An owners corporation in Victoria has failed in its bid to prevent individual apartment owners from letting their apartments out under short stay arrangements after the Supreme Court ruled that it did not have the power to institute rules relating to minimum length of stays.

Handing down his decision in Melbourne, Supreme Court judge His Honor Riordan J upheld an earlier ruling in the Victorian Civil Appeals Tribunal (VCAT) that a rule made by the owners corporation of the Watergate apartment complex in Melbourne’s Docklands precinct which prevented apartments within the complex from being let out for terms of less than 30 days was invalid as the owners corporation did not have the power to make such rules.

In his judgement, Riordan J said that existing legislation in Victoria did not allow owners corporations to make rules which banned individual owners from renting their apartments out on a short-stay basis.

“I have found that, under both the Subdivision Act 1988 (Vic) …, the Owners Corporations Act 2006 (Vic) … and the regulations made under those Acts, Parliament did not demonstrate an intention to confer such extensive powers on owners corporations…” Riordan J ruled in his judgement.

“I have further found that the relevant rule, in this case, was not deemed to be valid by s 27(2C) of the Subdivision Act 1988 (Vic) …, or the transitional provisions of the Owners Corporations Act 2006 (Vic).”

Both around the world and in Australia, the issue of letting apartments out on a short-stay basis has been the subject of considerable attention in recent years amid the growth of the popular house sharing service Airbnb.

At the same time, the number of people living under strata type of arrangements in Australia is on the rise amid growing acceptance and popularity of multi-residential living.

The Watergate case revolved around a complex consisting of 349 residential lots in two sixteen storey apartment buildings in Melbourne’s Docklands precinct, which also features a four storey podium containing twelve retail lots.

At its inaugural meeting in 2004, the Watergate Owners Corporation (OC) adopted a special resolution which among other things prohibited owners from letting their buildings out for less than 30 days.

In 2014, the OC applied to the VCAT seeking an order to require unit owners Paul Saltar and Belinda Balcolme to cease from running a short term rental business within the complex under which the pair were hiring out up to fourteen apartments on a short stay basis.

VCAT, however, ruled against that, holding the OC did not have the power to make the rule under the legislation and that the rule had therefore not been validly made.

Upon appeal, Riordan J agreed.

He said that the principal role of owners corporations under strata title legislation was to manage common property and that the legislation had not intended for them to be able either to interfere with the property rights of individual lot owners or to effectively have an ‘unappellable right to overrule uses permitted under planning legislation’.

The latest case follows the announcement in June of moves on the part of the Victorian State Government to crack down on unruly behaviour on the part of short term guests.

These changes make apartment owners potentially liable for damage caused by guests, enable VCAT to award compensation of up to $2,000 to neighbours as well as to ban short stay apartments which are repeatedly used for unruly parties, and impose fines on guests themselves of up to $1,100 for dangerous or unduly disruptive conduct.

Opponents of use of short stay complexes, however, say the changes do not address underlying concerns about the presence of short stay accommodation within multi-residential buildings.

Apart from rowdy behaviour, these include security, undue wear and tear on common property such as lifts (due to repeat streams of visitors taking heavy luggage up and down) and fire safety issues associated with apartment buildings essentially being used as hotels despite not being constructed with the more extensive fire safety features which are required of hotels and other temporary accommodation facilities.

Watergate Owners Corporation Chairperson Barbara Francis expressed disappointment with the decision, saying the decision to appeal the original VCAT decision had been widely supported by owners.

Francis, who is also a director of apartment owner advocacy group We Live Here, called on the state government to undertake more comprehensive and robust action to protect the rights of those apartment owners who do not wish to have short stay accommodation providers operating within their multi-unit complexes.

“We listened to our owners, 95 percent of whom supported us to pass a Special Resolution to file the Supreme Court action,” Francis said.

“We had a mandate given to us to take on the unregulated short-stay accommodation industry, who do not pay their fair share of repairs and maintenance, and who care nothing for the owners and residents that live in the buildings where they operate their businesses.”

“We call on the government to listen to owners and residents, and to change the laws before it is too late. “