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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:
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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.
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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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