#26134
Jimmy-T
Keymaster

    If your your building is zoned residential only (in NSW) the simplest way to discourage short-stay rentals is to pass a by-law saying that your strata scheme supports and abides by its council zoning and that any breaches of the residential only zoning, for instance by rentals of less than the period prescribed in the development approval, will be treated as a breach of by-laws and pursued at the NSW Civil Administration Tribunal. Or you could just adopt Model By-law 18 (below).

    However, if your building isn’t zoned permanent residential the insurance option is possible – if you can find an insurer who plays ball.

    In the discussions I have had with insurers, most have told me that there would have to be a substantial number of units in a building that converted to short-stay lets – some say as many as 25 to 30 percent – before they adjusted premiums upwards.

    However, the first insurer who realises the potential for making extra money and helping out apartment blocks that don’t want short-stay rentals could cash in big time.

    The new laws allow the additional costs of insurance that are brought about by a change of use to be passed on to the owners of the properties concerned (See Section 82, below). If the owner doesn’t agree to the additional charges, the Tribunal can order them to pay.

    What does all this mean for owners corps that don’t want short-term lets? 

    If you are in a newer (post-1996) scheme, you could adopt Model By-law 17 in Schedule 3 of the Regulations (also below). 

    Model by-law 17 requires an occupier of a lot to notify the owners corporation of any change to the use of their lot for short-term or holiday letting. The notice would have to be given in writing at least 21 days before the change occurred or a lease or sub-lease commenced. Remember, these model by-laws do not automatically apply and have to be adopted by special resolution.

    If you are in a pre-1996 building, you will automatically have by-law 19 (below). You could alter its wording (through special resolution) to make it clear that using lots for short-stay lets is a change of use. 

    Under either of these by-laws, any owner who changes to short-stay rentals should register a change of use or face a breach notice and potential fine from NCAT. By the way, the fine would be paid to the Owners Corp so it is worth pursuing.

    Then find an insurer that will charge punitive additional premiums for buildings that have short-stay lets and then pass the additional charges on to the “hosts” who have registered their change of use.

    Also, once an appropriate “change of use” by-law is in place, you might consider passing a motion at a General Meeting saying something like:

    This strata scheme does not support or encourage short-stay or holiday letting. We define the change of residential lets to short-stay lets as a change of use as per by-law X.  This owners corporation instructs its officers and managers to identify and pursue non-notification of changes of use as by-law breaches.

    Furthermore, this owners corporation will pass on any increases in insurance premiums caused by changes of use to short-stay or holiday letting to all owners who let their units in this way, pro rata based on the number of lots used for short-stay lets, as outlined in Section 82 of the Strata Schemes Management Act.

    This motion is not a by-law so wouldn’t need a special resolution. But just having that in your AGM minutes, reiterated every AGM, may be enough to drive potential holiday let investors away without even having to pick up the phone to your current insurer.

    Here is the by-law that automatically applies to pre-1996 schemes.

    19 Change in use of lot to be notified
    An occupier of a lot must notify the owners corporation if the occupier changes the existing use of the lot in a way that may affect the insurance premiums for the strata scheme (for example, if the change of use results in a hazardous activity being carried out on the lot, or results in the lot being used for commercial or industrial purposes rather than residential purposes).

    And here are by-laws 17 and 18 in the Model By-laws in the new regulations. NB: These by-laws or variations on them would have to be adopted by special resolution by post-1996 schemes that don’t already have them in place.

    17 Change in use or occupation of lot to be notified
    (1) An occupier of a lot must notify the owners corporation if the occupier changes the existing use of the lot.
    (2) Without limiting clause (1), the following changes of use must be notified:
    (a) a change that may affect the insurance premiums for the strata scheme (for example, if the change of use results in a hazardous activity being carried out on the lot, or results in the lot being used for commercial or industrial purposes rather than residential purposes),
    (b) a change to the use of a lot for short-term or holiday letting.
    (3) The notice must be given in writing at least 21 days before the change occurs or a lease or sublease commences.

    18 Compliance with planning and other requirements
    (1) The owner or occupier of a lot must ensure that the lot is not used for any purpose that is prohibited by law.
    (2) The owner or occupier of a lot must ensure that the lot is not occupied by more persons than are allowed by law to occupy the lot.

    And finally, here is Section 82 of the Act which applies to all strata schemes.

    82 Individual contributions may be larger if greater insurance costs
    (1) If the use to which a lot in a strata scheme is put causes an insurance premium for the strata scheme to be greater than it would be if it were not put to that use, so much of a contribution payable by the owner of the lot as is attributable to insurance premiums may, with the consent of the owner, be increased to reflect the extra amount of the premium.
    (2) The Tribunal may, on application, make an order for payment of contributions of a different amount to one or more contributions levied or proposed by an owners corporation on an owner if the Tribunal is of the opinion that the owner’s consent has been unreasonably refused under this section.
    (3) An application for an order under this section may be made by the lessor of a leasehold strata scheme, an owners corporation, an owner of a lot or a mortgagee in possession.

    The opinions offered in these Forum posts and replies are not intended to be taken as legal advice. Readers with serious issues should consult experienced strata lawyers.