Residential tenancies and the 'sharing economy'

The Victorian Supreme Court last week ruled on an appeal from a decision of the Victorian Civil and Administrative Tribunal (‘VCAT’) regarding the proper characterisation of an ‘Airbnb’ arrangement at property the subject of a residential tenancy. In the case of Swan v Uecker,[1] Croft J held that the Airbnb arrangement in question gave rise to a lease and as such breached the tenants’ duty under the tenancy agreement not to sub-let the property.

Although ruling in favour of the landlord, the Court noted the public interest in the case and made clear that the outcome of the appeal did not in any way bear upon the merits or legality of Airbnb arrangements generally. Nonetheless, the Court’s decision is important because it illustrates the intersection between the ‘sharing economy’ and residential tenancy law, and it is a decision that may have consequences for arrangements with facts similar to those before the Court.

The facts

The landlord owned a two bedroom apartment which she leased to two tenants in August last year. A few months later, the landlord discovered that the tenants had been making the apartment available on the popular accommodation website, Airbnb.

The apartment was subject to two separate listings on Airbnb, namely:

  • making the entire apartment available to guests at a rate of $200 per night; and
  • making only one bedroom available to guests at a rate of $102 per night.

The tenancy agreement expressly forbade sub-letting. Upon becoming aware that the tenants had made the apartment available on Airbnb without her consent, the landlord deemed the tenants in breach of the tenancy agreement and issued a notice to vacate under section 253 of the Residential Tenancies Act 1997 (Vic). That provision states:

‘Assignment or sub-letting without consent
(1) A landlord may give a tenant a notice to vacate rented premises if the tenant has assigned or sub‑let or purported to assign or sub-let the whole or any part of the premises without the landlord’s consent.
(2) The notice must specify a termination date that is not less than 14 days after the date on which the notice is given.’

When the tenants failed to vacate, the landlord applied to VCAT for an order for possession.

The Tribunal heard the landlord’s application for possession in March this year,[2] and found that the Airbnb arrangement in question did not give guests exclusive possession of the apartment; it conferred a licence to occupy rather than a lease. The Tribunal went on to dismiss the landlord’s application for possession on the basis the tenants had not sub-let the apartment.

On appeal

The landlord applied for leave to appeal to the Supreme Court. The Court granted leave to appeal on the basis there was a sufficiently arguable case being put by the landlord, and that the questions raised on appeal were of public importance. Having granted leave, the Court went on to consider the substantive appeal.

In approaching the issues on appeal, Croft J of the Supreme Court clarified that it was only the Airbnb arrangement for the occupation of the entire apartment, rather than the single bedroom, that was the subject of the appeal.

Lease or licence?

In addressing the question of characterisation of the particular Airbnb arrangement, Croft J held that ‘[i]t 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’.[3] His Honour quoted a passage from the decision of Mahoney JA in Lewis v Bell,[4] which included:

‘In deciding … 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’.[5]

Referring to this principle, Croft J held that the relevant ‘intention of the parties’ is to be ascertained ‘objectively on the basis of the terms of the particular agreement … and having regard to surrounding circumstances to the extent that is permissible according to the ordinary rules of construction’.[6]

The tenants submitted that the relevant ‘surrounding circumstances’ of the case were such that there was no exclusive right to possession and therefore no sub-lease. In doing so, the tenants drew an analogy between the Airbnb arrangement and occupancy by a guest at a hotel.

Substance over form

The Court rejected the tenants’ arguments, holding that the analogy to a hotel did not assist the tenants’ case. His Honour stated:

‘[T]he characterisation of an agreement … depends upon the proper construction of that agreement — looking to substance and not form — and having regard to relevant surrounding circumstances. This is not a process that can be transcended by drawing broad analogies with, for example, a hotel or various species of serviced apartments’.[7]

His Honour also stressed the importance of not characterising the arrangement by reference to the remedies available to an occupant; it would be to ‘invert the process of characterisation’ to identify the remedies available to an occupant and then work backwards to ascertain what the arrangement might best be characterised as under law.[8] In the present case, it was irrelevant to the question of the legal characterisation of the arrangement that the tenants could require the Airbnb guests to depart once their agreed period of occupation had ended. His Honour also held that ‘the practicality or otherwise of exercising such rights is not a matter that goes to the characterisation of the arrangement’.[9]

Moreover, it did not matter that the duration of occupancy under the Airbnb arrangement was only a few days at a time (the minimum stay was three nights, and the maximum five). His Honour cited authority for the proposition that a lease could arise even where the occupancy was for a matter of ‘days or even hours’.[10] What mattered was the quality of the occupancy.

In reference to the particular mechanics of the Airbnb website, Croft J held that it was immaterial to the characterisation of the arrangement that the Airbnb agreement was entered via an online booking system, and that the Airbnb advertisement did not identify the particular premises. His Honour also held that it was immaterial that the terms and conditions on the Airbnb website referred to an Airbnb host granting a ‘licence’ to a guest — the Court’s enquiry was to prioritise substance over form, and so the particular label given to the arrangement was not determinative. His Honour noted the absence of legal expressions or ‘legalese’ in the Airbnb terms and conditions, but held that:

‘[I]n characterising the effect of an agreement cast in commonplace terms, attention must be focused on substance, rather than the presence of absence of technical language which might commonly be found in more formal documents’.[11]

His Honour noted that the tenants had not led evidence at VCAT to support an argument that possession was otherwise than exclusive; there was no evidence about the ability of the tenants to access the apartment while Airbnb guests were staying. This went against VCAT’s finding, in the first instance, that there was a licence and not a lease in circumstances where the former does not afford exclusive possession.

Finally, his Honour found that the retention by the tenants of the apartment as their home or place of residence did not suggest that Airbnb guests could not have exclusive possession of the apartment. His Honour observed that ‘a person may grant a lease in respect of their principal place of residence — for example, when going away on an overseas holiday — in the same way that they can grant a licence in respect of that property’.[12]

In allowing the appeal, setting aside VCAT’s orders and granting possession to the landlord, the Court stressed the limits of its decision. His Honour stated:

‘[T]his 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 … which raises for determination … 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’.[13]

Conclusion

The decision in Swan v Uecker sets a precedent for a situation where offering an entire property for occupancy on Airbnb may give rise to a sub-lease and may breach the terms of a residential tenancy agreement. The Court stressed on a number of occasions the importance of identifying the legal characterisation of an arrangement by reference to its substance rather than its form. This was to be the case notwithstanding that the terms of the Airbnb arrangement referred to the occupancy as a ‘licence’.

As stated above, the appeal to the Supreme Court did not call into question the characterisation of an arrangement where only part of a property is made available. It follows that each living arrangement created under the ‘sharing economy’ of Airbnb or similar services should be scrutinised in light of its substance rather than its form, and on its own merits.


[1]: [2016] VSC 313.

[2]: Swan v Uecker (Residential Tenancies) [2016] VCAT 483.

[3]: [2016] VSC 313 [31]; see Radaich v Smith (1959) 101 CLR 209.

[4]: (1985) 1 NSWLR 731.

[5]: Ibid 735.

[6]: [2016] VSC 313 [31].

[7]: Ibid [40].

[8]: Ibid [41].

[9]: Ibid [43].

[10]: Ibid [42]; see Genco v Salter [2013] VSCA 365 [29] (Nettle JA).

[11]: [2016] VSC 313 [66].

[12]: Ibid [73].

[13]: Ibid [80] (emphasis added).