Air BnB: What you need to know as a property owner
Short term accommodation options such as Airbnb and Book-a-Bach have seen many investors keen to get in on a booming industry. However, some Councils have passed legislation to introduce higher rates and tighter regulations and if you are considering purchasing a property or using your currently owned property for short term accommodation, there are legal implications you need to consider.
You may require a Resource Consent
If your property is in a residential zone, you may need to obtain a Resource Consent from the Council. The Council’s rules differ depending on the location and zoning of your property, and whether all or just part of the house will be rented out.
There are some Councils which do not require a Resource Consent for guest accommodation in residential zones if it is classed as a “bed and breakfast”. This means hosting a spare room in your house may be compliant, but hosting an entire house likely is not.
When granting a Resource Consent, the Council will look at the impact the short term accommodation has on the local community and will likely require written consent from your neighbours. You must also be able to show that you can minimise the effects of the Airbnb on your neighbours, and show a genuine strategic or operational need for short term accommodation that is not met by the areas specifically zoned for guest accommodation.
The cost to obtain a Resource Consent can be substantial. There may be further building code compliance costs, Council’s fees and additional fees if a neighbour does not give consent and you have to attend a hearing.
The designation of your property may change
If the primary use of your property changes from a residential use to that of guest accommodation, the Council may require you to complete building works to comply with the Building Act 2004 (such as increasing the fire prevention and detection measures). Your rates and insurance premiums may also increase due to your change in use and many local authorities are charging commercial rates for short term accommodation providers. Failure to notify the Council about a change of use can make you liable for fines and penalties.
Income earned from short term accommodation is taxable and we recommend that you seek advice from an Accountant before you consider using your property for this purpose. If this income is over $60,000 per annum, then you may be required to register for GST.
Your insurance and bank lending may be impacted
The insurance you have or will obtain over the property is likely to be residential. If you ever had to make a claim for damage caused by guests, your insurer may consider your use of the property as short term accommodation to be commercial and decline a claim. Although Airbnb has its own “Host Protection Insurance”, there are extensive exclusions. We recommend that you seek advice from your insurer to ensure you are appropriately covered.
If you require finance to fund the purchase, you may need to disclose your intended use to the bank. Although the bank may take this extra income stream into account, they may also have stricter lending criteria. If you do not notify your bank that you are using your property as short term accommodation you may be in breach of your mortgage.
Do you own a cross leased property, a property in a Body Corporate, or a property subject to covenants?
If your property is a cross lease title, unit title, or is subject to covenants, you likely have an obligation as an owner under the lease, Body Corporate Rules, and covenants respectively to give your neighbours “quiet enjoyment” of their land. If your guests do anything that interferes with your neighbour’s use of their property (for example, leaving rubbish around, parking in shared driveways, having loud parties) you may be in breach of these obligations.
Leases, Body Corporate rules, and covenants often have further requirements that the property is only used for a residential purpose and is complaint with all local government laws. It is arguable that using the property as an Airbnb is a commercial purpose and without a Resource Consent, would be in breach of Council bylaws. There can be financial and legal consequences for breaching these provisions.
Could you already be the owner of an Airbnb and not know it?
Airbnb does not necessarily verify that their hosts own the homes they are hosting from and you may have a tenant renting your property out as an Airbnb. We recommend clauses in any new tenancy agreement prohibiting temporary guest accommodation. Overseas, tech start-ups like BnbGuard are putting in place mechanisms to protect your assets by alerting you as soon as your property is listed on short term accommodation websites.
As you can see, there are a number of issues you need to consider. If you are considering purchasing a property for short term accommodation use or converting your existing property, we recommend that you obtain expert advice at your earliest opportunity.
The above information is of general nature only. You should contact our firm for advice relating to your specific circumstances.
About Chris Boivin
Chris is a Partner advising clients on a wide range of matters. He assists with both commercial, rural and residential property matters, as well as business transactions and asset planning.
About Callan Wilson
Callan joined Saunders Robinson Brown in 2018. He is a member of our Property Team.