Law Lords’ ruling a major blow for holiday lets

A legal ruling in London could bolster legal defences against court challenges to anti-holiday letting by-laws.  Strata lawyer Tom Bacon explains …

Britain’s Privy Council has unanimously ruled that owners corporations may enforce by-laws to restrict short-term letting for stays of less than 30 days.

In the final appeal in a case brought by The Pinnacle Strata Corporation in Grace Bay, Providenciales, Turks and Caicos Islands, the Lordships found that the by-law making power of a strata corporation is very wide, and any by-law that purports to restrict the use of a lot for ‘residential purposes’ would be valid.

Short-term use by holiday makers changes the character of the use of a lot, and that type of use is clearly different in kind from residential use.

This decision reignites the debate that Owners Corporations in NSW may legitimately enforce by-laws to restrict their lots for residential use, if they carefully draft their by-laws to match the Pinnacle’s by-law (see below).

The NCAT’s decision in the Estens case should not now be considered as having settled the matter in NSW. While the Privy Council decision (which you can read in full here) is not binding here in Australia, it should be viewed as persuasive, and should not be set aside without a principled reason to distinguish it.

Perhaps before every OC rushes off to pass these by-laws, town planning zoning ought to be considered here in Sydney. I would caution that perhaps buildings in mixed-use zones might find that they can’t enforce by-laws to uphold the residential nature of a lot, so investigation of the local Council’s zoning would need to be checked first.

As you know, strata law was invented in NSW back in 1961 through the passing of The Conveyancing (Strata Titles) Act 1961.  Contained within that legislation was a very important sub-section, which reads, “No By-Law or addition to or amendment or repeal of any By-Law shall be capable of operating to prohibit or restrict the devolution of a lot or any transfer, lease, mortgage, or other dealing…” (Section 13(3)).

We know this sub -section very well, because it has been carried through word for word in each of the subsequent strata law re-writes in 1973, 1996 and 2015.

We also know that this sub-section (now known as Section 139(2) in the 2015 SSMA) has been used in NSW as a justification by Fair Trading and by NCAT (the Estens decision that you reported on three months ago) as the legal basis to strike down any Anti Short-Term Letting By-Law.

However, what you may not know is that strata law as a form of land tenure is popular with other countries, and has been adopted in many other jurisdictions around the world.

One such jurisdiction is the Turks and Caicos Islands, home to the world famous Grace Bay Beach. The Turks and Caicos are a British Overseas Territory, located around 650 miles from Miami and near the Bahamas.

In 1971, the Turks and Caicos Islands decided to pass off the entire New South Wales model as their own. So, they lifted the Conveyancing (Strata Titles) Act 1961, and passed it as their Turks & Caicos Islands Strata Titles Ordinance (STO).

Lo and behold, they have these American style condominium projects and beachfront resorts, but they refer to them as ‘strata corporations’ and refer to the ‘by-laws’ as binding on the owners and residents.

Four years ago, I was contacted by a law firm on the Turks & Caicos Islands and asked to consult for them on the application of NSW strata law as it relates to short-term letting, given the rising popularity of AirBnB, and recent Strata Corporation’s attempts to curb this practice via by-laws.

I have assisted this firm and their clients with their appeals relating to the Pinnacle Resort on Grace Bay, and it has gone up through the chain of their Supreme Court and Court of Appeal.

Earlier this year, the matter was granted leave to be heard in the Privy Council in London, and I was fortunate enough to attend the hearing in Parliament Square in London in mid-November as their guest.

Lord Kerr, Lord Wilson, Lord Sumption, Lord Carnwath and Lord Briggs gave both sides a grilling, and were fairly critical of all of the Australian decisions issued in regards to short-term letting to date.

It is incredible that we are getting our very first Privy Council decision ever on strata law. The fact that it is directly applicable to NSW is equally incredible, given that the Turks and Caicos Islands saw fit to adopt the NSW strata legislation word for word in this regard.

Of course, Australia abolished its appeal rights in 1986 (31 years ago) so from a personal career perspective, it was amazing to be involved with this in London, given that no Australian case has been applicable from the Privy Council for such a long time.

This decision will reverberate around Australia, and will be a welcome Christmas present for residents in strata buildings.

The Pinnacle by-laws upheld by the Privy Council

“7.1 Each Proprietor shall:

9. Not use or permit his Residential Strata Lot to be used other than as a private residence of the Proprietor or for accommodation of the Proprietor’s guests and visitors.Notwithstanding the foregoing, the Proprietor may rent out his Residential Strata Lot from time to time provided that in no event shall any individual rental be for a period of less than one (1) month … (Emphasis added)

16. Not use or permit to be used the Strata Lot or any part thereof for any illegal or immoral purpose, nor for the carrying on of any trade or business other than periodic renting or leasing of the Strata Lot in accordance with these by-laws unless such trade or business activity has been approved in advance by the Executive Committee in writing, which approval may be revoked for cause.”

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