Apartments are often used by lot owners as an investment property and can be a good source of additional income. Australia has seen a boom in its short term rental industry, and strata buildings have been a popular hub for this activity. This trend has been given a tremendous boost by the increasing popularity of short term leasing internet platforms like Airbnb.

But it isn’t all good news. There is a growing tension between long-term owners and occupiers of strata buildings who want a quiet residential environment, and the demands of short term renters, who are often on holidays and looking for a good (and often noisy) time!

Short term leasing and disruptions to the building

With the increasing popularity of short term leasing, we have seen strata buildings face new issues like having to deal with anti-social behaviour that commonly arises from short term leasing arrangements. The following issues appear to be particularly common in buildings that entertain short term leasing:

  • Excessive noise arising from ‘house parties’, particularly those buildings located in the city or coastal areas.
  • Security issues arising from unidentified people moving in and out of the building. In most cases, the Owners Corporation have not been notified or provided with the tenant’s details.
  • Excessive waste and the incorrect disposal of waste by short term tenant.
  • Non-compliance with the by-laws leading to general disruption in the building including damage to common areas.
  • Safety issues with tenants occupying the building and not being aware of the hazard and evacuation plans in place.

Important changes to short term leasing laws

From 10 April 2020, there will be important changes to the Strata Schemes Management Act 2015 (NSW) which gives the Owners Corporation a right to introduce a by-law that prevents short term leasing.

What are the specific changes?

Introducing a definition of ‘short term rental accommodation’

The amendment introduces a definition of ‘short term rental accommodation’ to extend to a commercial arrangement that gives a person the ‘right to occupy a residential premise for a period of not more than 3 months at any one time’. We note that 3 months is a reasonably long period, so these rules will not just affect short term stays or one or two nights, but could also impact things like ‘executive leasings’ of up to 3 months.

Changes to the Strata Schemes Management Act 2015 (NSW)

An additional section 137A will be added to the Strata Schemes Management Act 2015 (NSW). This amendment will allow the Owners Corporation to do the following:

  • Pass a by-law by way of a special resolution;
  • That prohibits a lot from being used for the purposes of short term rental accommodation; and
  • In circumstances where the lot is not the principal place of residence of the person (usually the lot owner) who is giving another person the right to occupy the lot.

Once the by-law has been validly passed, a lot owner will only be permitted to engage in short term leasing if their lot is also their principal place of residence. It’s important to note that the changes do not bring about a total ban on short term leasing. The policy is that if the owner is also in using the property as their residence, they are more likely to ensure that visitor behaves themselves and does not turn the property into a ‘party house’.

The ultimate effect of this, is that the Owners Corporation now has significant power to reduce the occurrence and frequency of ‘unsupervised’ short term leasing. The exercise of this power will mostly impact investor owners, or people who rent from an investor owner to on-let the property to short term visitors. It will not impact investor owners who rent to others on a long term basis, or to owner occupiers.

Passing a special by-law that reflects section 137A is likely to have a material outcome, and could assist the building to transition more towards a majority owner-occupied building. In fact, it is likely to split buildings into one of two categories – the first being buildings majority owned by investors who will want to keep the option of short term rental open, and the second being buildings majority owned by residents who want to exclude short term activities. It will become more crucial for you to know what type of building you are buying into!

What about regulating short term leasing allowed under the Act?

The Government has the power to introduce a ‘Code of Conduct’ that regulates the conduct of participants in the short term rental accommodation. Once formally implemented, it will contain rules that all guests and hosts must abide by. It will also introduce a ‘two strikes and you are out policy’ which will assist enforcement of the Code of Conduct.

Once the Code is formally introduced, it will assist buildings to reduce the disruption that arises from short term leasing and deter participants in the short term rental industry from engaging in anti-social or disruptive behaviour.

How can we help you?

In preparation for the amendments to the Strata Schemes Management Act 2015 (NSW) coming into force, we can assist you to draft a special by-law that incorporates the new power given to the Owners Corporation. We can also assist you to register the special by-law (once it has been passed) with the Land Registry Services. This means that the special by-law will appear on the common property title for the Strata Plan, placing all purchasers on notice that they are bound by the special by-law.

To get this in going, call:

  • John Morrissey on 0407 069 507 or
  • Mariam Chalak on 0410 914 128

Both John and Mariam have transitioned to work arrangements that will ensure they remain available to help you through these times.

If you would rather get in contact through email, send your questions through to Mariam at mariam.chalak@jfmlaw.com.au.