Can an Owners Corporation pass a by-law that prohibits short term lettings such as Airbnb?

Airbnb is becoming increasingly popular as a cheap accommodation option. Lot owners are understandably keen on renting out their unit short term to gain high returns. However, if an Owners Corporation prohibits the use of Airbnb short term letting through a by-law, is it valid?

The answer to this was ‘no’ in the case of Estens V Owners Corporation SP 1825 [2017] NSWCATCD 52 where the New South Wales Civil and Administrative Tribunal (NCAT) ruled that by-laws prohibiting short term lettings were invalid.

The respondent, Owners Corporation SP 1825, passed a by-law that prohibited lot owners such as the applicant, Ms Estens, from engaging in short term letting. Ms Estens subsequently sought an order from NCAT to overturn the rule. The passed by-law was said to infringe on Section 139(2) of the Strata Schemes Management Act 2015 (NSW) that states “No by-law is capable of operating to prohibit or restrict the devolution of a lot or a transfer, lease, mortgage or other dealing relating to a lot.” In concluding this, NCAT referred to a 2016 publication by NSW Fair Trading, and the 2016 NSW Legislative Committee Environmental Planning Report.

Fair Trading NSW commented that a by-law should not be “harsh, unconscionable or oppressive” and that “no by-law is capable of restricting a dealing in a lot, including restricting short-term letting”. Furthermore, the Head of Policy ANZ at Airbnb remarked, “it would be unfair to discriminate against apartment dwellers, and prevent them from participating in the sharing economy in the same way house dwellers can”.

Yet critics have commented on the lack of sufficient reasoning behind NCAT’s decision and suggest that there may be an appeal against the decision in the near future. This is based on the fact that the by-law wasn’t reproduced, the reasoning was brief, and they didn’t refer to a 2017 WA Court of Appeal decision in Byrne v The Owners of Ceresa River Apartments Strata Plan 55597 [2017] QASCA 104 that allowed by-laws to prohibit short term letting.

Therefore, currently there is no black or white response to this question. The case explained above has little authority as it was only heard by NCAT. Generally, tribunals and courts will rule against a restrictive practice but each case concerning by-laws will need be considered on individual merit.

If you as a lot owner or a member of the Owners Corporations are concerned about the validity of a by-law, you should seek legal advice from Telemon Lawyers Pty Ltd.