Town planning limitations kick in when a property is offered for short-term accommodation for periods of time that could legally be considered to constitute a material change of use. Commentary suggests that if the property is in an area zoned ‘residential’ this requires development approval – a process that can take months and cost thousands of dollars, with no guarantee that the council concerned will approve the application. Penalties for making an unapproved material change of use of a property can run into hundreds of thousands of dollars. If the property is an apartment or townhouse on a community titles scheme, short-term letting will likely require permission from the body corporate, covering all facilities on common property, such as balconies and car parks. Under changing strata laws, body corporates may soon have powers to enact by-laws to prohibit lots within a scheme from offering short-term accommodation.
Sub-letting a leased property often requires consent from the landlord, who might well refuse. For the host - and their neighbours - allowing transitory visitors access to their property raises security concerns, as well as issues around damage and liability.
As for insurance, a host acquires commercial business status as soon as they enter into a rental agreement with a guest. According to Airbnb itself, 95% of Airbnb hosts carry either homeowner’s or renter’s insurance.
If damage occurs or the guest is injured (or is responsible for damage or injury to someone else on the property) during their stay, liability is normally specifically excluded by homeowners’ insurance policies, while landlord’s insurance generally applies to stays of longer than 90 days, according to CHOICE Australia.
In other words, Airbnb hosts who rely on their existing insurance policies could be in for a shock if they try to call on them in respect to their paying guests.
Who should bear liability? The reality is that Airbnb properties present an unappealing profile to insurers because the risk of damage to rental properties increases with high turnover of short-term tenants – the definitive characteristics of Airbnb letting. Other risk exposures include damage to property not belonging to the host and injury suffered by guests or caused to another party during the guests’ stay.
In contrast to the highly regulated hotel and accommodation industry, amateur hosting largely operates on a trust basis. In response to this need Airbnb has developed a number of measures in an attempt to address some of these issues. They include:
• A security deposit intended to cover accidents such as spills, breakages or a key not being returned • A host guarantee, which covers up to $1,000,000 for accidental damage but involves a number of exclusions such as cash, pets and common areas • Host protection insurance, which covers up to $1,000,000 in third-party claims for injury or property damage but doesn’t extend to every country where Airbnb operates and carries conditions, limitations and exclusions. Is this likely to be adequate? Potentially no. Without additional insurance there could be gaps in the Airbnb protection that won’t cover some kinds of damage – such as a wild party at the premises with more than 30 people, for example – and liability insurance won’t protect guests from their own negligence, or actions that amount to misadventure.
The Australian insurance industry is developing products to address the needs of short-term rental hosts but the hosts themselves have to be aware that they need it, and that failure to comply with regulatory requirements may void their policies.
The push back The Airbnb issue is topical to Tasmania, with the State Government under pressure to clamp down on Airbnb (and other short-stay accommodation services) to combat affordable housing issues. The most recent overview of housing data from the University of Tasmania highlighted that there were almost 2000 Airbnb listings for Greater Hobart in February 2018 – a 212% increase since July 2016. Meanwhile, the Australian Tax Office has also weighed in, initiating the process of comparing data from owners’ tax returns with records from the accommodation intermediaries. That could signal the agency invoking tax rules that apply to the “nature and purpose” of a property that generates income in order to impose capital gains tax on Airbnb hosts.
It may be quick and simple to become an Airbnb host, but it’s a lot harder to do it in a way that won’t rebound on the provider. Trust is only as reliable as the framework that supports it.
With thanks to THA’s endorsed insurance broker, Gallagher, for the insights in this article. If you need advice on insurance for your property or business, visit info.ajg.com.au/tasmania
August 2018 www.tha.asn.au
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