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Section 137A and no Mandatory Code Conduct – the new short term letting conundrum strata schemes need to face

05 August 2020

#Property, Planning & Development

Published by:

Christopher Colevski

Section 137A and no Mandatory Code Conduct – the new short term letting conundrum strata schemes need to face

On 10 April 2020, NSW residents were facing Stage 3 COVID-19 restrictions. During this time, very few people were thinking about the short term letting industry, largely because the industry was banned from operating during this period of time.

Despite the COVID-19 restrictions, the NSW Government chose to allow a new section, section 137A, of the Strata Schemes Management Act 2015 (NSW) (SSM Act) to commence on 10 April 2020.

The introduction of section 137A, formed part of a broader legislative reform package to the short-term rental accommodation (STRA) industry, is an attempt by the NSW Government to find a balance between the economic benefits of the STRA industry and the public concerns about the amenity impacts of widespread short-term letting through platforms such as Airbnb and Stayz.

What is section 137A?

Section 137A states that:

  • by-law made by a special resolution of an owners corporation may prohibit a lot being used for the purposes of a STRA arrangement if the lot is not the principal place of residence of the person who is the owner or occupier of the lot; and
  • by-law has no force or effect to the extent to which it purports to prevent a lot being used for the purposes of a STRA arrangement if the lot is the principal place of residence of the person who is the owner or occupier of the lot.

The effect of the above is that from 10 April 2020, by-laws in place that prohibit short term letting will be unenforceable against owners or occupiers who occupy their lot for more than 180 days of the year. This means that owners and occupiers who reside in their property for 180 days of the year could:

  • rent out a spare room in their property on a short term letting platform while they are present; or
  • rent out their entire property whilst on holidays,

and these arrangements could not be prohibited by an Owners Corporation.

This new section may be problematic for strata schemes who have relied on by-laws that entirely prohibit short term letting as their way of regulating short term letting within their strata scheme. This is especially the case when you consider that section 137A of the SSM Act was implemented without the implementation of the other part of the NSW Government’s reform being the STRA Code of Conduct.  

What happened to the STRA Code of Conduct?

When the STRA reforms were originally announced, the Code of Conduct, being a set of rules for all STRA industry participants and an enforcement structure to penalise those who contravene the code, was a key part of the proposed reforms. 

When it was announced that section 137A of the SSM Act would commence on 10 April 2020, many assumed that the Code of Conduct would also commence. However, the NSW Government repealed the Code of Conduct on 3 April 2020, seven days before it was due to commence. The NSW Government originally stated that this was due to the COVID-19 situation, as at the time, all forms of STRAs were banned from operating in NSW.

At the time of writing this article, there have been no active steps taken by the NSW Government to implement the Code of Conduct. This is despite the fact that the other part of the reforms, namely the implementation of section 137A of the SSM Act, have been operating for over three months.

What was the Code of Conduct supposed to cover?

Whilst a final Code of Conduct was never published, a draft Code of Conduct, which was published by the NSW Government earlier this year (Draft Code), attempted to address Owners Corporations’ concerns by stating that:

  • a host must ensure guests have access to any by-laws in place for the premises that would apply to the guests;
  • a host must give the Owners Corporation for the premises, and the occupants of the residential premises directly neighbouring the premises, the following information:
    • that the host is operating a short-term letting accommodation on the premises; and
    • the contact details of the host or an authorised representative;
  • a guest must not engage in conduct that contravenes (amongst other things) the by-laws that apply to the premises; and
  • a guest must not, at any time, during the occupancy period (amongst other things) create noise that is likely to harm, offend or unreasonably disrupt the peace and comfort of neighbours, use or enjoy the premises in a manner that interferes with the use or enjoyment of common property by neighbours and other occupants of the premises in a strata/community scheme, or intentionally, recklessly or negligently damage the personal property of neighbours or other occupants of a strata/community scheme .

Under the Draft Code, a person, who would include an Owners Corporation, could lodge a complaint to the Commissioner if a host or guest contravenes the Draft Code. If the Commissioner is satisfied that the Draft Code has been breached, it can take disciplinary action. Such action could include:              

  • the issuing of a “strike notice”. If a guest or host receives two “strike notices”, then they will be included on an exclusion registrar which will be maintained by the Commissioner; or
  • the issuing of a written direction requiring the host to stop acting in a particular manner. This direction can include a direction applying to common property or association property, e.g. a direction preventing the host making a common property facility available to his/her guests.  

Whilst this seemed, on the face of it, an avenue which an Owners Corporation could pursue if they had a problem host, the Draft Code states if a complaint is based on a contravention of a by-law of a strata scheme or community scheme, the Commissioner may only accept the complaint if the NSW Civil and Administrative Tribunal (NCAT) has already made orders for a financial penalty for the contravention of the by-law.

An Owners Corporation would need to first apply to NCAT for an order that the host has breached the by-laws, in the usual method, before it could seek to make a complaint to the Commissioner. Moreover, even if the Owners Corporation was to obtain an NCAT order, the Draft Code states that the Commissioner can only take action against the host if it is satisfied that it is necessary to protect the public or the code’s integrity.

Even if the Code of Conduct had been adopted, Owners Corporations may have found it difficult to get any practical use out of the Code, given the framework that was initially proposed (as set out above).

So, where to from here?

Given that no Code of Conduct has been implemented, and even if the Code of Conduct is implemented in the coming months, the practical issues that Owners Corporations face in relying on the Code, it is important for Owners Corporations to undertake a review of their by-laws to ensure that they remain effective and compliant with the new regime. The NSW Land Registry Services has echoed these sentiments in a recent press release.

Whilst Owners Corporations cannot prohibit eligible owners or occupiers from letting their property under a STRA, Owners Corporations can implement other by-laws to regulate STRA within their strata schemes, including those participating in a STRA:

    • to notify their concierge or building manager before making their property available for short-term letting;
    • to provide evidence that they use the property as their principle place of residence; and
    • in some circumstances, pay an administration fee for requiring their concierge or building manager to undertake additional services relating to the management of their STRA.

Holding Redlich would be happy to assist any Owners Corporation implement these types of arrangements in their by-laws. 

Authors: Elly Ashley & Christopher Colevski

Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Christopher Colevski

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