per year in administration cost whilst reducing levies by five percent per year in each of those three years, Styles said. In that case, the quantity surveyor estimated that the additional burden from short stay had reduced the life span of the elevator from twenty-five years to twenty years. At Watergate, Francis says that 80 tonnes of washing relating specifically to short-stay is going through the lifts every year along 50,000 suitcase trips and 200,000 lift or access trips. A lift expert in the building, she says, claims he can walk into the elevator of any building and know whether or not there are short-stay apartments there by looking at the doors and how they have been forced open on a regular basis.

Then there is fire safety, whereby commercial accommodation buildings (as Class 3 buildings under the National Construction Code) are subject to more stringent requirements in areas such as extra exit signs and having flight evacuation maps on the back of doors  compared with regular apartment buildings (Class 2) as their occupants typically do not know the building well. Given this, anybody who lets out their apartment to short-stay residents in an ordinary residential building whereby the building by virtue of being a Class 2 bulding does not have these is jeopardising not only the safety of those guests but also that of other building occupants, Styles said.

Added to that, there is potential overcrowding. In the Sydney building referred to above, Styles said, at one point the building had more than 1,000 occupants over and above what is estimated as would have been the case had those apartments been occupied by ordinary owners or long term tenants. Had there been a fire, she says, who knows whether or not the fire escapes would have coped.

Another concern, Styles says, revolves around insurance and the question of whether or not any use of part of the buildings to conduct commercial short-stay accommodation businesses beyond anything which is allowed for in the development approval would potentially create grounds for an insurer to deny a claim in the event of a major incident on common property.  Were that to happen, Styles said, apartment owners – who would be liable on a joint and several basis – would potentially be left holding the can.

Beyond that, there are broader sentiments surrounding safety and community, whereby any scenario which involves short-stay guests coming and going regularly makes it difficult for apartment owners to establish trust and rapport with fellow residents and diminishes any sense of neighbourhood within the complex.

Apart from apartment owners, commercial accommodation providers – who are subject to stringent regulations in terms of matters such as licensing, safety and insurance yet are being forced to compete with short-stay operators who operate in a largely unregulated environment – are also worried.

Stressing that her organisation had no problem with genuine sharing accommodation or hosted accommodation, Tourism Accommodation Australia chief executive officer Carol Giuseppi says there are problems with commercial residential accommodation.

Because these operators are unregulated, Giuseppi said, there was a lack of transparency with regard to how many operators and apartments are involved and the impact they are having upon both the accommodation market and the rental market. In many cases, Giuseppi says, not only is income tax being avoided but a significant number of these businesses were issuing statements which indicated that they did not have to pay GST and thus GST was being avoided. Added to that, these businesses were often paying residential rates in respect of municipal rates, which are often less onerous than the commercial rates which commercial accommodation providers have to stump up.

All this, Giuseppi said, added further to the difficulty faced by the regulated commercial accommodation sector in terms of having to compete within their unregulated counterparts and served to discourage job creating investment within the commercial accommodation sector.

“It’s not a level playing field,” Giuseppi said.

Not surprisingly, short-stay operators themselves offer a different perspective. Speaking of parties and nuisance guests, Salter – who in addition to operating his business together with Balcombe at Docklands Executive Apartments also heads the Victorian Industry Accommodation Association, says headlines within the media have exaggerated the extent of what was actually happening on the ground.

Throughout ten years of operation of his own apartment business, Salter says his business has seen just two parties (one of which was he says he shut down within one hour of being notified), one recreational drug user taken away by police, the guest of one of his clients charged for removing a sign from the hallway, one fire-brigade call out by one of his guests (paid for by himself)  and that he and Balcombe had paid the owners corporation $1,000 with regard to two scratches to be removed from stone tiles located nearby the lifts which were damaged when goods were being moved into the building and $800 to replace a piece of glass which had been damaged by a guest.

As for some of the other issues raised above, Salter queries terms such as ‘quasi hotel’. The Supreme Court decision referred to above in Victoria, he says, makes it clear that ‘use’ of a building is not connected with the duration of an occupant’s stay, he said, and the mere fact that occupants might stay for periods as short as a few days does not convert the building into a hotel. Furthermore, he adds, the Court decision in Victoria also made it clear that it is not unlawful to operate a short-stay accommodation business out of a Class 2 building in that state.

Moreover, Salter argues that short-stay arrangements offer advantages within the accommodation marketplace in terms of providing genuine alternatives to traditional accommodation services.

He says the apartment style of offering which short-stay services provide is ideally suited to families who seek privacy and security whilst living in and amongst other families, whilst guests who stay in these places provide an important boost from the viewpoint of the local economy.

“Guests who stay in these apartments are visiting the local restaurants, shops and shows. They also attend the conventions, sporting events and theatre,” Saltar said.

So what are the legal issues involved? Can owners, through their owner’s corporations, prevent short-stay from being used in their apartments?

Colin Grace, a partner at strata and property legal firm Grace Lawyers says there are two critical issues. First, whether or not short-stay is permitted within a given building under municipal planning rules will depend upon whether or not the local planning scheme permits such a use for the building in question. That will depend upon the class of building involved and the zone in which it is located, Grace said.

The second issue is whether or not strata legislation enables owners corporations to indeed make bylaws which prohibit use of short stay within their buildings. Whilst it appears from the aforementioned judgement that the answer at least in Victoria is no, Grace says the situation is uncertain in New South Wales. Moreover, even if owners corporation are held to have this power, Grace says it remains uncertain what would happen whereby a clash occurred between the owners corporation being able to pass bylaws limiting short-stays under strata law and short-stays being allowed within a given building (given the area and the zone) under municipal planning rules.

What should be done?

Broadly speaking, Francis, Styles, Giuseppi and Grace all want state governments to pass laws which allow owners corporations to prohibit use of short-stay within their complex provided that a strong majority (i.e. 75 percent) agree. Should they decide to permit short-term letting, they should then have to go back and get the required planning consents in order for this to happen, Styles said, and they would then have to upgrade the building to meet the fire safety requirements as would be required for a commercial accommodation building.

Salter disagrees. Speaking in particular of the situation in Victoria, he says the judgement has made it clear that owners corporations look after common property only and that what private unit holders do within their own units is largely up to them.

He says the strata sector and the short-stay sector should engage in constructive dialogue in an effort to devise mutually workable solutions.

Around Australia, the battle between apartment owners and short-stay operators is heating up.

As both the number of people living in apartments and the popularity of short-stay services continues to grow, more tension and controversy are likely to surround this area going forward.

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  1. Iina

    Thanks, this was an informative article!

  2. Barry b.

    The Victorian judicial decision is ridiculous – it is not right for the owner of a residential apartment to use it as a venue for hotel-style accommodation.