Short Term Rentals in Strata Buildings: What Owners Need to Know

With the rise of platforms like Airbnb, many apartment owners and investors are exploring new income opportunities. One popular option is Airbnb arbitrage, where tenants lease apartments and sublet them on short-term rental platforms.

While the financial incentives can be appealing, it’s essential to consider the unique implications of this model within a strata-managed building. We frequently receive questions about this topic, and we want to shed some light on the key points every apartment owner in NSW should understand.

What Is Airbnb Arbitrage?

Airbnb arbitrage occurs when a tenant rents an apartment specifically to list it on platforms like Airbnb, often at a higher rate than the rental cost. This model can be profitable, especially in high-demand areas, as it leverages the difference between long-term and short-term rental rates. However, when it comes to strata buildings, short-term rentals bring additional layers of complexity, both legally and practically.

NSW Regulations on Short-Term Rentals

As an apartment owner in New South Wales, it’s crucial to understand the evolving legal framework around short-term rentals. The NSW government has introduced several regulations designed to balance the interests of owners, tenants, and the broader community. Here are the key considerations you need to be aware of:

1. The Short-Term Rental Code of Conduct

NSW has implemented a Code of Conduct for short-term rental properties, which outlines the responsibilities of property owners, hosts, and guests. The Code aims to minimise disruptions to neighbours and ensure safety and accountability. As an owner, it’s important that you and any tenants or guests understand and comply with these standards to avoid any issues.

1. 180-Day Cap for Non-Principal Residences in Greater Sydney

For properties that aren’t the owner’s primary residence, a 180-day cap applies to the number of days they can be rented out as short-term accommodation in Local Government Areas within Greater Sydney (Noting this has been reduced to a 60-day cap for the Byron Shire LGA). This regulation is designed to protect the community feel of residential areas, preventing excessive turnover of short-term guests. If your property falls into this category, be mindful of this limitation to stay compliant.

1. Strata By-law Restrictions

Strata schemes have the authority to impose restrictions on short-term rentals, particularly for non-resident hosts. These by-laws may prohibit (if this is not your principal place of residence) or limit short-term leasing within the building. It’s essential to check your building’s by-laws before listing your apartment on platforms like Airbnb to avoid breaching any rules.

The Role of Strata By-laws in Airbnb Arbitrage

By-laws are crucial to strata living, as they help maintain harmony among residents and protect the building’s shared resources and security. Here’s how by-laws could affect Airbnb arbitrage:

• Prohibition or Restriction: Some strata schemes have introduced by-laws that outright prohibit short-term rentals if the property is not your principal place of residence or they may impose strict guidelines around them. This is particularly common in residential-focused buildings where owners prioritise privacy and security.

• Additional Fees and Insurance: Short-term rentals may increase foot traffic, which can result in added wear and tear on communal areas and increase security risks. Some strata schemes require owners engaged in short-term rentals to cover additional costs or provide proof of insurance to offset potential liabilities.

• Owner Accountability: Even if the property is rented out by a tenant on Airbnb, the responsibility for guest behaviour often falls on the owner. Strata schemes may impose penalties for breaches of bylaws, meaning that owners should be vigilant about ensuring tenants comply with building rules.

Potential Legal and Financial Risks

Airbnb arbitrage can expose owners to a range of risks, both financial and legal. Here’s what to consider:

1. Increased Liability: With more guests passing through, there’s a greater chance of damage to common areas or disruption to other residents. In some cases, these issues can lead to disputes and even litigation within the building. 
2. Insurance Complications: Standard insurance policies may not cover incidents related to short-term rentals, especially if the building has strict by-laws or prohibits them. Owners may need additional insurance coverage to protect against potential claims arising from short-term guests. 
3. Impact on Building Value and Reputation: Frequent short-term rentals can impact the overall value of the building, especially if the presence of short-term guests deters potential buyers or long-term tenants who prioritise stability and security. This can affect resale values and the desirability of your investment property. 
4. Penalty and Compliance Costs: If an owner or tenant breaches by-laws, they may be subject to fines and compliance-related costs. In some cases, continued non-compliance can lead to legal proceedings initiated by the owners corporation.

Tips for Owners Considering Airbnb Arbitrage

If you’re thinking about allowing Airbnb arbitrage in your property, here are some steps you can take to protect yourself and ensure compliance:

1. Review your building’s By-laws: Understand the specific by-laws in place for your building. If your strata scheme has restrictions on short-term rentals, make sure these are clearly communicated to any tenants who may be considering subletting. 
2. Seek Approval: Before moving forward, it’s advisable to seek approval from your owners corporation if there are any ambiguities. Some strata schemes may permit short-term rentals under certain conditions, so it’s best to clarify these upfront. 
3. Ensure Adequate Insurance: Look into additional insurance policies that cover short-term rental activities to avoid potential liability gaps. This is particularly important if your strata scheme mandates insurance for short-term rental properties. 
4. Set Clear Expectations with Tenants: If you’re renting to tenants who may be interested in Airbnb arbitrage, include clear terms in the lease agreement regarding short-term rentals, outlining any building-specific restrictions, responsibilities, and consequences of non-compliance.

How we can help you 

We support property owners in navigating the evolving landscape of short-term rentals. Whether you’re considering listing on Airbnb or concerned about the impact of short-term rentals in your building, our strata managers can help you better understand by-laws, ensure compliance, and encourage clear communication within your building.

We are here to cultivate happier communities, so please do not hesitate to reach out with any questions on the topic of short term letting and Airbnb arbitrage.