In brief - Check your insurance policy and local council planning laws
While Airbnb and other home sharing platforms are becoming increasingly popular, those planning to rent out their homes to short term tenants should consider their insurance arrangements and their local council's planning laws before taking the plunge.
What is Airbnb?
Airbnb is a home sharing platform that connects travellers and other people looking for accommodation with those looking to rent their homes or parts of them. Founded in 2008, Airbnb has now extended to over 34,000 cities in 192 countries and has been valued at approximately $10 billion. Airbnb now has numerous competitors in Australia and overseas, including HomeAway, VRBO, HotelTonight, FlipKey and VacationRentals.
Do you need to apply to your local council for development consent?
In Australia, the operation of short term holiday rentals was recently addressed in Dobrohotoff v Bennic  NSWLEC 61. In this case, neighbours complained about the disturbance caused by short term tenants in a residence owned by the respondent.
Her Honour Justice Pepper found that the use of a dwelling for the purpose of short term holiday rentals was effectively a separate and independent planning use, which required development consent under the Environmental Planning and Assessment Act (1979).
Therefore, those wishing to engage in the business of short term rentals through online home sharing platforms, such as Airbnb, should seek independent advice as to whether they are required to apply for consent from their local council in order to avoid significant fines.
Notify your insurance company
Insurance is another important consideration when deciding to rent out one's premises.
Following an incident in 2011, when an apartment sustained significant damage during a rental, Airbnb decided to implement a $50,000 guarantee for hosts to cover property damage. This "host guarantee" has subsequently been increased to $1 million since May 2012 and is offered free of charge.
Apart from securing property damage insurance, it is important for those wishing to rent their space to obtain adequate public liability insurance to cover unforseen incidents involving renters or their guests. An interesting example is the case of Panther v Pischedda (2013) NSWCA 236, in which the owner of a short term rental property was found liable for the driveway allegedly being too slippery. (Please see our earlier article about this case, Property owners who lease out their premises must be aware of slipping hazards.)
Although many people have home and contents insurance, most do not realise that in accordance with the Insurance Contracts Act 1984 (Cth), they are required to notify their insurer if there is any change in circumstances, such as a decision to offer their premises for short term rental. Failure to notify an insurer of a change in living conditions could be considered a breach of the contract and as such may void the policy.
Think before you click
Here are a few tips to follow before you rent out part of your home or your entire property:
- If you are a leaseholder, check your lease agreement to determine whether you are authorised to sublet.
- Check the local law relating to planning use.
- Talk to your insurer first and check whether you are covered for short term rentals.
- Thoroughly investigate the prospective guest's background.
- Check that fire alarms, appliances and gas connections are all certified.
Opportunity for insurers to innovate
At present, the Australian market has been slow to respond to the demand for tailored insurance products to cover peer-to-peer short term rentals. This is an opportunity for insurance companies to innovate and create niche insurance products to cover this ever growing phenomenon.
This article has been published by Colin Biggers & Paisley for information and education purposes only and is a general summary of the topic(s) presented. This article is not specific legal or financial advice. Please seek your own legal or financial advice for any questions you may have. All information contained in this article is subject to change. Colin Biggers & Paisley cannot be held responsible for any liability whatsoever, or for any loss howsoever arising from any reliance upon the contents of this article.