Back in 2011, owners of 42 units at the two-tower Watergate apartment complex in Melbourne’s Docklands precinct were served with orders to cease using their dwellings for ‘short-term commercial accommodation (hotel) or the like’ purposes.

The owners had been leasing their apartments to a company run by Watergate resident Paul Salta, who through his Docklands Executive Apartments business was in turn letting them out to corporate travellers and tourists and the like on a short-stay basis.

Because the complex was a Class 2 building under the National Construction Code (NCC), the City of Melbourne Municipal Building Surveyor argued that their use in running what was essentially a commercial accommodation business was not permitted under the occupancy permit. Further, the Surveyor argued that the building was effectively being used for a purpose which is not envisaged under a Class 2 building design and thus presented an unsatisfactory risk from a fire safety perspective.

Following a legal battle, it was agreed that an interconnected smoke alarm be installed in each bedroom, an emergency evacuation plan be provided in each unit and exit signs be upgraded in building corridors.

As a side note, the Watergate complex subsequently became the scene of an acrimonious legal battle which culminated in a landmark Supreme Court ruling that owners corporations in Victoria cannot prevent residents from using their apartments to conduct a commercial short stay operation.

The Watergate case underscores growing tensions between long term apartment residents and participants in the ‘short-stay’ apartment sector – whereby platforms such as Airbnb, HomeAway, Flipkey, Travelling Frogs, Aura and Tripping enable owners to let their properties out to short-term tenants. Whilst many are simply residents letting out a spare room or temporarily renting out their home whilst away, a new industry has sprung up with entrepreneurs buying up numerous apartments for use as stock in a ‘serviced apartment’ business. According to IBIS World (Feb 2018), 749 such enterprises operate in Australia turning over revenue to the tune of $3 billion.

Many objections to short-stay fall outside the bounds of the NCC. Nevertheless, the commercial short-stay sector presents issues about sole occupancy units within Class 2 buildings potentially being used for purposes which are consistent with Class 3 buildings.

Accordingly, the Australian Building Codes Board is looking at how Code should adapt. A discussion paper looking at options was released in March.

As is well known, buildings under the NCC are classified according to the purposes for which they are designed to be used. As relevant to this discussion, apartment buildings fall into Class 2 whilst commercial accommodation buildings are Class 3. Differences in requirements for buildings of these classes relate to energy efficiency, disability access and fire safety.

Most pertinent to this discussion is fire safety. Overall, performance requirements of the Code in respect of fire safety are similar for both Class 2 and 3 buildings. Nevertheless, there is a difference in the DTS provision through which these requirements can be satisfied. For Class 2 buildings, DTS provision D1.3 allows non-fire-isolated stairwells provided that they do not connect, pass through or pass by more than three consecutive storeys. Similar provisions exist for Class 3 buildings but the threshold is limited to two stories and is thus more restrictive.

Fire isolated stairwells enable occupants of multi-storey buildings to exit past a storey which may be on fire and help fire authorities carry out search and rescue and fire-fighting activities.

The main reason for the difference above is that the NCC presumes that residents of Class 2 buildings are mostly long-term residents and are aware of their surroundings. Such residents, the NCC presumes, would be able to exit more quickly without the need for fire-isolated exits than is presumed to be the case of Class 3 occupants who are less aware of their surrounds.

According to the paper, concerns about short-stay (as relevant to the NCC) fall into four areas.

These are that:

  • The distinction between Class 2 and Class 3 buildings, associated defined terms and classification rules are unclear (Concern 1)
  • There are unnecessary differences in technical standards between DTS requirements for Class 2 and Class 3 buildings in cases where Class 2 buildings are used for short term accommodation (Concern 2).
  • There is a potential increase in fire safety risks for occupants using short-term accommodation in Class 2 buildings due to their lack of familiarity with the building and emergency procedures (Concern 3).
  • There is a potential increase in fire safety risk for occupants using short-term accommodation in Class 2 buildings when compared to those of Class 3 buildings where the fire isolated stair requirement for Class 2 buildings in DTS Provision D1.3(a)(i) is applied (Concern 4).

Options for Reform:

Fourteen options for reform are considered. Nine of these involve regulatory measures and five entail non-regulatory responses.

The nine regulatory options are:

  • No change (Option A)
  • Merge Class 2 and Class 3 classifications in the NCC (Option B)
  • Specify that short-term accommodation is a Class 2 building in the NCC (Option C)
  • Specify that short-term accommodation is a Class 3 building in the NCC (Option D)
  • Create a new NCC classification for short-term (Option E)
  • Reduce the stringency of certain Class 3 provisions in the NCC (Option F)
  • Include additional safety features in Class 2 buildings either through the NCC or through state/territory regulation (Option G)
  • Increase the stringency of the non-fire-isolated stairways requirement for Class 2 buildings in the NCCC (D1.3) (Option H)
  • Have jurisdictions specify whether short-term accommodation in Class 2 buildings is a Class 2 or Class 3 use through their building classifications (Option I)

Non-regulatory options (Options J-N) would expand the NCC Guide wording on Class 2 and Class 3 building classifications, expand NCC Guide wording on classifying parts of a building with more than one building, have the ABCB develop non-mandatory guidance on Class 2 and Class 3 performance solutions, have jurisdictions issue guidance on whether short-term accommodation in Class 2 buildings is a Class 2 or Class 3 use and expand the Holiday and Short Term Rental Code of Conduct.

Under Option A, there would be no change at all.

Under Option B, the classifications of Class 2 and Class 3 would be merged and buildings which fall under each classification now would be treated exactly the same, with the same set of performance requirements and DTS provisions applying to each building. This would involve significant change to the NCC.

Option C would specify that short-term accommodation is permitted in Class 2 buildings and that consequently, Class 2 provisions would continue to apply to apartment buildings even where some apartments are being used for short-stay. This would involve relatively minor changes to the Code.

Option D by contrast, would involve specifying that short-term accommodation in a multi-residential building is a Class 3 specification. This would mean that Class 3 provisions would apply to buildings which are being used for short-term. This would require changes to the Code.

Option E would involve creating new sub-class classifications for Class 2 buildings. Potentially, there would be a Class 2a for long-term occupancy and a Class 2b for short term occupancy. Under this option, Class 2 buildings which are intended to be used for short-term accommodation or used by more permanent residents would be defined as specific sub-classes. A different set of DTS provisions would apply according to the proposed use of the building. This would involve changes to the NCC.

Under Option F, the stringency of certain Class 3 DTS provisions would be relaxed in order for these buildings to align more closely with Class 2 buildings. According to the discussion paper, the accommodation industry is best placed to suggest which if any provisions could be relaxed through the NCC’s standard request for change process.

In its paper, the ABCC notes that such a change could address the second concern raised above but would not address other concerns.

Option G would involve the insertion of additional requirements for fire safety features in specific sole occupancy units (SOUs)of Class 2 buildings where they are intended to be used for short-term accommodation. This could include interconnected smoke alarms, emergency lighting, a fire extinguisher, clearly marked and mapped exits, and – for those staying in a bushfire prone area – a readily available evacuation plan.

This could be introduced through changes to either the Code or to state and territory regulations. Which of these was appropriate would depend on the type of feature being proposed. The provision of a fire extinguisher within parts of a Class 2 building which are used for short-stay would be easily included through the NCC. Administrative measures such as evacuation plans for properties, however, would be best introduced through state regulation.

Next, under Option H, the stringency for the non-fire-isolated stairways requirements for Class 2 buildings under DTS Provision D1.3 would be increased so that fire-isolated-stairways are required for stairways of two consecutive stories as per the requirement for Class 3 buildings as opposed to three consecutive stories as per the requirement for Class 2 buildings now. This would address Concern 4 about and would partly address concern 3.

According to the paper, this option has one advantage in that it addresses a specific DTS provision which may be contributing to greater risk rather than undertaking wholesale DTS provision changes which may have unintended consequence.

Finally, as far as regulatory changes are concerned, Option I would involve each jurisdiction amending their regulations to state whether or not short-term accommodation is a Class 2 or Class 3 occupancy.

This option has some similarities with options C and D in that in involves a determination being made about the Class of buildings into which occupancy units fall.

A disadvantage of this option, however, is that different determinations may be specified across states and territories. This may mean that different requirements for Class 2 buildings apply depending upon where they are located.

It should be noted that the current NCC 2019 updating process is too far advanced for any NCC changes to be implemented in NCC 2019. Accordingly, any changes to the Code will not be implemented until 2022.

It should also be noted that an evaluation of the economic impact of options similar to A to E was undertaken by Phillip Chun and Associates in 2012 when the effect of short-stay on the NCC was last being considered.

According to that analysis, options, B and D would result in a ‘large negative change’ in anticipated returns to investors in respect of Class 2 buildings and would deliver reductions in the rate of investment, housing supply and housing affordability for Class 2 buildings. Option C, by contrast, was expected to deliver a positive change to expected investment returns in Class 2 (but a negative change to Class 3 building returns) and an increase in the supply and affordability of Class 2 housing.

Of course, that analysis involved economic effects only and did not consider safety. Whilst this dates back to 2012, meanwhile, the ABCB believes its conclusions remain relevant today.

Finally, the ABCB engaged a consultant in 2017 to look into whether different lengths of occupant stay had a material effect on fire safety risk. According to that analysis, there was now material change in risk according to length of stays in any of the scenarios modelled except for the case of a three-storey Class 2 building with open stairs where the DTS provision D1.3 was applied. Risk levels associated with buildings being used for short-stay, the consultant concluded, were likely to fall within the range of values which are already accepted for Class 2 buildings.

Airbnb and other short-stay accommodation services are here to stay (pun not intended).

How the National Construction Code should respond is up for debate.