So you like / hate Airbnb: courts struggling to make sense of a modern dilemma

By Natalie Hickey, August 4, 2016

The term ‘landlord’ has a distinctly Downton Abbey feel.  One feels right at home in the 15^th century, with a manor, a title, some land, and some tenants.  And that, of course, is how the term was derived.

Contrast this to the distinctly 21^st century vibe of Airbnb.  It explains on its site that “Airbnb is the easiest way for people to monetize their extra space and showcase it to an audience of millions”.  Or, in normal speak, ditch your real estate agent, clean your place up, list it on the Airbnb internet portal, and wait for people to come pay you to stay a short while.

The clash of cultures between old school property law and ‘disrupters’ like Airbnb has found expression recently in two Supreme Court of Victoria decisions.  The first tries to explain the landlord / tenant relationship in a post Airbnb world.  The second examines the fraught relationship between apartment owners, when one (or more) apartments is rented out for short stays.

At the heart of both cases is this question: How much control can and should be exercised over people who turn their ‘house’ into an Airbnb ‘hotel’?

Whatever the answer, property law language can be justly criticized as forming part of the anachronistic rubble of a bygone era.

The landlord / tenant relationship: Swan v Uecker [2016] VSC 313

This is the tale of an irate home owner who discovered that her tenant was “showcasing” the place she thought she had rented to them on a one-year lease “to an audience of millions” on Airbnb.  From her perspective, that was not part of the deal and she wanted them to vacate, at once.

The Victorian Civil and Administrative Tribunal (VCAT) disagreed, and even though the lease was shortly to end, on a point of principle the landlord appealed the decision to the Supreme Court, and won.

The two-bedroom apartment was in Fitzroy Street, St Kilda, an area popular with interstate and international travelers because it has great clubs, bars, restaurants and is close to the beach.

The place sounds a lot nicer than this one:

The Supreme Court of Victoria appeal concerned the listing for the entire Apartment, which required a minimum stay of three nights and a maximum of five nights.  The listing stated:

Guest Access

You will have use of the entire 2 bedroom apartment, its bathroom, kitchen, loungeroom and balcony.

Interaction with Guests

I will be available by phone for any guidance I can give and I won’t be far away if you need me to come with a key, etc…

House Rules

Since this is my home and I am leaving to allow you to have it all to yourself, I simply ask that you observe the normal courtesies such as being considerate about noise for the neighbours’ sake and being careful with my TV, stereo and kitchen amenities.

The court decision has a satisfactory emotional appeal, particularly to landlords.  There seems little point in a real estate agent vetting tenants for you if an “audience of millions” is soon to settle into your property on an unregulated, unfiltered basis.

The legal battleground concerned whether an Airbnb stay could be characterized as a ‘licence to occupy’ or a ‘sub-lease’.  If the latter, the tenants had breached their lease because it contained a term prohibiting sub-letting.

The lease clearly stated that “the persons named on this agreement are the only permitted occupiers of the premises during the tenancy” (emphasis added). On its face, clear enough. Yet, we know that in the real world when your friends come over and have too many wines over dinner, you are not going to deny them a night on the sofa because, “Look, so sorry but my lease prohibits me from having people like you occupy my house”.

It follows that ‘occupy’ is a term of art, and that the law must step in to work out what it means.

It appears plain that in the mind of Justice Croft, people who take over the whole property for a fee, even for a few days, will fall into the ‘sub-lease’ category.  However, he had to work backwards from some unhelpful facts to arrive at this result, which makes for some unsatisfactory legal reasoning.

The relevant principles:

• The judge had to decide whether a person is a lodger (licence to occupy) or is a tenant (sub-lease).
• This comes down to the concept of “exclusive possession”.
• If a person has been conferred exclusive possession, then he or she will be deemed a tenant.
• Exclusive possession is determined by examining (a) the nature of the rights granted; and (b) the intention of the parties.
• The intention of the parties is to be determined objectively from the terms of the agreement and the surrounding circumstances.

If the above factors sound illusory and don’t make much sense, don’t worry.  This is because they really don’t make much sense.

Let’s go through the key facts, and see whether Justice Croft regarded them as an indicator of ‘house’ (exclusive possession) versus ‘hotel’ (something that, whatever it means, is not exclusive possession):

• Tenants who take the whole apartment rather than just one bedroom – capable of being ‘house’ (by not including it in the appeal, the landlord effectively conceded that taking just one bedroom could not amount to ‘exclusive possession’)
• Airbnb Agreement that said in bold that “a confirmed reservation is merely a licence” – not relevant
• Airbnb Agreement that said that if a guest stays past the agreed checkout time without the host’s consent, “they no longer have a license to stay in the Listing and the Host is entitled to make the Guest leave” – not relevant
• Each stay was no longer than five days at a time – ‘house’
• Ability of tenants to access the rented premises during each Airbnb stay – not relevant

From the above, the judge was plainly unlikely to be persuaded of any factor capable of falling into the ‘hotel’ category.  Justice Croft disqualified all the factors relied on by the tenants (and VCAT) in favour of ‘hotel’, without putting much of a positive case for how exclusive possession could be inferred.

Importantly, Justice Croft was not very impressed with the ‘hotel’ analogy at all: “This is not a process that can be transcended by drawing broad analogies with, for example, a hotel or various species of serviced apartments”.  Point taken.

The judge relied on case law to clarify that leases could be created by express agreement, for days or even for hours. That the Airbnb agreement did not use the word ‘lease’, but in fact used the magic word ‘licence’ did not, however, help.  This was because, according to the judge, this was “just a label” and one needs to look at “substance and not form” when working out whether exclusive possession has been conferred.

Looking at those surrounding circumstances, how about the fact that the tenants could throw out the guests if they overstayed their welcome?  Not relevant, said the judge. You can do this whether or not it is a licence or lease, so it’s not really a point of distinction.

How about the fact that the host could enter the place whilst the guest was there?  Not relevant, said the judge.  That’s a matter of common courtesy rather than legal characterization.

The positive factor relied on by Justice Croft in favour of exclusive possession was the language of the Airbnb listing itself: “I am leaving to allow you to have it all to yourself”.

I’m thinking Justice Croft would consider handing over your castle on Airbnb to be ‘exclusive possession’:

The take out lesson for Airbnb ‘hosts’ who also happen to be ‘tenants’, in Victoria at least, is:

1. Check your lease to see whether it prohibits sub-leasing (or other property type words you don’t understand) without your landlord’s consent;
2. If so, you are in dangerous territory advertising on Airbnb, but if you really must*, limit the arrangement to a room, and do not hand over the whole place (*You know you don’t really have to, and that if you do so, you are walking into legal risk).

The take out lesson for landlords who don’t want any ambiguity around what tenants can or can’t do, is to make sure your lease says things in plain English that normal people can understand.  For instance, if you don’t want your tenants making available your place, or any part of it, on Airbnb or any similar site, say so.

Really unhappy neighbours: Owners Corporation PS 501391P v Balcombe [2016] VSC 384  

This case concerned what, if anything, a neighbor can do if the place next door is being rented out to lots of people all of the time, rather than to a few people some of the time. The answer, it seems, is not much.  It concerns the short-letting phenomenon generally.

For many of us in Australia, the concept of a double fronted brick home is so 1960s.  High density living is both necessary, cost-effective and convenient.  Further, it is commonplace for apartment owners to negative gear their properties by renting them out.

As Justice Riordan observed, there has been a dramatic shift in urban areas towards high density residential living arrangements that are subject to owners corporations:

This shift is demonstrated by the fact that, in 1988, there were approximately 35,000 owners corporations (then known as ‘bodies corporate’) related to developments in which 200,000 people lived and worked.  By 2014, there were approximately 88,500 owners corporations related to developments in which about 1.5 million people lived and worked – an increase in the number of people affected by owners corporations in their daily lives of some 750%: at paragraph [3].

It seems the trend is not just in Australia:

The Docklands in Melbourne has become a popular short-letting location.  The Owners Corporation of the Watergate Apartments had become completely fed up.  It sought an injunction restraining a number of apartment owners from short-letting their apartments for less than 30 days. This was to enforce a body corporate rule (Ed: Sorry, I can’t help still saying ‘body corporate’) requiring accommodation to be rented for periods of more than one month.

For a 3AW discussion about the Watergate Apartments’ legal issues (“…are you tossing the keys to Hydroponic Harry?), see here: 

One of the defendants in this case, Mr Salter, had made quite a business from letting apartments.  He gave evidence that in eight and a half years of operation, there had been over 3,500 bookings and 10,500 guests.

True it is, Mr Salter met guests on arrival in person.  However, disgruntled neighbours complained that, if he was not there, arriving guests would breach security by following residents into the builder and then loiter in the building foyer.  Further:

• Guests would also impose on the building manager and occupiers by asking for directions.
• Guests would leave their luggage in the building foyer.
• Guests would regularly jam the lift doors open with luggage.
• Guests would not respect Owners Corporation rules.
• Guests were not properly inducted into the safety procedures of the building.
• There was increased wear and tear in the common areas of the building, with luggage and cleaning equipment being transported to and from the lots.

The judge had to deal with the facts before him, namely, the rule that effectively prohibited short-letting (here, stays of less than one month).  He concluded that the rule was invalid.  It could not be enforced, and so the short-letting could continue.

Justice Riordan found that the relevant Owners Corporation rule over-reached.  The task of Owners Corporations is to manage and administer common property.  There is no clear and unambiguous legislative basis allowing Owners Corporations to make rules that can regulate the private property rights of owners so substantially.

Accordingly, for apartment owners engaging in short-letting whether via Airbnb or otherwise, breathe easy, for the time being at least…

For disgruntled neighbours or Owners Corporations, consider:

1. Lobbying your local member, because only a change in the law will give you the express power to make rules limiting or prohibiting short-letting within your apartment building; and/or
2. Consider the powers you do have, and operate within them – For example, a number of the practical complaints outlined above relate to activities in common areas, and one can see how an Owners Corporation could make rules regulating those activities without crossing the legal line.