Is Airbnb destroying strata living?
By: Andrew Heaton
01 August 2016
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.
all-night parties and pop-up brothels
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).
commercial residential 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
What are the problems?
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
staggering costs of having short-term rentals
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.
problems with commercial residential accommodation
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
“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
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
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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