1. In the final post in this series, I will examine a case about a landlord who leased an apartment in Fitzroy St, St Kilda to a tenant, who then sub-leased that apartment to short stay tenants. The landlord applied to VCAT for an order for possession of the apartment, to evict the tenant, alleging the sub-lease was a breach of the lease.
Tenant allowing property to be used for Air B’N’B is a breach of the lease
2. In Swan v Uecker  VSC 313, the Supreme Court of Victoria (Croft J) (on appeal from VCAT pursuant to s 148(1) of the Victorian Civil and Administrative Tribunal Act 1998) was called upon to decide whether the use of a property by a tenant for letting to Air B’N’B clients was a breach of the tenant’s lease.
3. Ms Swan owned a two bedroom apartment in Fitzroy Street, St Kilda (“the Apartment”). In August 2015, she leased the Apartment to the Respondents pursuant to a residential tenancy agreement for a term from 20 August 2015 to 19 August 2016 (“the Lease”).
4. The Applicant sought an order for possession in VCAT on the basis that the Respondents had sublet the Apartment in breach of the provisions of the Lease. The Applicant’s case was that the Respondents granted leases to third parties (“AirBnB guests”) who stayed in the Apartment. The Respondents conceded before the Tribunal that AirBnB guests stayed at the apartment for short-term stays, booked through the AirBnB website.
5. The AirBnB listings for the Apartment offered two distinct occupancy options. The first involved making the entire Apartment available for AirBnB guests at the rate of $200 per night, and the second involved making only one bedroom available for AirBnB guests at the rate of $102 per night. It is, however, only the AirBnB agreement for occupation of the entire Apartment that is relevant for the purposes of the appeal. The minimum stay under this agreement was three nights and the maximum five nights.
6. S 253(1) of the Residential Tenancies Act, 1997 provides that:A landlord may give a tenant a Notice to Vacate rented premises if the tenant has assigned or sublet or purported to assign or sublet the whole or any part of the premises without the landlord’s consent.
7. The tenants argued that the agreement between them and the AirBnB guests did not mean that the latter were granted “exclusive possession” of the Apartment.
8. VCAT agreed, and dismissed the application on the basis that the Respondents had only granted licences to occupy to the AirBnB guests, but not leases. Consequently, the Tribunal found that they had not sublet the Apartment and were therefore not in breach of the Lease/Act.
9. On appeal, Croft J analysed the test to determine whether the AirBnB guests occupied the premises pursuant to a lease or a licence.
10. He noted (at paragraph 31, quoting from several relevant cases): It is well accepted that, as a matter of law, the test to be applied to distinguish between a lease and a licence is whether or not what is granted is exclusive possession.…In deciding, in such cases, whether what has been granted is the right to exclusive possession, the court, in the process of construction, has in practice looked, inter alia, to two things: the nature of the rights which, in terms, have been granted; and the intention of the parties. Party intention in this context is to be determined objectively on the basis of the terms of the particular agreement under consideration and having regard to surrounding circumstances to the extent that is permissible according to the ordinary rules of construction. Whether the transaction creates a lease or a licence depends upon intention, only in the sense that it depends upon the nature of the right which the parties intend the person entering upon the land shall have in relation to the land … And how is it to be ascertained whether such an interest in land has been given? By seeing whether the grantee was given a legal right of exclusive possession of the land for a term or from year to year or for a life or lives. If he was, he is a tenant. And he cannot be other than a tenant, because a legal right of exclusive possession is a tenancy and the creation of such a right is a demise.
11. In the circumstances of the case, Croft J held that, yes, the exclusive use of the property by Air B’N’B clients was properly characterised as a lease; this made the arrangement a sub-lease, and therefore in breach of the lease between the tenant and the landlord, allowing the landlord to terminate the lease.
12. It is notable that Justice Croft made some remarks about the effect of this decision on AirBnB more generally; he stated that the case was determinative only of the particular arrangement between these parties. At paragraph 80, he noted:First, this is not a case on the merits of AirBnB arrangements. Neither is it a case on whether or not AirBnB arrangements might be said to be “illegal” — either in some particular or some general, non-legal, sense. Rather it is a case, on appeal, which raises for determination — directly or indirectly — the legal character of this particular AirBnB arrangement and any consequences this characterisation may have in the context of the terms of the lease of the apartment concerned. Secondly, the context provided by the terms of the particular apartment lease are important. Although this apartment lease is a residential lease, many commercial leases restrict the tenant from sub-leasing, assigning the lease, granting any licence to occupy all or part of the leased premises or otherwise parting with possession without the landlord’s prior consent. Broad terms such as this would prevent, for example, sub-letting or licensing without the landlord’s consent and would avoid the need — as in the present case — to characterise the nature of the same arrangement like the AirBnB arrangement for occupation of the whole of the leased premises as a sub-lease or a licence.
13. This case is possibly of relevance to the Watergate operator, as they utilise 14 apartments, although they apparently only own one (apparently 9 are leased, with 4 available on a commission basis). Therefore, the owners of the 9 leased apartments may now try to terminate their leases.
14. Of the three methods tried to control short stay apartment usage in Victoria, this seems to be the most likely to succeed. However, it will not apply to owners of apartments who let their properties out for short term stays.
15. I understand that the Victorian government is currently considering whether to amend the relevant property legislation to allow Bodies Corporate to have some control over this type of apartment usage within the buildings under their control. Stay tuned for further developments!