News 14 of 21

The Legality of Letting Holiday Homes in Australia

(News Item #0183, Published: 11/28/09, International Law Travel Journal)

Note: This article first appear in the "International Travel Law Journal [2006] Issue 4 207-211A"

A seemingly localized controversy over the letting of Holiday Homes at Byron Bay has implications across Australia and involves some fundamental rights and freedoms of investors and holiday makers together with important issues of law, policy and governance.

Holiday Homes & Letting

As in many countries, holiday homes have become increasingly popular in Australia in recent years due to a combination of factors including better and cheaper transport and all the seachange motivations and effects well studied and reported elsewhere. Advances in telecommunications have also facilitated unprecedented mobility in living and working arrangements. Now some 8.5 percent of Australian households own a holiday home. More than half of these are offered for holiday rental.

There is growing demand for rental of this accommodation from tourists seeking more space, facilities, privacy and value than that provided by commercial accommodation such as hotels, motels, hostels and the like. Increasingly tourists are also seeking a more authentic experience living within the local community in a holiday home rather than in commercial accommodation.

These trends have accelerated through the internet which provides an efficient mechanism to communicate, market and sell one off holiday rental accommodation directly to the consumer. Now holiday rental homes provide a substantial proportion of the total tourism bed capacity nationally and at many regional destinations provide more capacity than commercial accommodation.

Generally this has all developed without any special approvals, licensing or other regulatory arrangements.

Controversy at Byron Bay

However at some destinations holiday rental has become embroiled in controversy. Despite the fact that holiday homes and rental often predate their arrival, some local residents now resent the intrusion into their community and complain of the misbehavior and additional noise, traffic and garbage which they allegedly generate. Some locals also believe that holiday rental inflates property prices and deprives them of permanent accommodation. Some claim that holiday rental is “illegal”.

In Australia, responsibility for sorting this out is generally delegated to local government which can regulate the location of land use and the design and management of development. However there are wider regulatory options available at state level including licensing and, with an effective institutional structure, self regulation. Regulation may not even be necessary with better local and state government resourcing of affordable housing programs and for the standard public agencies responsible for law and order, noise abatement, traffic and garbage removal. Increasing land values mean increasing rates, stamp duty, land tax and capital gains tax but all this seems to be diverted to other purposes rather than reinvested in dealing with the local problems.

The controversy has come to a head at Byron Bay, one of Australia’s tourism icons. Byron Bay attracts 1.7 million annual visitors (including 580,000 daytrippers) to a resident population of 27,000. It has had a long history of disputes between conservation and tourism development interests. For example at the Club Med site the dispute has raged through 12 years of political, planning and legal processes and is still unresolved. The obstacles to commercial development have no doubt contributed to the growth of holiday rental which itself is now under fire. Byron Council, by narrow Green party led majority, has adopted the view that holiday rental is undesirable.

In 2004 Byron Council first tried to persuade the Minister for Local Government to amend section 68 of the Local Government Act to require holiday rental to be licensed. It sought support from the Local Government and Shires Association but there was no consensus and most councils disagreed with Byron’s approach. Byron also failed to gain support at State government level and so the amendment was not made.

In 2005 Byron Council decided to act under the existing planning laws and wrote to home owners demanding they cease holiday rental or face fines of up to $1.1 million each. Council also wrote to the real estate agents who manage holiday rental in Byron advising they would “appreciate it” if agents ensured that dwellings/units were not sold or let for the purpose of holiday accommodation. Council’s contention was that under existing laws holiday letting was not a permitted residential use but a prohibited commercial use in residential zones.

According to an audit by Southern Cross University’s Meredith Laurence in 2005, Byron has some 705 houses and apartments which are used for holiday rental. They presently provide 2,321 of the 10,003 total tourist accommodation bed spaces (23%) in Byron. Most of these are located in residential areas. Some date back to the beginnings of Byron Bay as a community. Few have any special planning approval because it has long been assumed that holiday rental was no different from the permanent rental of dwellings, a permitted use in residential areas. The only real difference between a local and a tourist is the length of stay at the destination. The home owners and real estate agents replied to Council rejecting its contention and in any event claiming existing use rights.

Protection of existing use rights is the mechanism used in planning law to try and minimize the adverse effects of retrospectively on owners’ rights and freedoms when planning instruments are amended. The approach in New South Wales under the Environmental Planning & Assessment Act 1979 is similar to that throughout Australia. While guaranteeing the basic right to continue an existing use New South Wales restricts these rights by requiring planning consent to alter, extend, increase or replace an existing use and by presuming that the use is abandoned if discontinued for any continuous period of 12 months. On Byron Council’s interpretation there are no existing use rights and so the matter will need to be litigated. There are considerable practical difficulties in determining and enforcing this with holiday rental. Any ruling will validate or invalidate retrospectively.

In response to Byron Council’s actions, at a meeting on 28 August 2005 holiday home owners and real estate agents formed the Holiday Letting organization Byron (HLO). The HLO tried to overcome the issues of complaint in a self regulatory way by adopting a Code of Practice including private security arrangements to deal with complaints of noise and misbehavior. Despite consultations and a successful trial Council effectively rejected this option and proceeded with a more radical approach. It has drafted, published and is proceeding to adopt a new Local Environmental Plan (LEP) effectively prohibiting holiday letting. Council’s approach and reasoning as stated in the Explanatory Notes to the draft LEP is:

“There is concern about the impact that unregulated holiday letting is having on residential amenity and on the cost of housing in the shire, particularly in Byron Bay. Council has resolved that this draft LEP for the Byron Bay area will prohibit full-time (greater than 8 weeks per calendar year) holiday houses in residential areas. The draft LEP does this by defining full-time “holiday letting” and then not allowing it within residential and other zones. Short-term holiday letting (less than 8 weeks per calendar year) is not mentioned in the draft LEP as it will be permissible in all residential areas dependent on a policy to be determined by Council and included in the development controls proposed to accompany this draft plan.”

Objectors to the draft LEP have noted the potential damage to Byron Bay’s image and the tourism industry, the substantial economic costs including loss of employment and the frustration of regional and economic plans which rely on Byron as the tourism icon of the whole Northern Rivers region. They have also noted the inherent contradictions in the eight week exception and the difficulties of enforcement. Many have supported a compromise between laissez faire and prohibition based on the precinct idea which the Council itself originally proposed in its strategy. Ultimately the matter will be determined by the NSW Minister for Planning who, upon advice from the department, must decide whether to approve, amend or reject the Council’s draft LEP.

Implications across Australia

The problem which has come to a head in Byron Bay exists throughout Australia although it is latent at many destinations. The vast majority of holiday homes in Australia are located in residential areas and very few have specific planning approval. The relevant definitions in planning instruments vary from one shire to another but many are likely to be vague and ambiguous on the matter. In most cases it will have been assumed throughout that holiday rental is a permitted use.

The matter has already arisen in other local government areas including Snowy River, Manly, Shoalhaven, Eurobodella in New South Wales and in Bussleton, Western Australia. The latter three have moved to confirm the legality of holiday rental in residential areas. Snowy River requires consent for holiday dwellings in residential areas and has a development control plan providing standards and guidelines. Manly has in effect adopted a wait and see approach on the legality issue and in the meantime has introduced a code of practice and a complaints handling procedure. Similar controversy has also arisen in the city in Sydney and Melbourne over the use of some units in residential buildings for short term tourist accommodation and this has been dealt with under the provisions governing “serviced apartments”.

Litigation at Byron and elsewhere will have significant precedent value. Now that it has come to a head at Byron Bay, many councils are already looking into the matter and most will have to do something to clarify the legality of holiday letting and deal with the implications. Like Byron, other Councils may find it extremely challenging to balance the competing interests and come up with a satisfactory solution.

Where tourism has grown substantially in proportion to resident populations the problem is part of a general tension between tourism and development on the one hand vs local quality of life and conservation on the other, often with critical unemployment and unaffordable housing issues thrown in. Disputes over tourism in sensitive areas are often the most difficult for the political and legal system to resolve.

Fundamental rights and freedoms

From the point of view of owners and renters, prohibitions and restrictions on holiday letting offend some of the fundamental rights and freedoms which all Australians are entitled to enjoy and which all governments – national, state and local - are expected to uphold. Although as yet we have no Bill of Rights, these are fundamental to our culture and heritage and are enshrined in the various international human rights conventions which Australia has endorsed. Key freedoms and rights involved include:

Freedom of movement is recognized as one of the five fundamental freedoms the others being freedom of speech, association, assembly and religion. It includes the right to travel from state to state and within states and to stay temporarily or permanently wherever one chooses subject to public and private property rights. Holiday homes and holiday letting are longstanding traditions in Australia and are incidental to the enjoyment of this right.

Freedom of contract is the foundation of the law of contract and is a fundamental attribute of every free society. It includes the right to bargain and agree the terms of letting agreements including the length of stay. Generally these terms cannot be dictated by government or third parties.

Right to property includes the right of the owner to deal with it as the owner pleases including to mortgage, sell, lease or let to whomsoever and generally on whatever terms the owner wishes. In leasing and letting it is related to freedom of contract.

Right to enjoy the parks, beaches, sea and other public amenity areas is a cherished right enjoyed by all Australians. It must not be restricted or reserved to a select few based on origin or permanent residence or any other discriminatory criteria. This is related to the right to rest, leisure and tourism and the common law doctrine of public trust.

Retrospectively is generally repugnant to Australian law and society. Changes to laws or rules must not be retrospective and if they are generally require proof of public interest and just compensation. Difficulties arise when the change comes about through a new interpretation of an old law.

Law, policy and governance

The Australian system is generally designed to take all this into account and arrive at decisions which optimize the public interest while respecting individual rights and freedoms. Simply delegating responsibility to local government may not work well in resolving this matter. Key issues include:

Representation in local government. Traditionally local government focuses on local issues and perspectives rather than wider regional, state or national stakeholders, policies, strategies and objectives. In most states the entitlement to vote is granted to those who reside and those who own rateable land in the shire. However the right to vote is usually granted only to those who have registered on the roll. Unfortunately few holiday home owners actually register and vote in local government elections where their holiday homes are located. And so they do not exercise their democratic right to be represented and heard as stakeholders.

Institutional framework. Most stakeholders in the matter are well organized through lobby groups, rate payers associations, trade associations and the like. In the private sector this enables them to act collectively, monitor and make representations to government and often self regulate to avoid problems. For example commercial tourism accommodation providers i.e. hotels, motels, hostels etc each have their own well established and effective trade association. The system has grown to rely upon this and now a silent minority has few champions. Holiday rental owners are generally fragmented and disorganized which is not surprising because owners at any one destination usually come from all over the country and beyond and rarely have the opportunity to meet or communicate. But unless they do organize and engage the system it is unlikely to safeguard their interests. As with every other major tourist accommodation segment, formation of a national association with state and local affiliations is essential.

National Competition Policy. Regulating holiday letting imposes severe restrictions on competition and market forces. It restricts tourism demand for accommodation vs permanent residential demand, it restricts holiday letting vs other forms of tourist accommodation. Before imposing such restrictions local and state governments are committed under Clause 5 of the National Competition Policy to ensure that: (a) the benefits of restrictions to the community as a whole outweigh the costs; and (b) the objectives of the regulation can only be achieved by restricting competition

The Guidelines provide that “If, on the balance of probabilities, net benefits of restrictions of competition are positive, NCP principles require further assessment to determine if the objective of the legislation [regulation] can be achieved by more efficient, procompetitive means.”

Many local councils do not have the resources or the wider perspective required to undertake this type of research and assessment.

Conclusion and recommendation

If it is left to individual councils to sort this out there will be a wide range of approaches from laissez faire to prohibition and the resulting controversy, uncertainty, litigation and expense will be very damaging to the economy, tourism and the councils, communities and individuals concerned. Local government has a narrower perspective than is required to resolve the matter fairly and is very susceptible to pressure from special interest groups which often polarize attitudes and lead to suboptimal decisions. In view of the wider stakeholders and considerations involved, it would be far better if this could be dealt with at state level or in accordance with state guidelines and preferably with a uniform approach researched and agreed upon among the states.