Fairway Island: the only strata community in Queensland that has banned short term letting

Six months ago a decision by a Magistrate was released which upheld the validity of a by-law that prohibited lots within its strata community from being let for one month or less. Our article on that decision is accessible here. 

The story caught the attention of every major news source in Queensland. The industry’s excitement over the possibility of this decision setting a precedent for all strata communities was placated by the realisation that the by-law applied to a body corporate that was not governed by the Body Corporate and Community Management Act 1997 (Qld) (the BCCMA), so it would only be of immediate assistance to a select few strata communities still governed by much older legislation.

It was not necessarily the fact that this decision was made that held everyone’s attention. It was the feeling of futility most were left with when they realised that a judicial decision-maker saw nothing unreasonable or oppressive in a by-law banning short term letting while the BCCMA did not provide the same sensible power to most bodies corporate in Queensland.

The Magistrate’s decision was appealed by the lot owners. I suspect most in the industry thought it was an anomaly to an otherwise consistent stream of decisions over the last ten years all holding that a by-law cannot restrict short term letting.

On 27 April 2020, His Honour Judge Barlow QC of the District Court of Queensland delivered his decision dismissing the lot owners’ appeal and upholding the validity of the by-law. This comes only two weeks after NSW legislation took effect allowing an owners corporation to prohibit most forms of short term letting by special resolution.

When will Queensland catch up?

The by-law

The by-law relevantly provided:

“…each proprietor shall not use or permit his lot to be used other than as a private residence of the proprietor or for accommodation of the proprietor’s guests and visitors. Notwithstanding the foregoing, the proprietor may rent out his lot from time to time provided that in no event shall any individual rental for a period of less than one (1) month.”

The by-law was made by one of those rare bodies corporate, Fairway Island, still governed by the Building Units and Group Titles Act 1980 (Qld) (BUGTA). 

Similar to the position under the BCCMA, a BUGTA body corporate has the power to make by-laws to regulate the use and enjoyment of a lot.

The fundamental focus for this body corporate was to impose restrictions on the use of lots in order to protect the special residential amenity of its community. 

At first instance, a referee (the BUGTA equivalent of a BCCMA adjudicator) simply found that the by-law offended a provision of BUGTA that provided that a by-law cannot prohibit or restrict a lease or other dealing with a lot. The referee followed the way that many other referees and adjudicators had applied the same provision in the BCCMA, such as in Washingtonia [2018] QBCCMCmr 256:

“…a by-law that purports to prevent a lot from being rented for a term of less than 6 months, or more than twice in one year to different tenants, would operate to ‘restrict’ a ‘lease’ of that lot.”

Fairway Island argued that the referee’s interpretation was wrong because short term letting did not amount to a ‘lease’ that would be protected by that provision. On 18 October 2019, the appeal tribunal, presided over by his Honour Magistrate Sinclair, agreed.

The District Court’s decision

The lot owners appealed the Magistrate’s decision to the Court of Appeal, who then remitted it for determination by the District Court of Queensland.

On 27 April 2020, His Honour Judge Barlow QC dismissed the appeal and upheld Magistrate Sinclair’s decision: Redman v The Proprietors – Fairway island GTP 107328 [2020] QDC 68.

If there is another appeal, it will be heard by Queensland’s Court of Appeal.

Why can’t BCCMA community titles schemes make the same by-law?

His Honour Judge Barlow QC said:

“I see no reason why, absent any restrictions imposed by other provisions in the Act, it would not entitle a body corporate to make a by-law that regulates a lot owner or occupier in undertaking a wide range of specified activities including, for example, installing a shed or a trampoline in a back yard, smoking or drinking alcohol in or around a lot, or perhaps even leasing or otherwise renting out or allowing the occupation of a lot other than by the owner and the owner’s (or its directors’) immediate family.”

The difficultly for BCCMA schemes is that section 180(3) does not allow a by-law to restrict the type of residential use that can be lawfully made of a lot. The BUGTA does not have the same restriction.

Judge Barlow QC found that:

“Short-term use of a house by holiday makers or other persons seeking short-term accommodation is different from longer term residential use, even though it may be difficult to draw a clear dividing line. In its ordinary meaning, to use a building for a residential purpose does not include using it for the purpose of letting it out to others (and those others using it) for holidays or other temporary accommodation.”

His Honour could look at the ordinary meaning of those words because they were not defined in the BUGTA or the by-laws. That is different to the approach taken by the Queensland Civil and Administrative Tribunal (QCAT) in Body Corporate for Hilton Park v Robertson [2018] QCATA 168, where it was held that the legislature had intended that the term ‘residential’ under the BCCMA would include holiday letting and/or short term accommodation. 

There is another interesting point of difference between Fairway Island and Hilton Park.

In substantially the same way, section 180(4) of the BCCMA and section 30(6) of the BUGTA provide that a by-law cannot restrict a dealing with a lot.

In the Fairway Island decisions, the appellate tribunal and court found that holiday letting is not a lease (a form of a dealing), and that a by-law does not restrict a lease if it is simply imposing conditions on a lease. 

In Hilton Park, QCAT found that holiday letting is a form of a lease, and that imposing a restriction on holiday letting would contravene section 180(4) of the BCCMA.

In Fairway Island, it was successfully argued that a ‘dealing’ is a type of transaction effected by registration under the Land Title Act 1994 (Qld), a short-term letting arrangement is not registrable, and the by-law only imposes conditions on, but does not prevent, possible dealings. The reasons in Hilton Park do not reveal these same arguments being put to QCAT. 

A court and a tribunal can hardly be criticised for not agreeing with an argument not put before it. 

But a fresh perspective on whether short term letting is a lease will not overcome whether short term accommodation is a type of residential use that a by-law restricts or prohibits. That is the challenge for BCCMA schemes.

Where to from here?

When I last wrote about the Fairway Island decision handed down by the appeal tribunal constituted by Magistrate Sinclair (accessible here), it was met by a wave of articles and commentary from other law firms calling it irrelevant to BCCMA schemes and saying it will not have any impact on the wider strata industry in Queensland. 

Most would have advised Fairway Island that it would be futile to make a by-law restricting short term letting because a referee would invalidate it, as referees and adjudicators had already done in numerous prior decisions on the belief that it would amount to a restriction on a lease.[1] In my view, the District Court’s decision in Fairway Island has authoritatively determined at short term letting is not a ‘lease’ or a ‘dealing’ for the purposes of section 30(6) of the BUGTA, and this should be applied by adjudicators interpreting section 180(4) of the BCCMA because the commonalities of these provisions has already been noted and relied upon.[2]

While it may be convenient to dismiss the Fairway Island decisions as being irrelevant because they do not deal with the BCCMA, the same could have been said about O’Connor v Proprietors, Strata Plan No 51 [2018] 4 WLR 22 where the Privy Council upheld the validity of a short-term letting by-law made in the Turks and Caicos Islands as a means of protecting residential use within a condominium development. The O’Connor decision inspired the arguments led for Fairway Island.

The law is fluid. Those who practice in the law must also be fluid. If circumstances do not arise within BCCMA communities to see a challenge to the conventional thinking laid out in Hilton Park, then legislative change is required.

In early April 2020, legislative change occurred in New South Wales that allows an owners corporation to pass a special resolution to restrict forms of short term lettings within their strata community. 

Short term letting, Air Bnb, holiday making – however else we wish to describe it – is a serious concern within strata communities that predominately consist of lots used for a long-term residential purpose. Hitherto, the conventional thinking has been that bodies corporate should simply enforce by-laws to address the nuisance short term letting can cause to the rest of the community when the problems arise, and that it is unreasonable of them to make by-laws based on ‘hypothetical’ concerns.

His Honour Magistrate Sinclair made these helpful comments on the topic in his decision that the District Court upheld on appeal:

“It appears to me that BUGTA intended to allow the BC to pass by-laws to protect lot owners from even a hypothetical nuisance of the occupier of a lot. They need not wait until a marching band starts rehearsals at midnight in one lot to ban such an activity. The requirement to get approval for a pet is a standard by-law. This is based on no evidence whatsoever that any particular animal is a problem but on the potential for one to be….

…Regulation is not just about stopping proven past behaviours from repeating but also about preventing anticipated breaches based on experience elsewhere or common sense. Likewise regulations need not be limited to just preventing certain noise during certain hours but may in principle act to eliminate the source of some potential problems altogether. The response must be appropriate but there is no need to wait until a problem has actually manifested before addressing it.”

The Fairway Island decisions do much more than deal with the validity of a by-law restricting short term letting. The arguments ventilated within this litigation and the detailed reasoning of Magistrate Sinclair and Judge Barlow QC reveal the core purpose of by-laws: to enable bodies corporate to regulate activities within their strata community to enhance the use and enjoyment of the properties in that community.

If the proper interpretation of the BCCMA is that a strata community that predominately consists of long term residents cannot make a by-law to stop a small handful of lots from being used for short term letting, then the legislation needs to change.

About the author

Jason Carlson is a partner of Grace Lawyers and oversees the firm’s Queensland practice. He is also on the board of directors of Strata Community Association (Qld), the peak industry body for strata. SCA (Qld) continues to advocate for immediate reform to Queensland’s strata industry.

Grace Lawyers is pleased to have acted for Fairway Island throughout the course of this litigation.  You can learn more about our unique approach to strata law here.

Footnotes

[1] Noosa Close [2007] QBCCMCmr 612, First Avenue Mooloolaba [2011] QBCCMCmr 241, Lynkim Lodge [2016] QBCCMCmr 419, Pinnacles Whitsunday [2017] QBCCMCmr 582 and Washingtonia [2018] QBCCMCmr 256. The same interpretation was applied in NSW: Estens v Owners Corporation SP11825 [2017] NSWCATCD 52. 

[2] Washingtonia [2018] QBCCMCmr 256 at [25].