Don't Get Caught In The Crossfire!

13 May 20

DON'T GET CAUGHT IN THE CROSSFIRE!

NEW NSW SHORT TERM LETTING BY LAW LEGISLATION COMMENCES FROM 10/04/2020

Commencement Date

The NSW "Airbnb" legislation has been in the pipeline since 2017. It was due to commence about now. However, with the Coronavirus now monopolising the government's attention, the introduction of the legislation has been deferred until later in the year.

For some unknown reason however, the NSW government has made one key exception to this deferred start date. From 10 April 2020, owners corporations are now able to pass by laws that prohibit short term letting in strata schemes, but only in lots that are not the principal place of residence of the hosts.

Background

The legislation was always intended to be a 3 prong attack to control Airbnb type letting in residential complexes:- 

1. Changes to Town Planning Laws

A State wide planning instrument will be introduced to overcome inconsistent existing local town planning laws around the State. These planning laws were designed to distinguish between "hosted" and "non-hosted" short term residential accommodation.

"Hosted" accommodation will be exempt from usual town planning requirements (i.e. owners will not be required to obtain specific development approval from Council to carry on short term letting) - provided that it is from residential accommodation and the number of persons residing in any dwelling at any one time does not exceed two persons for each bedroom or 12 persons in total, whichever is the lesser. A current fire safety certificate is also required. Hosted accommodation can be used for short term rental 365 days per calendar year.

"Non-hosted" short term rental accommodation can be limited at the discretion of each local council, provided it is not less than 180 days a year. For example, Sydney and Ballina have limited their non-hosted short term rental accommodation to a maximum of 180 day a year.

From a management rights operator's point of view, the important issue to note is that tourist and visitor accommodation (which definition now includes management rights operators after vigorous representations made by ARAMA) are specifically exempted from these "hosted" and "non-hosted" planning laws.

2. Code of Conduct

A mandatory code of conduct will apply to all relevant Airbnb style short term rental accommodation. This Code, when introduced, will address the impact of noise levels, disruptive guests and the effects of these guests on shared strata amenities. There will also be a new dispute resolution process to resolve complaints and this will be policed by the Department of Fair Trading.

By Laws in Strata Buildings

Since 10th April 2020, owners corporations can adopt by laws that prohibit short term rental accommodation in strata schemes - but only where the lot is not the host's principal place of residence. This means if someone lives in a strata property as their principal place of residence, they will still be able to rent out their home, or rooms, while they live there or are temporarily away from home.

Any such by law will need to be adopted by an owners corporation at a general meeting by way of a special resolution. This type of resolution requires a vote based on unit entitlement (and not one unit one vote), with no more than 25 percent of the votes cast against it. The by law must then be registered to give it legal effect

Residential tenancy laws have also been changed to clarify that from 10th April 2020, short term rental accommodation arrangements of 3 months or less are not agreements covered by the residential tenancy framework.

Issues for the Management Rights Industry in NSW

Many owners corporations would love to pass a by law prohibiting short term letting as they are sick to death of what they see as the detrimental social impact that Airbnb type letting has in their complexes.

Management rights operators however need to be very vigilant to ensure that they are not caught in the cross fire of these Airbnb reforms!

It is clear that these types of by laws are directed at Airbnb style letting and not at a typical management rights operator who conducts holiday or serviced apartment letting at appropriately zoned complexes.

However, if an owners corporation passes such a by law, management rights operators who short term let are in trouble, even though they may have conducted this type of letting for the past 20 years and even though their town planning DA allows short term letting to operate at the complex!

What you need to do

The voting threshold is high - effectively a 75% majority (based on unit entitlement) is required to pass the by law. Remember, unit entitlement is based on the value of each unit at the time the plan was registered. Bigger units have higher unit entitlement.

Rally up Proxies from your Investment owners?

There are limits on the total number of proxies held by one person:

• one proxy vote only for schemes with 20 lots or less, or

• in schemes with more than 20 lots, a number that is equal to no more than 5 percent of the total number of lots.

However, a proxy cannot be used by a building manager or an on-site residential property manager for a financial or material benefit. Material benefits include:

• extending their term of appointment;

• increasing their remuneration;

• deciding not to pursue, or to delay, legal proceedings involving the proxy holder.

It could be argued that a building manager is also prohibited from holding proxies to vote against a by law prohibiting short term letting in a complex as it provides the manager with a "material benefit". However, there is nothing stopping other investment owners holding proxies (subject to the above limitation on numbers).

Also remember a proxy is worth nothing if the owner is not 100% paid up with their QC levies!

Electronic Voting

Owner corporations can now vote on matters by:

• teleconference, video-conferencing, email or other electronic devices; or

• pre-meeting electronic voting (this is a vote by email or other electronic means before the meeting).

Pre-meeting electronic voting is something to be very careful about. Timing is everything! Make sure you lobby your owners before the electronic vote becomes available.

What to do Next

As always, it is important that you keep open good lines of communication with your committee members and your strata manager. If you conduct short term letting in your complex and there is talk about your owners corporation trying to prohibit Airbnb style letting by use of such a by law, get your lawyer involved to assist with the drafting of the by law so that it exempts a manager that has a letting agreement with the owners corporation.

Don't become collateral damage!

Article Written by Col Myers of Small Myers Hughes Lawyers

Liability limited by a scheme approved under Professional Standards Legislation
Disclaimer – This article is provided for information purposes only and should not be regarded as legal advice.
  

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