EPMEPM: Best Practice & Legislation

Closing The Airbnb Loophole

LISA JEMMESON EXPLAINS THE DETAILS behind the recent Victorian Supreme Court decision in Swan v Uecker, often referred to as the ‘Airbnb case’, where it was found the tenant could not sublet their residential property on short-termstay websites.

BACKGROUND
The landlord rented her two-bedroom St Kilda apartment in August 2015. The parties entered into a standard form Residential Tenancy Agreement for a period of 12 months. During the currency of the lease, the landlord became aware that the tenants were subletting the property through a short-term rental site, Airbnb. The landlord issued a termination notice. The matter remained in dispute, and the landlord made an application to the Victorian Civil and Administrative Tribunal (‘Tribunal’) for an order of termination, purporting that the tenants breached the lease by subletting the property. The tenants conceded that the property was listed on Airbnb but disputed that the listing on the website and occupation by guests breached the Residential Tenancy Agreement. The tenants were represented by the Tenants’ Union of Victoria.

WHAT IS AIRBNB?
Airbnb is a website that facilitates shortterm stays of properties and rooms. The website boasts over two million listings worldwide and operates in 191 countries. The site is popular because it is easy to use and offers ‘hosts’ the ability to purchase insurance to cover damage to the property, and also a liability insurance if an occupier was injured on site. All money is collected by the website, and the host is charged approximately three per cent of the cost of the booking.

FINDINGS AT FIRST INSTANCE
When the matter went before the Tribunal at first instance, the Member dismissed the landlord’s application for termination on the basis that the tenant was not ‘subletting’ the property. In the reasons for the decision, the Member stated that “Airbnb is to the residential tenancy market what Uber is to the taxi industry – unregulated and controversial.” There was a finding that “the use by the tenants of the rented premises as an Airbnb amounts to a licence and not a subletting; as such the landlord is not entitled to a possession order.”

WHAT IS THE DIFFERENCE BETWEEN A LEASE AND A LICENCE?
This question goes to what we ‘give’ someone for value in respect to land. The ultimate ‘giver’ is the Crown – either the Commonwealth or State Crown. They possess the ultimate title which allows them to make laws regarding land, including laws about tenancy.

The Crown may ‘give’ a fee simple interest in land, or ownership in land. This ownership allows a landowner the right to control who occupies and goes upon the land. This ownership is subordinate to the Crown. Therefore, the Crown can still reserve rights as to minerals and can compulsorily acquire the land. A landlord has ownership in the land.

The landlord can ‘give’ a tenant a leasehold interest in the land. The Residential Tenancy Agreement transfers from the landlord to the tenant the exclusive right to occupy the land. The tenants may exercise this right against the world at large, including the landlord; the exception to this rule is in regard to the Crown and a mortgagee in possession with orders of the Supreme Court.

The next interest in the land in the hierarchy is a licence. A licence is a contract that ‘gives’ someone the right to go onto the land; however, it does not give exclusive possession, which is the right to occupation against the world at large.

The case therefore was that the tenant was subletting the property, which was a breach of the lease. The finding in the Tribunal was that a subletting did not occur when the tenant listed the property on Airbnb because there was not a disposition of a leasehold interest. Rather, there was just a licence to occupy and subletting requires a lease, not a licence.

GROUNDS OF APPEAL
There were three grounds of appeal against this finding:

“Was there any evidence or other material before the Tribunal to support the finding that the tenants were able to access the rented premises during each Airbnb stay?”

“When determining whether a person has exclusive possession of a premises, is it relevant to consider whether that person can be made to leave the premises if they stay longer than the period that has been agreed for them to stay?”

“When determining whether a person has exclusive possession of a premises, is it relevant to consider whether the premises is a person’s principal place of residence?”

DECISION IN THE SUPREME COURT
The landlord contended that the Tribunal made vitiating errors in respect to three questions at law, one of which was regarding the finding that Airbnb guests were not given exclusive possession. The Supreme Court found that “the Airbnb Agreement for the occupation of the whole of the apartment is properly to be characterised as a lease between the respondents, the tenants and the Airbnb guests for the period of occupation agreed between them. It follows that their entering into this agreement is, having regard to their own tenancy of the apartment, a sub-lease.” Consequently, the tenants were found to be in breach of the provisions of their lease, which did not permit subletting without the written authorisation from the landlord or the landlord’s agent.

WHAT DOES THIS MEAN FOR PROPERTY MANAGERS?
As it stands, a property manager can reasonably assert to a tenant that the listing of the entire property on Airbnb would contravene the lease, although Justice Clyde Croft did caution that this case should not be seen as a judgement on all short-term operators. In addition, subletting is a policy exclusion in most landlord protection insurance policies; unauthorised subletting could void the policy. If the property manager was aware of this fact and did not take action to terminate the lease, they could be found to be in breach of contract with the landlord and likely a tortious action could be commenced against the agency.

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