In a win for short-stay property operators and a disappointing outcome for Owner Corporations, the Victorian Supreme ruled recently that owner corporations could not prevent dwellings in a strata agreement from being used as short term rentals. We look at the impact of the case on your short term rental rights.

What are strata apartments?

Strata titles are a unique Australian innovation. It allows individual ownership of part of a property (usually the apartment/townhouse) and combined shared ownership of open areas (e.g. foyers, driveways) through a legal entity called the owners corporation.

If you are uncertain about what property you may own under the owners corporation, you can refer to your Corporation Plan for specific details of what forms your unit subsidiaries. A copy of the plan is usually available from the manager.

Case Summary:

The owners committee of Watergates Apartments originally took Paul Salter and Belinda Balcombe who were leasing a number of units in the complex on a short term basis to VCAT. The owners corporation of Westgates Apartments had previously attempted to implement a by-law in 2004 to ban stays of less than 30 days. They also cited concerns about security and damage to property as reasons for the bylaws.

They were unsuccessful in their case and appealed to the Supreme Court. The Supreme Court found that the by law to prohibit short term letting was outside the scope of powers given to the committee by the Victorian Legislation and invalid for the following reasons

  • The role of the owners corporation was to manage and administer common property and did not extend to restricting the use of private lots (usually the individual units)
  • The by law was a substantial interference with the lot owner’s proprietary rights
  • The prohibition of businesses generally and specifically businesses related to short term letting exceeded the scope of what was intended by Parliament in enacting the Owners Corporation Act

How will it affect short-stay leases?

It seems that short term rentals are here to stay in Victoria. This means flexibility for growth of short term renting. The ruling may be of benefit to strata title owners who wish to hire out a room or their home.

However, those who do not own property under a Strata Title should always check with their landlord whether they need consent to sublet their rented property. It was recently concluded in another Victorian Supreme Court Decision that an Airbnb type rental was a lease under this circumstance is subject to the consent of the landlord.

It may also pave the way for commercial residential accommodation, a term coined by the Tourist Accommodation Association. This model involves leasing apartments from a number of owners and then on-leasing the units out to short-stay clients.

The decision in Owners Corporation v Balcombe adds to the increased controversy of short-term lettings of strata units. It is likely that issues of short stay leases will be contested again and strata unit owner should ensure they understand the regulations governing their ownership of their property before attempting to lease out their apartments.

How will it affect owner corporations of apartment complexes?

After this decision, it is clear that owner’s corporations do not have a general power to make rules prohibiting residential apartment owners from letting their apartments for short term stays. The power rests in the functions of local councils by way of local planning schemes. In this case, The City of Melbourne council had consented to the use of apartments in the buildings for short term commercial accommodation on the condition of implementation of safety matters.

Currently, it means that the Owners Corporation Rules enacted can only govern the use of apartments and behaviour of residents if their use or behaviour affects other residents and common property.

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The content of this article is intended to provide a general guide to the subject matter and is not to be construed as legal advice. For legal advice specific to your individual circumstances. Please contact Verity Law