NSW introduces new laws to regulate short-term rental accommodation

New restrictions on Airbnb-style short-term rental accommodation (STRA) commenced in New South Wales on 10 April 2020. The laws are designed to exclude STRA arrangements from the traditional residential tenancies regime and assist owners corporations to manage STRA in their buildings.

What has changed?

The Fair Trading Amendment (Short-term Rental Accommodation) Act 2018 (NSW) (Amendment Act) came into force on 10 April 2020, giving effect to changes to the Fair Trading Act 1987 (NSW) and Strata Schemes Management Act 2015 (NSW) (SSM Act). 

The legislation is part of a broader package of reforms that the NSW Government has been pursuing in recent years in an attempt to find a balance between the economic benefits of the STRA industry and public concerns about the amenity impacts of widespread holiday-letting through platforms such as Airbnb.

From 10 April 2020, an STRA arrangement, defined as ‘a commercial arrangement for giving a person the right to occupy residential premises for a period of not more than 3 months at any one time’, is excluded from the operation of the Residential Tenancies Act 2010 (NSW). 

The creation of a clear definition (rentals of three months or less) and removal of STRA from the residential tenancies regime will give certainty to the STRA industry, which until now has struggled to fit comfortably within traditional legal frameworks that regulate residential accommodation. 

The second major change is that owners corporations may now adopt by-laws that prohibit the use of a strata lot for STRA, but only where the lot is not the principal place of residence of the STRA host. A by-law of this kind would effectively restrict STRA to circumstances where the resident of a strata lot allows the property to be rented out as STRA while on holidays or if a spare room is rented while the host is present. All other kinds of arrangements may now be restricted if the owners corporation makes a special resolution, requiring at least 75% of votes in favour, to introduce a new by-law restricting STRA usage. 

Previously, by-laws that restricted STRA were at risk of being struck out by the courts for breaching the prohibition against the restriction on dealings in section 139(2) of the SSM Act.

Industry Code of Conduct on the horizon

The other key piece of reform that was anticipated was the introduction of an STRA Code of Conduct. 

According to the changes that were introduced by the Amendment Act, this Code of Conduct will cover all STRA industry participants, which includes not only STRA hosts and holiday renters but also agents of STRA users and those who provide of online booking services to facilitate STRA. It will be mandatory to comply with the Code and an enforcement structure has been set up to penalise those who contravene the Code.

Any person will be able to lodge a complaint to the NSW Commissioner for Fair Trading if they believe that an STRA industry participant has contravened the Code. If the Commissioner finds that a complaint is valid, the Commissioner may issue a warning notice, direction to stop certain behaviour or record a strike against the offender. It is expected that the Code will provide that, if two strikes are recorded within a two-year period, the offender will be placed on an exclusion register. Hosts, premises and guests that are placed on the exclusion register will not be able to participate in the STRA industry for five years. The register will be made publicly available online so that users of STRA can check to see if their proposed rental is in fact excluded.

For more serious contraventions of the Code, civil and criminal penalties up to $22,000 for individuals ($110,000 for corporations) will be available.

The content of the Code of Conduct remains unknown. The NSW Government had indicated that it had finished drafting the Code by introducing the Fair Trading (Code of Conduct for Short-term Rental Accommodation Industry) Regulation 2020 on 13 March 2020, which would lead to the publication of the Code on 10 April 2020. In an unusual turn of events, that regulation was repealed before it could come into force when, on 3 April 2020, the Fair Trading (Code of Conduct for Short-term Rental Accommodation Industry) Repeal Regulation 2020 was made. Although no official explanation was given, the NSW Government may have wanted to avoid confusion that could have been caused by the introduction of detailed regulations of the STRA industry at a time when it was urging everyone to stay at home and stop using STRA to go on holidays to help slow the spread of COVID-19.

What to expect next

Despite the withdrawal of the Code of Conduct, the Amendment Act still proceeded as expected on 10 April 2020. This has opened the door for the Code of Conduct to be made at any time. Property industry participants should be on the lookout for the Code, particularly as governments begin to consider gradually switching back on certain parts of the economy. 

In addition to amendments to fair trading and strata laws, significant reforms to planning laws to specifically address STRA arrangements are also being developed by the NSW Government. This includes a new State Environmental Planning Policy, a standard definition of STRA in a planning context and new fire safety standards that are specific to STRA arrangements. 

There is no indication on when these reforms are likely to be finalised. Public consultation concluded in late 2019 so the reforms could be implemented relatively soon. Although, this is unlikely to be a high priority for the NSW Government at the present moment so it may still be some time before new legislation is introduced to effect changes to the planning regime.