Body Corporate Matters - Does short-term letting of a residential sectional title unit amount to running a business?
Picture the scene...
You’ve recently bought an investment property. It’s a residential sectional title unit. You’ve renovated it, and it’s Pinterest-perfect. You go live on AirBnb and booking.com and get your first booking the very next day. The bookings keep flowing, as does your rental income. You have zero complaints from anyone at the scheme. Then, two months later, BOOM! A letter arrives from the managing agent. It tells you that you are illegally ‘running a business’ from your section and the trustees demand you stop short-term letting immediately. You’re confused because you checked the scheme’s rules before you bought the property and there is no restriction on short-term rentals. You also don’t see this as ‘running a business’ and don’t see the problem because, to your knowledge, your tenants have followed the rules and there have been no complaints.
Jennifer Paddock from Paddocks - The sectional title and home owners’ association specialists
Let’s face it, with sites like Airbnb, short-term letting is only growing in popularity. So, in this article I want to answer the question of whether short-term letting of a residential sectional title unit should be regarded as running a business.
This question was considered in the Community Schemes Ombud Service (“CSOS”) adjudication of Kim Pistor v Hillside Village Property Owners Association CSOS 0227/WC/18. In this adjudication, Advocate Dries du Toit found that it was wrong to regard short-term letting as ‘running a business’, because the unit in question was registered, zoned and used for residential purposes. For this, he relied on CG van der Merwe ‘Should short-term letting be allowed in sectional title schemes?’ 2018 Tydskrif vir die Suid-Afrikaanse Reg 508, who wrote at 515-516:
‘The Sectional Titles Schemes Management Act and the prescribed management rules stipulate that sections may be used only for their intended purpose. Does short-term letting for holiday purposes qualify as residential use or is it a commercial activity? Holidaymaker tenants are residing in the sections, and the use of a section for the provision of holiday accommodation can be considered to be ancillary to the main use of the residential property, namely to provide living-in accommodation. Short-term letting does not amount to change of use from residential to commercial use.’ (bolding added for emphasis)
In this same article, CG van der Merwe explores the application and interpretation of section 13(1)(g) of the Sectional Titles Schemes Management Act No. 8 of 2011, which provides that an owner must not use his section for a purpose other than the purpose for which the section is intended to be used, without the written consent of all owners. In his view, when considering a section with a residential zoning, section 13(1)(g) only applies in cases where a section is put to a commercial or professional use. He cites as an example Bonthuys v Scheepers (CA 303/2006)  ZAECHC 68 in which a unit owner was not allowed to turn her residential section into a hairdressing salon. He concludes that:
‘In the case of short-term letting, the owners are not letting out their units on short term for anything but residential use.’ (bolding added for emphasis)
Based on the above, my views are that letting of a residential sectional title unit on a short-term basis neither amounts to the running of a business, nor does it change the unit’s use from residential to commercial.
Article reference: Paddocks Press: Volume 17, Issue 8.
Jennifer Paddock is a dual-qualified lawyer with experience working as a strata title managing agent and solicitor in New South Wales. Prior to this, she served as a specialist sectional title attorney and practice manager at Paddocks for five and a half years. She brings a wealth of knowledge and expertise to the Paddocks team. Contact her at [email protected].
This article is published under the Creative Commons Attribution license.