Why easy legal compliance is making Airbnb attractive for property owners in Australia

 

Airbnb describes itself in this way:

Airbnb connects people to unique travel experiences in more than 34,000 cities and 191 countries. Airbnb is the easiest way for people to monetize their extra space and showcase it to an audience of millions.

In this article we look at why Airbnb is attractive to property owners and what legalities need to be observed in Australia.

Why have short-term lettings become popular with property owners?

Until recently, it was too hard and too expensive for property owners to rent out their property for short-term stays. So travellers stayed in hotels, motels, serviced apartments and bed & breakfast accommodation. Holidaymakers stayed in flats were managed by specialist operators and real estate agents who charged a commission of 15% to 20%.

In 2008, two college graduates in San Francisco noticed a chronic shortage of accommodation, and had a flash of inspiration – Why not use the internet to advertise overnight stays on airbeds in their lounge room, with breakfast included? This was how Airbnb started (and got its name).

Today, Airbnb has over 2 million listings in 191 countries on its website, so it provides world-wide marketing reach for property owners. Combined with low charges of 3% to the property owner and 6% to 12% to the traveller, Airbnb and others like Stayz.com.au, eDreams.com.au and Bookings.com are disrupting the accommodation industry by taking market share.

In Australia, there are 70,000 Airbnb listings, in popular suburbs like Kirribilli, Darlinghurst, Manly and Bondi Beach in Sydney, and Carlton, South Melbourne and St Kilda in Melbourne.

It is possible to use the Airbnb website to zoom in almost anywhere in Australia to find a place to stay at a cheaper rent than the local hotel or motel. Bookings including payments are made via the Airbnb website, which contains reviews by travellers and ratings, much like the TripAdvisor website provides.

This is how it works: The owner sets the rent higher than the long-term rent because it is a short-term letting. For instance, the Airbnb rent might be $65 per day (plus a cleaning charge) for the room, which is higher than the weekly rent of $245 per week ($35 per day) for the same room. This suits the guest because the rent is cheaper than the daily tariff charged by a hotel.

What are the legalities for property owners for short-term stays?

Until now, many Airbnb hosts have flown under the radar, legally.

But as it becomes more mainstream and widespread, the government has taken an interest in regulating short-term stays. The NSW Parliamentary Inquiry issued a report in October, and the Victorian Parliamentary Inquiry is currently considering submissions.

This is an overview of the law as it applies to short-term lettings:

  • Town Planning Law - Most properties which are suitable for short-term lettings are in a residentially zoned area. It is here that we need to differentiate between renting out rooms in a home, renting out a granny flat, and renting out a whole apartment.

    Renting out 2 or 3 rooms to guests in a home does not generally need planning approval, even if it is regular. But if more rooms are rented, and if breakfast or cooking facilities are provided, then planning approval and a licence as Bed and Breakfast Accommodation or as Backpackers’ Accommodation is needed. Renting out a self-contained flat in a home, the same rules apply, with the proviso that the flat needs to be approved for accommodation (that is, no illegal garage conversions). Business insurance will be needed.

    Renting out a whole house or apartment for short-term stays means that the use may no longer qualify as a ‘home use’. If the zoning permits ‘serviced apartments’, ‘holiday lettings’ or ‘tourist accommodation’ then short-term stays may be permitted with planning approval.

    There is currently no equivalent in Australian Planning Law to the London regulation that short-terms lettings of over 90 days need planning approval, or to the New York regulation that bars short-term lettings of under 30 days unless the owner is living in the apartment. However, these kinds of restrictions are ‘on the table’ in the current government reviews.

    It is wise to check with the local planning authority before signing up to be an Airbnb host.
     

  • Insurance - Renting a room in a home is the same as having a home office for insurance purposes - both are business uses which are not covered by a standard Home Owner Insurance policy when it comes to coverage for injuries. It is different for Landlords policies, where coverage is provided for guest / visitor injuries in investment properties.
    Malicious property damage by guests is not covered by insurance policies. Airbnb fills these gaps by providing “Host Protection Insurance” to cover injuries and a "Host Guarantee" to cover property damage by guests.
     

  • Taxation - For Income Tax purposes, all rents are income and some expenses are deductible. Expenses such as service fees, cleaning expenses, repairs and maintenance, food, photography for the listing and extra insurance premiums are deductible; and the bed, wardrobe, blinds and carpets are depreciable. Claiming Home Insurance, Council and Water Rates and loan interest is fraught with danger for Capital Gains Tax purposes.

    For Capital Gains Tax purposes, renting out a room in a home or renting a granny flat may result in a partial loss of the main residence exemption, because the property is used to derive income. The partial loss is calculated according to the floor area rented out, and the period in which the accommodation is available.

    For Goods and Services Tax purposes, no GST is payable unless the short-term letting is operated as a business. For example, a Bed and Breakfast business or a serviced apartment business or a holiday lettings business will need to be registered for GST, even though they receive residential rents which are normally exempt from GST.
     

  • Strata Law - The Courts in Victoria have ruled that any strata by-law which restricts the use of apartments for short-term holiday letting is invalid. This is because Strata Law in Australia prohibits any restrictions on an owner’s right to rent out their strata apartment.

    Although Body Corporates cannot bar Airbnb lettings, they can control noise and damage to the common areas. Governments in Victoria, Queensland and New South Wales are considering ways to bolster the powers of Body Corporates to regulate ‘party houses’, excess noise and damage to common property.
     

  • Tenancy Law – Residential Tenancy Law around Australia prohibits tenants from sub-leasing the property without the owner’s / landlord’s consent. If requested to approve an Airbnb use, an owner could reasonably refuse to consent because of the extra wear and tear on the property. The Courts in Victoria have ruled that Airbnb use is sub-leasing, and an owner is entitled to terminate a lease because the tenant failed to obtain consent for the Airbnb use.

Conclusions

The legal compliances are easy and straightforward, and present no real impediment to property owners becoming short-term letting landlords.

Airbnb is rapidly expanding. During the last 12 months Airbnb grew its US listings by almost 70% and its nights booked increased 125% to almost 40 million room nights.

As Airbnb’s impact increases, its effects on lodging occupancy and pricing power in the accommodation industry will become more visible. For hotels, motels and serviced apartments, this will manifest in slower revenue growth, and weaker profitability.

For more information about the current status of the law in these areas, click: What laws apply to an Airbnb host in Australia?  Click for more

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