Can a strata by-law
restrict Airbnb style holiday lettings?
A new legal decision is a game changer
The news from London is that the Privy Council has
decided to uphold a strata by-law which bans holiday
lettings of less than one (1) month.
The decision is O’Connor (Senior) and others v The
Proprietors, Strata Plan No. 51 [2017] UKPC 45 (21
December 2017). Lord Carnwath gave the judgment on behalf of
the Judicial Committee of the Privy Council, Parliament
Square, London.
Why is the O’Connor
decision relevant to Australian Strata Law?
The case was on appeal from the Court of Appeal of the
Turks and Caicos Islands. But it is highly relevant to
Australian Strata Law for two reasons:
- The law which governs strata title in the Turks and
Caicos Islands is an Ordinance modelled on the New South
Wales Conveyancing (Strata Titles) Act 1961. It contains
this ban on making a strata by-law which affects an
owner’s right to lease their apartment:
“No by-law shall operate to prohibit or restrict the
devolution of strata lots or any
transfer, lease, mortgage or other dealing therewith
or to destroy or modify any
easement implied or created by this Ordinance.”
The reason why this ban exists was quoted in the
judgment:
“Most states [in Australia] ban by-laws that restrict
transfer, leasing or mortgaging of
[strata] lots, to prevent the problems that existed in
relation to company title, namely
banks not wanting to lend on the security of an apartment if
they cannot exercise a
power of sale quickly and easily.” [note: owners with
company title need permission
to sell, mortgage or lease their apartment, owners with
strata title do not because of
the ban]
- The Privy Council relied extensively on Australian
decisions to find that it was possible for strata
by-laws to impose reasonable restrictions on the use of
an apartment:
“It is clear that statutes prohibiting restrictions on
dealing in strata lots do not
prevent reasonable restrictions on the uses of the property,
even though such
restrictions may have the inevitable effect of restricting
the potential market for the
property.”
Why did the Privy Council
uphold the strata by-law banning holiday lettings?
The strata apartment was unit 102, in the “The Pinnacle”,
which is a condominium development of 34 residential
apartments and associated facilities on Grace Bay Beach, at
Providenciales, Turks and Caicos Islands.
The by-laws for “The Pinnacle” were created at the time
of initial registration in 2005. All purchasers acquired
their strata lots subject to the by-laws and with knowledge
of their terms.
The strata by-laws were specific that the apartment was
only to be used: as a private residence of the Proprietor or for
accommodation of the Proprietor’s guests and visitors,
with the proviso that the Proprietor may rent out his
Residential Strata Lot provided that in no event shall any
individual rental be for a period of less than one (1)
month.
The owners, the O’Connors, had rented out unit 102 to
holidaymakers since 2007. They ignored the minimum stay
requirement in the by-laws. According to traveller reviews,
rentals for one week were popular and highly recommended:
Pinnacle Beachfront Turks and Caicos Beauty.
The body corporate took legal proceedings to enforce the
by-laws.
The Privy Council considered that the one (1) month
minimum stay requirement was designed for the purpose of
defining: ‘use as a private residence’:
“The character of the use is clearly affected by the
length of occupation. Short-term use by holiday-makers
is different in kind from longer-term residential use,
even if it may be difficult to draw a clear dividing
line.”
Was the requirement reasonable? This is how the Privy
Council concluded the judgment:
“By requiring rentals, and therefore occupation
periods, to extend for at least one month, the by-law is
seeking to ensure the degree of stability which is
necessary to maintain the character of the residential
use. In the Board’s view this is properly regarded as
part of a legitimate restriction on the use of the
strata lot, to ensure that the residential purpose
of the development is protected. It does not involve an
impermissible restriction on leasing contrary to [the
strata law].”
The Privy Council quoted with approval the Western
Australian Court of Appeal decision of Byrne v The Owners
of Ceresa River Apartments Strata Plan 55597 [2017]
WASCA 104.
In that case, the strata by-law provided that: a
proprietor of a residential lot may only use his lot as a
residence. Leases were permitted, but restricted: no
letting agreement, leasing agreement or any agreement
conferring a right to occupy those lots, for a term of less
than 3 months in any 12 month period was allowed.
The Court of Appeal held that the strata by-law was
valid. The strata law ban on restricting leases did not make
the strata by-law invalid because the apartment could be
leased for its approved use as a “serviced apartment” (for
short-stay accommodation) for 3 months in any 12 month
period, and be used as a “settled or usual abode” for the
rest of the year.
The Privy Council also quoted with approval the English
Court of Appeal decision in Caradon District Council v
Paton (2001) 33 HLR 34, in which Latham LJ distinguished
a holiday use from a residential use:
“Both in the ordinary use of the word and in its
context it seems to me that a person who is in a holiday
property for a week or two would not describe that as
his or her home. It seems to me that what is required in
order to amount to use of a property as a home is a
degree of permanence, together with the intention that
that should be a home, albeit for a relatively short
period, but not for the purposes of a holiday.” (para
36)
Can the O’Connor decision
be used to restrict Airbnb style holiday lettings in strata
schemes in Australia?
Although the O’Connor decision is not binding upon
the Courts and Tribunals in Australia as a precedent, it
will be able to be referenced to validate strata by-laws
which ban short-term rentals of less than one (1) month in
strata schemes in residential zones for these reasons:
The Privy Council decision in O’Connor was made by
a Board of 5 Law Lords, who are the most senior judges in
the UK. They decided on the equivalent of the Australian
Strata Law and applied the common law. Their judgment must
be given considerable weight.
The WA Court of Appeal decision in Byrne must also
be given considerable weight. It upheld a strata by-law
restricting short-stay rentals to no more than 3 months in
any 12 month period.
The NCAT Tribunal decision in Estens v Owners
Corporation SP 11825 [2017] NSWCATCD 63 must be given
very little weight, being a decision made by an
Administrative Tribunal, not by a Court. The Tribunal struck
down a strata by-law which banned the lot being used by
its occupants on a short-term basis for less than thirty
(30) days in a residential strata scheme.
The O’Connor decision means that the Estens
decision is now bad law.
It also means that this advisory in the NSW Fair Trading
Booklet Strata Living is wrong:
“Strata laws prevent an owners corporation
restricting an owner from letting their lot, including
short-term letting. The only way short- term letting can
be restricted is by council planning regulations.” (at
p. 28)
In the future, Australian Courts and Tribunals will
almost certainly apply the O’Connor decision to
uphold strata by-laws which ban short-stay rentals of less
than one (1) month in residential strata schemes. This is
consistent with the Byrne decision which upheld a
strata by-law restricting short-stay rentals to a total of 3
months in any period of 12 months.
Conclusion
The O’Connor decision is a game changer: With a
properly drafted strata by-law, an owners corporation / body
corporate can restrict Airbnb style holiday lettings of
whole apartments in residential strata buildings by imposing
a one (1) month minimum stay requirement.
For the record, the text of the strata by-law in the
O’Connor decision was:
“Each Proprietor shall: …
- Not use or permit his Residential Strata Lot to be
used other than as a private residence of the Proprietor
or for accommodation of the Proprietor’s guests and
visitors. Notwithstanding the foregoing, the Proprietor
may rent out his Residential Strata Lot from time to
time provided that in no event shall any individual
rental be for a period of less than one (1) month ...
- Not use or permit to be used the Strata Lot or any
part thereof for any illegal or immoral purpose, nor for
the carrying on of any trade or business other than
periodic renting or leasing of the Strata Lot in
accordance with these by-laws unless such trade or
business activity has been approved in advance by the
Executive Committee in writing, which approval may be
revoked for cause.”
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