Airbnb and the NSW Mortgage Enforcement Process

  • 18 Jul 2016

Only recently Airbnb has hit and begun spreading on Australian soil, following other sharing economy platforms such as the likes of Uber and Lyft. The growing popularity of Airbnb represents the beginning of a significant shift in the way that the lodging market may develop in the years to come, but how compatible is current mortgage enforcement law with this new way of lodging?

Airbnb in a nutshell is a website and app platform that connects hosts and guests to arrange for a place to stay. It has a system simplicity and user interface that often enables lodging to be booked quicker, easier and cheaper than most hotels. Being able to see photos of the exact place you could be staying, reading reviews, seeing it on a map, and having the ability to message with the owner who often can suggest interesting and fun things to do in the area, all make Airbnb a much more personal experience than the formal hotel setting.

A recent decision in the Supreme Court of Victoria of Swan v Uecker held that tenants who hosted Airbnb guests in their rented apartment while off on their own holiday constituted the granting of exclusive possession for a period of time and this, taking into consideration the surrounding circumstances, constituted a lease as opposed to a licence. This was despite the explicit reference in the Airbnb agreement to the host/guest arrangement being a ‘licence’, this was “no more than a label”.  The Court did not consider the instance of renting a single room to the Airbnb guests.

Enforcement Problems with Airbnb Tenancies

The standard mortgage enforcement process generally involves obtaining a Judgment against a defaulting owner which is enforced by the execution of a Writ of Possession. The Sheriff executes the Writ after giving the defaulting owner time to vacate the property. Where the property is tenanted, the current process requires tenants to be informed at least twice of the impending enforcement action.

In NSW, notice of the Court proceedings must be provided to all occupiers of the mortgaged premises and they must be allowed 10 days, within which to apply to be joined to the proceedings to defend occupation of the property.  Once given notice of the mortgagee’s intentions, and without any extra-ordinary rights to assert, a tenant is no longer entitled to remain in the mortgaged property and must leave when the Sheriff arrives.

Whilst this deals with the existence of tenancies generally, it is apparent that the existence of short term Airbnb ‘tenancies’ presents an inconsistency with the intentions behind the requirement to give notice to an occupier. Keep in mind that, evidenced from statistics Airbnb has posted on their website, the average Airbnb stay lasts less than a week.

How is a tenant supposed to react when served with a Sheriff’s notice to vacate relating to the property they paid good money for and in good faith? Or more importantly, what rights does an Airbnb tenant have who missed receiving a notice to vacate and is forced to leave mid-holiday by the Sheriff?

The possibilities may seem farfetched today, but with the rapid growth of Airbnb and similar services, these possibilities may become more and more realistic. Airbnb provides an additional potential disruption to a smooth enforcement process and will call into question the rights of the short term ‘tenant’. Finding oneself between a rock and a hard place with Airbnb and other similar sharing economy platforms can be daunting given the current legal grey areas. If you find yourself in need of any assistance in respect of these issues, Hicksons will be able to help.

The current NSW mortgage enforcement procedure does appear to be in a better position than Victoria in terms of practically adapting to the challenges that Airbnb presents, however it is not without its own challenges. Just as all law must reflect solutions for the challenges of its time, sharing economy platforms will continue to grow, and the legal system must adapt to these challenges in order to maintain practical efficiency and effectiveness.

Post by Jack Guthrie and Cindy Shum 

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