Read this before you Airbnb
This article was first published in the 1st quarter 2018 edition of Personal Finance magazine.
The typical Airbnb host in South Africa earns R28 000 a year by sharing their space for 19 nights a year, according to a report released by the United States-based home-sharing platform in October 2017.
Of the 43 000 homes in South Africa listed on Airbnb, about 17 000 were in Cape Town, Airbnb’s Southern Africa regional market consultant Velma Corcoran was quoted as saying in November. She said the typical host in Cape Town made up to R43 400 a year by sharing his or her space for 32 nights a year.
Corcoran said that up to 52 percent of Airbnb hosts in Cape Town were using Airbnb to help them pay their bills so they could afford to stay in their homes. This trend was true of other areas in the country.
Like other digital-based disruptors (think: Uber), Airbnb has created a new way for people to earn an income, but they are doing so in a regulatory environment that assumes a rigid division between the business and personal spheres.
In May, Tshifhiwa Tshivhengwa, the chief executive of the Federated Hospitality Association of South Africa, said that Airbnb had created “unfair competition”, because informal accommodation providers “were not abiding by any laws or regulations”. He called on the government to intervene to ensure that the online platform became industry-compliant and regulated to safeguard the tourism sector.
Airbnb called Tshivhengwa’s comments “baseless allegations filed by lobby groups who want to avoid competition and protect their bottom line”. It said Airbnb was not an accommodation provider, but a platform that allowed hosts to advertise their property and connect with guests.
“We ask hosts to confirm that they comply with the laws that apply to them before they list their property on the platform,” Corcoran said.
The “terms of service” published on airbnb.com include a provision that requires hosts to warrant that a listing they post for, or a guest’s stay at, an accommodation “will (i) not breach any agreements you have entered into with any third parties, such as a homeowners’ association, condominium, or other agreements, and (ii) comply with all applicable laws (such as zoning laws), tax requirements, and other rules and regulations (including having all required permits, licences and registrations)”.
In South Africa, there is no law prohibiting short-term rentals in general, says law firm DKVG. However, each municipality has the power to create and enforce by-laws and zoning regulations to address the issue of short-term rentals. You, as a property owner, need to check whether it has such by-laws, and if so, what you need to do to comply with them.
Most sectional title schemes or homeowners’ associations have rules about rentals. You should check the rules of the scheme, or the constitution of the association, to see whether these rules are in your favour.
DKVG also advises that you check whether the developer or municipality imposed any conditions on your title deed that could prevent you from leasing your property on a short-term basis.
Cape Town case study
In 2009, the City of Cape Town drew up a comprehensive “Guest Accommodation Policy” that sets out the zoning and other requirements that govern all types of holiday accommodation, from camping sites to hotels.
The policy document distinguishes between a bed-and-breakfast establishment and a guesthouse as follows:
• A B&B is a dwelling or second dwelling in which the owner supplies lodging and meals for compensation to transient guests who have permanent residence elsewhere, provided that the primary use of the dwelling house remains for the living accommodation of a single family.
• A guesthouse is a dwelling house or second dwelling used for supplying lodging and meals for compensation to transient guests, in an establishment that exceeds the restrictions of a B&B establishment, and may include business meetings or training sessions for resident guests.
The City also regulates guest accommodation in terms of its Municipal Planning By-law of 2015. Although the accommodation policy and the by-law contain similar provisions, the by-law takes precedence over the policy, Brett Herron, the Mayoral Committee member for Transport and Urban Development, told Personal Finance.
To put the City’s approach in a nutshell, if you own a free-standing family home, you are permitted to operate a B&B without obtaining the prior consent of the City, subject to certain conditions (see below). But this is not the case if you own a flat.
“In terms of the by-law, an individual flat or block of flats cannot be used for holiday accommodation or hotel purposes. Any owner wishing to do short-term holiday letting from a flat or block of flats – irrespective of the platform facilitating such letting – must ensure that the property is appropriately zoned, and must apply for such use of that property to the City’s Development Management Department,” Herron says.
In terms of the by-law, the B&B concession applies to properties zoned as follows:
• Single residential conventional housing: areas that consist mainly of single-family houses in low- to medium-density neighbourhoods.
• Single residential incremental housing: informal settlements that are being upgraded.
• General residential sub-zoning 1 group housing: areas designed to encourage medium-density residential developments, but only if the property in this zone is a dwelling house that is not part of a group housing scheme.
• General residential sub-zonings: areas for higher-density residential developments, but only if the property in this zone is a dwelling house, not a flat.
• Local business: areas with a mix of residential dwellings and “low-impact” offices, and where “limited” retail activities are permitted.
Herron says the City’s development management scheme permits B&Bs to be run from single dwellings and second dwellings without permission, subject to compliance with conditions. Owners can apply to operate a guest house from a dwelling or second dwelling. “It is important to note that B&Bs and guesthouses can only operate from a dwelling house, not a block of flats.”
• The conditions that must be complied with include:
• The dominant use of the property remains a dwelling house to accommodate a single family;
• The proprietor lives on the property;
• Any new structure or alteration to the property to accommodate the B&B must be compatible with the residential character of the area, and capable of reverting to use as part of the dwelling house;
• No more than three employees are engaged;
• No more than three rooms per land unit are used for bedroom accommodation for paying guests or lodgers, and no more than six paying guests or lodgers are supplied with lodging or meals at any time;
• No alcoholic beverages are sold except to resident guests for consumption on the premises with meals;
• Guest rooms cannot be converted to, or used as, separate self-catering dwelling units;
• Meals may be supplied only to guests or lodgers who have lodging on the property, employees, and the family residing in the dwelling;
• No advertising sign can be displayed other than a single un-illuminated sign or notice not projecting over a public street, and the sign shall not exceed 0.5 square metres;
• Weddings, receptions, conferences, training or any similar activities are not permitted from a B&B establishment; and
• No activities shall be carried out that constitute, or are likely to constitute, a source of public nuisance.
B&Bs must also provide adequate on-site-parking, which are detailed in chapter 15 of the by-law.
Notwithstanding the “blanket” B&B concession, Herron says anyone who is contemplating operating “transient accommodation” should check with one of the City’s district planning offices that their property meets the zoning and any other requirements.
The application of the by-law seems clear in the case of someone who wants to operate an ongoing, formal B&B establishment. But do these requirements apply to owners who want to rent out their properties on an ad hoc basis, perhaps once or twice a year?
Herron’s responded: “The onus always remains on the landowner to ensure that he or she has obtained the necessary planning permission before using land or buildings for business purposes, irrespective the platform facilitating such business.”
Long before the advent of Airbnb, short-term letting was a bone of contention in sectional title schemes. Owner-residents complain that tenants who occupy flats over the holiday season tend to engage in anti-social behaviour, while absentee landlords are indifferent to their tenants flouting conduct rules. Another complaint is that the perpetual turnover of “short-stay” residents – and their visitors – compromises the security of the scheme.
Neither the Sectional Titles Act nor the Sectional Titles Schemes Management Act (STSMA) address short-term letting and it is, therefore, de facto permitted, says Marlon Shevelew, the director of Marlon Shevelew and Associates, a Cape Town-based law firm that specialises in property law.
However, the STSMA gives members of a body corporate the authority to make or amend conduct rules, which could include a restriction or prohibition on short-term renting or listing units on a platform such as Airbnb.
Conduct rules are created by the body corporate (note: not the trustees) adopting a special resolution, either by voting at a general meeting or by written agreement.
For a special resolution to be adopted at a meeting, a quorum of members of the body corporate must be present or represented by proxy. The quorum is based on the value of the members’ votes, which is calculated using the owners’ participation quotas. If a body corporate has less than four primary sections or members, two-thirds of the total value of the votes must be present or represented. In all other cases, the requirement is at least one-third of the total value of the votes. Note that any units registered in the name of the developer of the scheme or in the name of the body corporate must be excluded when calculating the value of votes required for the quorum.
The special resolution must be passed by at least 75 percent, calculated both in value and in number, of the votes of the members present or represented at the meeting.
Alternatively, a conduct rule can be created if 75 percent, calculated both in value and in number, of all members of the body corporate agree in writing to the resolution.
The conduct rule must be submitted to the Ombud for Community Schemes, who has to approve the rule for it to become binding.
Whether or not a body corporate limits or prohibits short-term letting, the STSMA states that “occupiers” (which includes short-term tenants) are bound by a scheme’s conduct rules. One of the prescribed management rules issued under the Act requires owners to ensure that tenants, including their guests and family members, comply with the rules.
Shevelew says the STSMA also requires owners to notify the body corporate whenever there is a change of the occupancy in their sections.
Guan Potgeiter, an attorney at law firm STBB, says homeowners’ associations are managed by an association or non-profit company. These associations or companies have their own conduct and management rules, and the scheme’s governance document will set out the voting procedures and percentages required to amend the rules.
Shevelew says the Rental Housing Act states that a copy of a scheme’s conduct rules must be attached as an annexure to a lease, and the landlord must ensure that the tenant receives a set of these rules. He advises owners to ensure that tenants agree to be bound by these rules before finalising their booking, because, in the event of non-compliance, the owner will be liable for any breaches, not the tenant.
Whether the property is freehold or part of a community scheme, he says it is imperative that owners listing properties on Airbnb draw up a detailed tenancy agreement that serves as a short-term lease. “This should make provision for deposit and payment terms, cancellation policies, breakages, and how the guest would deal with complaints. As with any ordinary residential property rental, the rights and responsibilities of both parties should be clearly and comprehensively delineated from the outset.”
If you’re a tenant who wants to sub-lease your property, you must first ensure that your lease agreement allows you to do so, or whether you are first required to obtain your landlord’s written authorisation, Shevelew says. If you don’t obtain permission, or if your lease expressly prohibits sub-letting, you will be committing a material breach of the lease by listing your property on Airbnb, and your landlord would be entitled to terminate your lease, which could have disastrous consequences if you, and your Airbnb guest, face eviction, he says.