Strata and community schemes wake to a new era of short-term letting

After nearly 20 months of closed international and state borders, it is understandable that the tourism industry is eagerly awaiting the return of the “tourist”, whether that be international travellers, domestic travellers or weary Sydneysiders looking to escape to rural NSW.

However, enlivening tourism again in NSW means that Owners Corporations are back to regulating short-term rental accommodation (STRA) arrangements in their scheme. In addition, Owners Corporations will need to learn to manoeuvre a different framework when dealing with STRA to that which existed in March 2020 before the first COVID-19 lockdown began.

How did we get here?

Section 137A of the Strata Schemes Management Act 2015 (NSW) (SSMA) commenced during the start of the first lockdown in April 2020. This section states that a by-law:

1. "may prohibit a lot being used for the purpose of STRA if it is not the principal place of the owner/occupier; and
2. has no force or effect to the extent which it purports to prevent a lot being used for the purposes of a STRA if the lot is the principal place of residence of the owner/occupier."

The NSW Government intended for section 137A to commence alongside the Government’s new statewide planning framework for STRA (STRA Planning Regime) and the STRA Code of Conduct (STRA Code).

Unfortunately, due to the fact that in April 2020, it was illegal for STRAs to operate, the STRA Code and STRA Planning Regime were put on hold. This put Owners Corporations in a position where part of the promised STRA reform had commenced with the balance remaining in limbo. 

Fast forward to 1 November 2021, the STRA Code has been implemented and the STRA Planning Regime has commenced. An explanation of the new STRA Planning Regime can be found here.

This means that Owners Corporations now benefit from the complete STRA package as the economy gradually begins to reopen.

The STRA Code – key concepts and obligations

The STRA Code has established the concept of a “premises register”.

The premises register is a register of all STRA premises. Each premises will be allocated a registration number which will need to be displayed. A premises will need to be registered on the premises register before it can be advertised as a STRA.

In addition to ensuring that hosts register their premises on the “premises register”, the STRA Code has also introduced an obligation for hosts to:

• ensure that the Owners Corporation or Community Association is made aware that the host is using the premises for the purpose of a STRA
• provide the Owners Corporation or Community Association with contact details of the host or the authorised representative prior to making its lot available for STRA
• provide any guests with an electronic or hard copy of the STRA Code and any by-laws in force for the strata or community scheme.

Furthermore, the STRA Code imposes obligations on guests not to:

• engage in conduct that contravenes (amongst other things) the by-laws that apply to the premises
• 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 or community scheme, or intentionally, recklessly or negligently damage the personal property of neighbours or other occupants of a strata or community scheme.

What happens if a host or a guest breach the STRA Code?  

The risk to hosts and guests that do not comply with the STRA Code is that they may end up on the “exclusion register”.

The exclusion register is a public record kept by the Commissioner for Fair Trading in the NSW Department of Customer Service (Commissioner).

A letting agent (such as Airbnb) is prohibited from advertising any STRA that is either hosted by or is a premises that has been placed on the exclusions register by the Commissioner.

In addition, a letting agent must not let a STRA to a guest if that guest’s details match the details of a guest noted on the exclusion register.

How does the Commissioner make an order that a host or guest be included on the exclusion register?

Any person can lodge a complaint with the Commissioner regarding an alleged failure by a person to comply with the requirements of the STRA Code.

On receipt of a complaint, the Commissioner must serve notice on the participant the subject of the complaint setting out:

• the details of the alleged code contravention
• the potential consequences if the code is found to have been contravened
• instructions on how to provide evidence and submissions to the Commissioner
• next steps in the process.

Once the Commissioner receives evidence from the participant who is the subject of the complaint, the Commissioner must decide, on the balance of probabilities, whether the participant has breached the STRA Code.

If the Commissioner determines that a breach has occurred, the Commissioner can issue a warning notice, a direction, a “strike” or automatically record the participant on the exclusions register.

Does this mean Owners Corporations can report “bad” hosts to the Commissioner?

While the STRA Code allows an Owners Corporation or Community Association to make a complaint against a lot owner who has breached a by-law, the Commissioner may decline to accept that complaint on the basis that the matter should be pursued by the NSW Civil and Administrative Tribunal (NCAT).

This means that an Owners Corporation or Community Association may be forced to pursue breaches of a by-law through NCAT before they can make an application to the Commissioner for a breach by a host of a by-law within the scheme.

If an Owners Corporation or Community Association receives an order from NCAT for breach of a by-law and then makes a complaint to the Commissioner, the Commissioner is limited with what action it can take against the host. This is because section 4.1.7 of the STRA Code states that where a participant has been the subject of another order (e.g. an NCAT order), the Commissioner can only take disciplinary action against a participant for the same breach if it is necessary to protect the public or the STRA Code’s integrity.

This leaves Owners Corporations and Community Associations in a difficult position where it faces hosts that do monitor its guest’s compliance with the by-laws in force for the scheme.

What about precinct associations and neighbourhood associations?

Strangely, the STRA Code only seeks to regulate community schemes and strata schemes.

The effect is that obligations under the STRA Code, for example, the obligation to notify the association if you seek to use your premises for short-term letting, do not apply to lot owners in a Neighbourhood Association which is not the subject of a higher scheme.

Lot owners in a Precinct Association may be required to notify the overarching Community Association of the premises being used for short-term letting, but not the Precinct Association – which may cause issues with lines of communication and governance.

Takeaways

Owners Corporations, Community Associations and other associations not strictly captured by the STRA Code should consider reviewing their by-laws and internal procedures in light of the STRA Code.

While it is difficult for Owners Corporations and Community Associations to report breaches of by-laws to the Commissioner, Owners Corporations and Community Associations should consider:

• implementing a register for lot owners or occupiers seeking to use their premises for short-term letting. This will also assist the monitoring of which lot owners or occupiers are using their premises for short-term letting for more than 180 days of the year. It would also allow the Owners Corporation or Community Association to cross-check the lot against the premises register implemented by Fair Trading
• how to best secure the building in light of the short-term letting reform. This could include requiring guests to register at a concierge, if available, or with the building management. It could also involve regulating access through electronic swipe cards, which can be deactivated if guests cause a security risk or issue while staying at the premises
• what additional requirements they may ask the host to comply with to ensure that insurance premiums are not affected by using the premises as a STRA. For example, requiring the host to have a “fire exit strategy” available in the premises.

If you have any questions about this article or how the STRA Code may affect you, please speak to us or contact us here.

Authors: Elly Ashley & Selina Serce

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 article is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Elly Ashley

Selina Serce

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