The rapid growth of AirBnB and other online accommodation platforms has in recent years contributed to a substantial increase in disputes within apartment buildings.

Owners who have purchased their apartment as their residence require that the owners corporation ensures that the building is suitable for long term residences with appropriate controls on noise and the use of common property.

Conversely, owners who have acquired their apartment as an investment require the ability to lease out that apartment to derive rental income and increasingly have used online platforms to achieve short term lettings.

In response to the demands of owner/occupiers many owners corporations imposed restrictions on short term lettings in the owners corporation rules including prohibiting letting below a specific period of time.

However, recent court decisions have held that an owners corporation does not have the power to impose restrictions on the use of an apartment and that any owners corporation rules which attempt to do so are unenforceable.

This has forced owners corporations to rely on owners corporation rules which do not directly restrict short term letting but impose costly obligations on short stay occupants such as inductions and fire safety training.

Adding to these complications is the increase in new mixed use buildings which contain a hotel and residential apartments. In these types of buildings it is common for the hotel operator to require that to protect the hotel’s business, residential apartments must not be used for short term letting and require the registration of a restriction on the title of each residential apartment prohibiting such use. Whilst effective, restrictive covenants can be a blunt instrument and often have an adverse effect on the value of apartments leading to finance problems for purchasers.

Short Stay Levy Bill

In response to these issues the Victorian Parliament has introduced the Short Stay Levy Bill 2024 (Vic) which will come into effect on 1 January 2025.

This legislation is primarily designed to introduce a 7.5% levy on booking fees for properties listed on platforms like Airbnb and Stayz and it has attracted significant publicity in relation to this measure.

However, it also amends the Owners Corporations Act 2006 (Vic) (OC Act) to allow owners corporations to make owners corporations rules (OC rules) banning short stay accommodation. The Government says that the aim of this change is to help divert properties from the short stay accommodation market to the longer term accommodation market and therefore increase housing supply.

Key points regarding the new OC rules

• Prohibition – The bill amends the OC Act to allow owners corporations to make OC rules prohibiting the use of lots as short stay accommodation.

• Exceptions – The prohibition cannot apply to an owner, or an owner’s tenant or sub tenant, who is using the lot as their principal place of residence and wants to rent it out as short stay accommodation.

• Meaning of short stay – The bill defines short stay accommodation as a period less than 28 days.

Limitations of the new OC rules

The OC rules prohibiting short stay accommodation can be made like any other rules by a special resolution of the owners corporation and can be made by existing owners corporations or by new owners corporations created on completion of a project.

Of course if such rules can be made like any other rules, they can also be revoked or modified once made by a subsequent special resolution of the owners corporation. This means that even if such rules are contained in the original OC rules of an owners corporation, there is nothing to prevent an owners corporation from subsequently revoking or modifying them to allow short term letting.

It should also be noted that the OC rules can only prevent short term letting of less than 28 days. If a longer threshold is required, this cannot be achieved by the OC rules and a restrictive covenant will be required.

Developers

Developers may consider whether to include the prohibition in the OC rules that they make when the plan of subdivision is registered. This will depending on the type of project and the demographic to which it is being marketed. For projects tailored to owner/occupiers it may add value to have an OC rule prohibiting short stays, but if the target market is investors, the opposite may be true.

Developers will also need to consider whether they wish to prevent the owners corporation from subsequently revoking or amending such a rule and/or whether a period longer than 28 days is required. If so, they will need to rely on a restrictive covenant.