14 Jul Tenants at legal risk – Shannon Davis
We have some news today that will have major ramifications for investors and property manages and could see some tenants getting into some legal difficulties. In today’s show we talk to Shannon Davis, from Image Property Management.
Kevin: I mentioned at the start of the show about an issue that could have major ramifications for tenants, property owners, and property managers. A recent ruling handed down in the Supreme Court of Victoria could have serious repercussions for all of these people. The courts there had previously ruled that a tenant may not be in breach of their lease by offering the use of an entire property through Airbnb as a short-term rental.
We’ve spoken about Airbnb on a number of occasions on this show and always expressed a little bit of concern about it. I can see there are some great advantages for it, I’m not knocking the principle overall, but I think its use sometimes needs to be very carefully monitored as you’re going to hear.
When that decision was challenged by the owner, the courts overturned the original decision. So what are the ramifications for tenants, property owners, and property managers? In fact, the courts there ruled that the owner had the right to decide who was going to live in their property.
I want to get a little bit more information about this, and I always turn to one of our experts, Shannon Davis from Image Property Management, also Metropole Property Management. They do property management, as well.
Good day, Shannon.
Shannon: Good day, Kevin.
Kevin: I want to talk to you about Airbnb. Now, I’m not knocking the business itself, but I am expressing some concern about how it’s being used. Just give me a bit of background on this, Shannon.
Shannon: It’s another one of those share economies. They actually own no bricks and mortar, but they have some of the most accommodation in the world – so people’s spare bedrooms or the teenagers’ retreats being rented out as a pseudo-hotel for a short-term stay accommodation rates.
Kevin: From a tenant’s point of view, this sounds like a great idea. This is like “Oh, wow, here’s an opportunity for me. I have a spare bedroom over here. I can maybe make a little bit of cash on the side by offering it up to somebody who might be travelling and make a bit of extra money,” but they don’t realize the ramifications of this and their legal requirements under the lease, do they?
Shannon: Yes, definitely. I think it’s a victory for common sense that now the Supreme Court has turned it around. If you have permission from the landlord, then by all means, go ahead and turn a spare bedroom into a short-term stay, but surely, the decision remains the owners of the property and for its intended use. They could have chosen that Airbnb option themselves, but they’ve taken the secure, longer, and less cash flow option of a long-stay tenant.
Kevin: As I see it, too, there are some other major ramifications that can come back on both the tenant, the property manager, but especially the owner when it comes to insurance. Now, if someone does actually come and live in the property, they’re not on the lease – so therefore they’re not legally there – and in the event that something happens – the place is burned down – as the fault of this person who’s been put in there through Airbnb, or they do a little bit of damage, what would happen to the insurance in that case?
Shannon: It makes for a very ugly scene when it comes time to claim, and there have been precedents where the insurer is going to walk away from any claims related to the Airbnb. I’ve seen the Airbnb stump up some money to mitigate damages in previous incidents, but it’s not very reassuring to the owner of the property.
Kevin: Okay. What are the other problems that could emerge, apart from insurance, as you see it? If a tenant were to do this, they are in breach of their lease, aren’t they?
Shannon: Yes, definitely, and it’s going to mean that we have to put these clauses in and get a little bit more specific, to make sure that it’s all cut and dried. I’m all for innovation and the share economy and things like that, but I think it also needs to be a bit of a level playing field.
It’s unfair if Airbnb’s competitive advantages may not be the tax that they’re paying, less regulation, or insurance compliances. I think it’s new, I don’t think any of our governments have really got their head around it just yet. I think competition, but it should have some level playing field being involved.
Kevin: Yes, I think the original idea behind Airbnb was for an owner-occupier, if they were going to be traveling overseas, maybe then do some kind of swap with someone in Paris. You know, there are those possibilities. “I’m going to go over to Paris for a couple of months, so therefore, someone from Paris can come and stay in my place.” That seems to me to make a lot of sense, and there are those business models that are out there.
I want to pick up on a point you just made about putting additional clauses into a lease. There has to be some caution here, where if an agent just goes and writes something in the lease, it may not necessarily be legal. The bodies who write these leases, what are they doing? The Law Society is an example.
Shannon: Yes. We always get our legal advice for the best clauses to use in these types of incidents and just to make our owners safer with that option. We won’t tolerate – at any stage, be it Airbnb or elsewhere – where the leaseholders are approved, that we have unapproved people living there. So we’ve always very vigorously defended that, because that should be the owner’s right, that he or she knows who’s living in their property.
The other one as well is by the unrelated people living in the same space, it’s classified as a boarding house, as well. If you had a couple of strangers with some permanent dwelling there, that’s the other bit of legislation you might be breaching, as well.
Kevin: Okay, so a boarding house therefore requires special insurance cover as well, doesn’t it? Are boarding house is still very hard to insure?
Shannon: There’s a very stringent compliance, such as cleanliness and fire regulations and stuff like that, and they get checked every one to two years by council and get another stamp for the future.
Kevin: I recall that there were a number of insurance companies in Australia who simply would not give you insurance cover over a boarding house. I wonder if that’s changed. Is it more liberal now?
Shannon: Yes, it’s very comprehensive, the checks that are made these days, so that gives the insurers a little bit more peace of mind.
Kevin: Yes, we have to give them all the peace of mind in the world, don’t we?
Shannon: That’s right!
Kevin: Shannon Davis, thanks for your time, mate.
Shannon: No worries, Kevin.