Article by Claire Greenwood and Paul Jurdeczka
Byron Shire Council’s current review of holiday letting management highlights a concern for residential stratum whose lot owners undertake this activity. If holiday letting is not allowed under local planning instruments, then Owners Corporations may face issues if they later make an insurance claim for damage or claims arising out of holiday letting activities, given many insurance policies exclude activities in breach of the law.
Strata managers, Owners Corporations and lot owners involved in the management of properties which are frequently let for short term holiday accommodation should be aware of the current state of the law, what the proposed changes are in their local government area (if any) and what the effect of these changes will mean, particularly in terms of strata title insurance.
The Land & Environment Court’s decision in Dobrohotoff v Bennic  NSWLEC 61 (the “Dobrohotoff Case”), along with the Court’s criticism of Gosford City Council’s inactivity, has prompted Byron Shire Council to review the management of holiday letting in Byron Shire and take steps to regulate the process of holiday letting so as to prevent loss of neighbourhood amenity. This review has culminated in the production of the Draft Short Term Holiday Accommodation (Holiday Letting) Strategy which was released for public exhibition on 11 November 2014. It is likely that this will be the first of many reviews conducted by local councils in an effort to reduce the erosion of residential amenity caused by the unregulated tenancy of properties to holiday makers (including hens & bucks parties, and “schoolies”) who create a nuisance such as by partying loudly in to the early hours of the morning.
The need for a review of management of holiday letting in Byron Shire, as well as other affected local government areas, has received recent attention as a result of the Dobrohotoff Case. The case concerned the use of a property in Terrigal which was owned by a Ms Bennic and frequently let for short term holiday accommodation through websites such as stayz.com. Ms Bennic’s next door neighbours, the Dobrohotoffs, recorded a history of disruptive and noisy tenants at Ms Bennic’s property. They provided evidence that the property was frequently tenanted by large hens’ and bucks’ parties which would involve strippers, loud music and flashing lights, and extend in to the early hours of the morning. As a result of this, the Dobrohotoffs regularly made arrangements to vacate their house during school holidays and weekends simply in order to avoid the disturbance.
The relevant local environmental planning instrument, the Gosford Planning Scheme Ordinance, did not contain a definition of short term holiday rental accommodation. As such, it was unclear as to whether the use of Ms Bennic’s property in this manner was prohibited (and, therefore, in breach of the Environmental Planning Act 1979 (NSW)). Justice Pepper held that the use of Ms Bennic’s property meant that the property could not be classified as a ‘dwelling house’
…because it could not be fairly said, looking at its use as a whole…that, as a matter of fact, the property was being occupied in the same way that a family or other household were in the ordinary way of life would occupy it. A tenancy granted to persons who are residing in a group situation for periods of a week or less for the purpose of bucks nights and hens nights, parties or for the use of escorts or strippers, is, in my opinion not consistent with the use or occupation by family or household group in the ordinary way of life, and therefore not consistent with the use of the property as that of a dwelling house.
Furthermore, when considering the first limb of the definition of dwelling, regard must be had to the notion of domicile contained within it, and the critical element of permanence. Inherent within the term domicile is, as a long line of authority in this jurisdiction has established, the notion of a permanence home or at the very least a significant degree of permanence of habitation.
This determination had the effect of rendering the use of Ms Bennic’s property prohibited within the relevant residential zone (as it was not identified as being otherwise permissible) and Ms Bennic was found to have breached Section 76B of the Environmental Planning Act 1979 (NSW).
Steps by Councils
Some local councils, such as Byron Shire Council, have been proactive in dealing with the issue of short term holiday accommodation and the implications resulting from the Dobrohotoff Case. The Draft Short Term Holiday Accommodation (Holiday Letting) Strategy compiled by Byron Shire Council, for example, provides clarity to this issue by, inter alia:
With each category attracting its own set of planning controls addressing, inter alia, the time within which the use is permissible, the maximum number of occupants, the requirements to register the use with Byron Shire Council and the imposition of fines for breaches thereof.
Strategies such as the above are to be applauded as they provide certainty to ‘dwelling’ owners. However, no such clarity is to be found in relation to medium density developments such as residential flat buildings, dual occupancies or other forms of multi dwelling development, such as that traditionally inhabited by Owners Corporations. Further, the definition of “short term holiday accommodation” which is proposed by Byron Shire Council to be inserted in to the Development Control Plan 2014 makes specific reference to a ‘dwelling house’, being a building containing only one dwelling. It, therefore, remains unclear as what classification the use of an individual lot in a strata scheme for the purposes of short term holiday accommodation in Byron Shire would attract. The use of the lot may, for example, be categorised as a ‘serviced apartment’, being:
“a building (or part of a building) providing self-contained accommodation to tourists and visitors on a commercial basis and that is regularly serviced or cleaned by the owner or manager of the building or part of the building or the owners or managers agent.”
Or it may simply fall within the broader ambit of ‘tourist and visitor accommodation’, being:
“a building or place that provides temporary short-term accommodation on a commercial basis, and including any of the following:
(a) Backpackers’ accommodation
(b) Bed and breakfast accommodation
(c) Farm stay accommodation
(d) Hotel or motel accommodation
(e) Serviced apartments”
This is significant in circumstances where the land use prescribed by Byron Shire Council often distinguishes between types of ‘tourist and visitor accommodation’, and permits some whilst prohibiting others.
Strata managers and Owners Corporations responsible for managing properties within Byron Shire, and coastal local government areas more generally, should therefore exercise caution in allowing (or continuing to allow) individual lots to be rented to tourists and visitors on a short term basis as the correct categorisation of this land use, in Byron Shire at least, remains unclear.
Significantly, and as demonstrated in the Dobrohotoff Case, a failure to comply with local planning controls, howsoever inadvertent, is a breach of section 76B of the Environmental Planning Act 1979 (NSW) and may, therefore, constitute ‘illegal activity’ under a policy of insurance held by an Owners Corporation. This means that it would be open to the relevant insurer to (in the right circumstances) seek to, and successfully, deny liability in respect of any claim made by an affected Owners Corporation for property damage and/or personal injury arising as a result of the use of an individual lot for short term holiday accommodation. The effect of this is that Owners Corporations may be required to face claims in relation to loss, damage or personal injury sustained by lot owners and/or tenants without insurance.
For more information on the local government planning controls in place in your area and the effect (if any) this may have in relation to your strata scheme, please contact:
Dobrohotoff v Bennic  NSWLEC 61, 44-45.
 Byron Local Environmental Plan 2014 (NSW).
 Byron Local Environmental Plan 2014 (NSW).