Short term letting within community schemes

Many people buy into residential estates and sectional title developments for investment purposes and, with economic pressures being what they have been in the last few years, everyone is looking to maximise their return on investment.

Renting out investment property is a time-honoured way to boost your income and, in the past, this would most usually be on a long-lease basis. But now, with the proliferation of internet booking sites such as Airbnb and Booking.com, it has never been easier to find short-term tenants. However, an influx of short-term tenants can be the cause for much conflict within a community scheme.

The concept ‘short-term letting’ is not defined in the sectional title legislation, and the prescribed management or conduct rules do not distinguish between different classes of tenants or leases.

While the Sectional Titles Schemes Management Act and the Rental Housing Act impose certain obligations on owners when letting their units, they, too, do not distinguish between short-term and long-term leases. In community schemes governed by a homeowners association (HOA), be it a corporate entity or voluntary association, there is also no set standard when dealing with regulation of leases and tenants. In every instance one needs to consult the applicable scheme governance documentation to determine the extent to which leases, and in particular short-term leases, are regulated. No two schemes are necessarily the same.

Some completely restrict the right to lease for periods of less than six months, while, especially in resort-type developments, there may be no controls and home owners may be free to rent out properties on an unrestricted basis.

When buying into a scheme with the intention of short term letting, it is critical to examine the scheme governance documentation to determine how and to what extent short term leases are regulated. In addition, it is important to consider all relevant town planning scheme regulations and by-laws, as well as title deed restrictions and the terms and conditions of all relevant policies of insurance to determine whether the conduct of short-term letting, which may possibly be considered a business enterprise, will attract further levels of regulation.

There is also no guarantee that what you bought into will not be changed, provided that change is brought about lawfully. In disputes that are coming before the Community Schemes Ombud Service (CSOS) regarding the introduction or enforcement of restrictions on short-term letting in its many guises, adjudicators are interrogating the manner in which changes to scheme governance documents are introduced. They are upholding restrictions designed to limit or control short-term letting provided due process has been followed when changes are introduced. This is despite arguments that owners’ freedom to deal with their properties and to earn an income is being restricted.

On the other hand, the CSOS approach to the approval of rules for sectional title schemes is not consistent, and schemes may well find proposed rules being rejected as unreasonable depending on the extent to which owners’ property rights are interfered with. The prevailing attitude seems to be in favour of the introduction of appropriate, reasonable controls and the utilisation of a system of penalties in order to control tenant issues as opposed to the introduction of outright prohibitions.

2018 saw many HOAs and bodies corporate grappling with short-term leasing issues such as increased noise, overcrowding and security issues. Management bodies are faced with having to strike an appropriate balance between property rights – and the right of property owners to earn an income – and the broader interests of maintaining the safety, security and amenities of all residents. The debate continues. Some estates are considering the introduction of userpay models to administer short-term lets, while others are increasing expenditure on sophisticated access and security monitoring systems.

Whichever route a scheme chooses to follow to meet the challenge, it is always wise to engage in a consultative process with members and residents to ensure that whatever measures are introduced enjoy the appropriate level of support, and achieve the goal of balancing the interests of all residents in an appropriate, fair and reasonable manner.

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